FEBRUARY 24, 2025 www.cityofpaloalto.org/budget
CITY COUNCIL
FY 2025 MID-YEAR
BUDGET REVIEW
City Council, Item #9
1 2
MID-YEAR BUDGET REVIEW OVERVIEW
• Expenses tracking 15.6% higher than FY 2024, but within budgeted levels at 44.8% • In alignment with the FY 2026-2035 Long-Range Financial Forecast (LRFF), overall General Fund revenue is in-line with the budget, but adjustments are recommended to align major tax categories, especially sales tax decline. • Citywide vacancy level at 11.5% compared to 13% in FY 2024 • Recommendations for urgent/high priority needs, revenue supported program activities, and technical adjustments
• Net addition of 1.0 FTE
• Address staffing at Fire Station 4; fund repairs at the golf course; and increase customer service staffing at the Palo Alto Junior Museum and Zoo (JMZ) • Reserve one-time funds to address near term projected deficits identified in the LRFF 3 RECOMMENDED FIRE STATION 4 STAFFING
Near-Term Recommendation
• Adds fire engine to current ambulance at Fire Station 4 • Adds one additional person, on overtime, to three shifts • Cross-staffing model will staff both the fire engine and the ambulance, consistent with pre-COVID staffing at Fire Station 4 • Puts one of PAFD’s two reserve engines into service
• Timeline of 30-60 days while longer-term staffing and funding decisions continue Longer-Term Plan
• Staffing strategies presented to the Finance Committee in Fall 2024 will be reviewed in April 2025 and recommendations incorporated into the FY 2026 budget process • Purchase a fire engine to maintain City’s fleet
4 FY 2025 MID-YEAR GENERAL FUND ACTIONS
General Fund Revenue and Expense Adjustments Net
Revenue/(Cost)
Operating Revenue Adjustments
Utility Equity Transfer FY24 True-Up ($0.9M) & Paramedic Transport Revenue ($0.6M) $1.5M Utility Equity Transfer Case (Net-Neutral Action)
($3.1M for third round of settlement, offset by $3.1M from Reserve) $0.0M City Council Approved Actions
FY24 Excess BSR to Uncertainty Reserve ($5.9M) and Capital Improvement Fund ($3.0M) ($8.9M) Operating Expense Adjustments
Public Safety Services ($0.7M); Electric Sales to the City ($0.4M); Community Services ($0.1M); Purchasing Staff Reclassification ($0.1M savings)
($1.1M)
Major Sales Tax Revenue & Investment Earnings
(Property Tax, Sales Tax, Utility Users Tax, Transient Occupancy Tax, Documentary Transfer Tax) ($0.6M) Total Adjustments (Net zero FTE change) ($9.1M)*
* Use of $8.9M from BSR represents distribution of FY 2024 fund balance; BSR at 18.4%, $0.4 M below the 18.5% target 5 FISCAL YEAR 2025 GENERAL FUND RESERVES STATUS
Year-End BSR Summary (in millions)
General Fund BSR Balance, January 2025 $63.1
FY 2025 Mid-Year Adjustments Net Total ($9.1)
+$0.9M Operating Revenue partially offset by Major Tax Revenues ($8.9M) FY 2024 excess to Uncertainty Reserve & Capital Fund ($1.1M) in Recommended Funding & other technical adjustments Projected FY 2025 BSR Balance, June 30, 2025 $54.0
Council 18.5% target =
$54.4M
Current BSR of $54.0M at
18.4%
2026-2035 LRFF Estimates
FY 2026 deficit of $12.0M
FY 2027 deficit of $7.9M
Uncertainty Reserve (in millions)
Uncertainty Reserve Balance $6.1
FY 2025 Mid-Year Adjustments for future deficits $5.9
Projected Uncertainty Reserve Balance, June 30, 2025 $12.0 6 TECHNICAL ADJUSTMENTS – OTHER FUNDS
Enterprise Funds
• Electric Fund - Revise budget allocations for electricity usage across City departments - Reclassify Contracts Administrator to Senior Buyer
Internal Service Funds
• General Benefits Fund - Refund of allocated charges paid from non-General Fund funds in prior years to align with the FY 2025 General Fund refund • General Liabilities Fund - Supplemental funding for property loss insurance premiums Special Revenue Funds
• University Avenue & California Avenue Parking Funds - Enhanced cleaning services • Gas Tax Fund - Reduced funding for Street Maintenance capital project (PE-86070) 7 NEXT STEPS
7 May
• FY 2026 Proposed Operating and
Capital Budgets Published
• FY 2026 Proposed Budget Review,
including Utility Rates, Municipal
Fees, and Five-Year Capital
Improvement Plan
June
• FY 2025 3rd Quarter Fiscal
Analysis Report
• Adopt FY 2026 Operating &
Capital Budgets, Utility
Rates, and Municipal Fees
March - April
UAC & Finance Committee
• Utility Financial Plans and FY 2026
Rate Recommendations (Electric,
Fiber, Gas, Refuse, Stormwater,
Wastewater, Water)
March April May June
Staff Work: Development and production of FY 2026
Proposed Budgets and Municipal Fee Adjustments
March-April
Finance Committee
• PDS Fee Study
• Citywide Municipal Fee
Study
• Fire Services (follow-up
from Fall 2024)
8 RECOMMENDED ACTION
Staff recommends that the City Council:
• Approve amendments to the Fiscal Year 2025 Budget Appropriation for various funds and various capital projects, as identified in Attachment A, Exhibit 1 and 2 (requires a supermajority, 2/3 approval);
• Approve amendments to the FY 2025 Table of Organization consistent with the budget amendments in Attachment A, adding 1.00 FTE Senior Buyer and 1.00 FTE Program Assistant I and eliminating 1.00 FTE Contract Administrator; and • Authorize an overstrength 1.00 FTE Fire Captain position.
Paul Harper
Budget Manager
[email protected]
Lauren Lai
Administrative Services Director / CFO
[email protected]