After three marathon meetings and an abrupt change of direction, a City Council committee voted on Tuesday to endorse the proposed budget for fiscal year 2022, even as two of the three members indicated that they will likely vote against it when it comes to the full council on June 21.

In a peculiar proceeding that sets the stage for a philosophical clash next month, the Finance Committee voted 2-1 to recommend approving City Manager Ed Shikada's proposed budget for fiscal year 2022 and to restore most of the service cuts and many of the staffing reductions that Shikada had initially proposed. And in response to last week's direction from the City Council, the Finance Committee also approved a plan to use funds from park impact fees and from the Stanford University Medical Center development agreement to support the rehabilitation of the Roth Building, a city-owned facility on Homer Avenue that is viewed as the future home of the Palo Alto Museum.

But in an ironic twist, both members who voted to support the motion on Tuesday — Chair Alison Cormack and council member Eric Filseth — suggested that they may vote against the spending plan next month, when the full council deliberates it. Vice Mayor Pat Burt dissented after questioning some of the wording in the proposed motion, even though the latest rendition of the budget is largely aligned with his plan to spend more and cut less in the next year than was initially intended.

The split vote largely reflects the council's division over the budget, which includes a $205 million general fund. Three council members — Cormack, Filseth and Greg Tanaka — favor a more conservative approach, which includes using no more than 50% of the city's allocation from American Rescue Plan Act allocation in fiscal year 2022, which begins on July 1, and saving the rest until the following year. They have also resisted calls to invest this year in the Roth Building, citing economic uncertainty and the need for more belt-tightening.

Burt has been more bullish about Palo Alto's economic recovery. Over the three meetings, he has argued that the city should not only reverse many of the cuts in Shikada's proposed budget but restore many of the services that were slashed last year, when the council reacted to a precipitous decline in sales- and hotel-tax revenues by cutting about $40 million from the city budget. Burt also urged his colleagues to use 60% from the city's $13.7 million allocation from the American Rescue Plan in the current year and to rely on other revenue sources, including the city's $35 million fiber fund and its budget stabilization reserve, to bridge the funding gap in the coming year.

While Burt represents the minority view on the three-member Finance Committee, he has the upper hand on the full council, where his position is largely shared by three of his council colleagues: Mayor Tom DuBois and council members Lydia Kou and Greer Stone.

On May 17, the council voted 4-3 to direct the Finance Committee to cobble together the spending plan for the Roth Building and to tap into a larger share of the federal funds than the committee had initially recommended — an unusual move given that it's usually the committee that guides the council, not the other way around. The council also agreed to withdraw an additional $2.5 million from the budget stabilization reserve, bringing the reserve to about 17% of the city's annual expenses — slightly below the 18.5% target initially proposed by budget staff.

On Tuesday, the committee complied with this direction, even as both Cormack and Filseth made it clear that they don't agree with it. While Burt said he was optimistic about the city's economic recovery and cited examples from past downturns, Filseth pointed to structural problems in the city's budget projections: namely, the fact that expenses are projected to grow much faster than revenues. Given the unsustainable long-term trends, there is a significant risk, Filseth said, that the city will be "raiding the fiber fund and the TOT (transient-occupancy tax) and everything else in sight in order to pay for basic city services."

"How can you vote on a budget where expenses exceed revenues every year out into the future?" Filseth asked, just reluctantly voting to support the budget. "On the other hand, what are we going to change if we reject this whole thing?"

Cormack also favored a more fiscally conservative approach and suggested that it is important for the city to "keep some money set aside."

"We don't know what will happen and we don't know what we'll want to restore," Cormack said.

Burt agreed that a complete recovery from the economic downturn will take some time but suggested that the city will see a "bump" this year that will be "more than we're anticipating." He also noted that the city still plans to move ahead with a business tax, a proposal that the council was moving ahead with when it was derailed by the COVID-19 pandemic. While the details of the tax proposal remain uncertain, Burt said that if the city's business tax is similar to the one in East Palo Alto, it would net about $30 million in annual revenues.

"Every time we're in a severe downturn, there is an assumption we'll never recover. … My anticipation is that we're going to be recovering," Burt said.

While Burt questioned the wording in the motion crafted by Cormack and Filseth, including its reference to "defunding" proposed improvements to Rinconada Park to help pay for the Roth Building, he expressed support for investing more city funds in the rehabilitation project.

The council's recent about-face on the Roth Building also pleased supporters of the museum project, who have invested about $1.8 million into plans and designs and who have already obtained a building permit and secured a contracting firm to rehabilitate the structure.

Architect John Northway, who serves on the Palo Alto Museum board of directors, said that if the city doesn't accomplish the rehabilitation of the Roth Building under the current permit, costs will likely escalate and the project will only become more difficult to complete.

"This is the fastest and most economical path toward rehabilitation of that building," Northway said. "It is important to preserve this civic infrastructure treasure for the community."

Rich Green, president of Palo Alto Museum, called the council's vote on May 17 to direct the Finance Committee to identify funding for the Roth Building rehabilitation a "moment of courage in leadership."

"The building is shovel ready. It's in serious need of attention. It's a one-time expense — one year and done," Green said. "We can have the doors open in the summer (of) 2022."