Just two weeks ago, Palo Alto's financial picture was looking grim and the City Council was staring at the prospect of a second consecutive year of budget cuts and service reductions.

On Monday night, however, council members sounded a more optimistic note as they moved to overturn most of budget cuts that City Manager Ed Shikada included in his proposed budget for fiscal year 2022 — a list that included the closure of three neighborhood libraries, elimination of five police officer positions and reduced support for popular community institutions such as the Palo Alto Art Center and the Children's Theatre. Instead, the council took a decidedly bullish approach Monday as it voted to not only reverse the proposed budget cuts but to also increase funding for nonprofits that provide social services and to boost a project that has been stuck in limbo for over a decade: the restoration of the Roth Building at 300 Homer Ave.

In a wide-ranging debate that featured a series of 4-3 votes, the council agreed to spend more and cut less. To avert the cuts that Shikada included in his proposed budget, the four members in the council majority opted to use about 60% of the city's $13.7 million allocation from the American Rescue Plan Act in 2022, leaving the remainder for 2023. By the same vote, the council agreed to tap into fees from the Stanford University Medical Center development agreement and impact fees to refurbish the Roth Building, which has long been envisioned as the future home of the Palo Alto Museum.

On both decisions, the council split into two camps: those advocating for more spending in 2022 and those favoring a more conservative approach. The former camp, which included Mayor Tom DuBois, Vice Mayor Pat Burt and council members Lydia Kou and Greer Stone, prevailed. It helped their case that city staff had recently increased its revenue projections for the current fiscal year by between $2 million and $3.3 million because of a recent uptick in revenues from sales- and document-transfer tax receipts.

"We started getting positive news," said DuBois, who supported using 60% of the federal stimulus funds in fiscal year 2022, which begins on July 1. "We got more federal funds, we got more tax revenue, more vaccines — to the point where we have a surplus of vaccines, and we saw a really rapid economic growth in the country this last quarter.

"We're still cobbling together a lot of sources, including union concessions, to make this work, but I'm hopping we're getting to a better balance."

In providing its budget recommendations, the council went well beyond the more conservative recommendations of its Finance Committee, which voted last week to recommend a 50-50 split between this year and next year in federal stimulus allocations. The two council members who supported the more cautious approach on the Finance Committee — Alison Cormack and Eric Filseth — found themselves in the minority on the full council. Burt, whose attempts to restore more services during the Finance Committee hearings were rebuffed by Cormack and Filseth, now found himself part of the council majority, which favored using additional funding from the city's Budget Stabilization Reserve and from federal grants in the coming months.

"Do we need to be ultraconservative? I don't think so," Burt said. "I think we need to be cautious."

Cormack, Filseth and Tanaka took a less sanguine view of the city's economic conditions and suggested that more belt-tightening might be in order. Tanaka suggested re-evaluating and possibly reducing the number of managers in the city's organization. Filseth observed that many of the recent revenue sources — including the federal stimulus funds — are one-time deals, while the city's growing expenses are a structural problem that would still need to be addressed.

"It looks like we're going to have a happy year this year because of federal money but unless we get a bunch more money, we're going to see a significant decline in revenue, but expenses will keep going up," Filseth said.

Cormack agreed and said she wouldn't be comfortable spending more than 50% of the city's allocations in the first year.

"I feel strongly that we have to hold the line and set some of this money aside," Cormack said.

The council similarly split over the renovation of the Roth Building, a $12.3-million project that has been in the planning phase for roughly two decades and that has been chronically plagued by inconsistent council direction and funding shortages.

Rich Green, president of Palo Alto Museum, emphasized Monday that the project is "shovel-ready" and that it would bring significant benefits to the community, including meeting spaces, a new bathroom for Heritage Park, space for the city's historic archives and a museum that celebrates the city's past.

"We’d like the council to reconsider the museum’s lease on that building so that together we can rehabilitate this amazing building and turn it into a tremendous community asset," Green said.

The council voted 4-3 to direct its Finance Committee to find a way to fund the Roth Building through a combination of Stanford funds and impact fees. By the same vote, with Cormack, Filseth and Tanaka dissenting, the council also supported including in the city's capital improvement plan the completion of the Charleston-Arastradero streetscape project. At prior meetings, council members had supported splitting the remaining portion of the project into two phases and deferring the second phase to future years.

Much like at prior meetings on the city budget, the council heard from residents who opposed the cuts in Shikada's budget. Some urged the council to restore funding for Children's Theatre or Art Center. Others, including Eileen Kim, called on members to rethink its proposal to slash in half the number of crossing guards at local intersections. Kim noted that some of the crossing guards are stationed at multilane streets with large traffic volumes, including Alma Street, Embarcadero Road and El Camino Real.

"These roads are fully covered currently by crossing guards and they make an essential decision in helping parents to decide whether to allow their students to walk or bike to school," Kim said.