May 5, 2025 www.paloalto.gov/budget
FY 2026 PROPOSED
OPERATING AND
CAPITAL BUDGETS
1 www.paloalto.gov/budget
• Budget Conversations & Calendar
• City Vision & Council Priorities
• Economic Outlook & Budget Highlights
• Citywide Budget Overview
• General Fund Budget Overview
• Capital Budget and 5-Year Capital Improvement Program • Utility Funds
• Finance Committee & Community Conversations
AGENDA OVERVIEW
2 BUDGET CONVERSATIONS & CALENDAR
3 MAY 5 MAY 6 & 7 MAY 12 MAY 20 JUNE 10 JUNE 16
Finance Committee Budget
Workshops:
Review the proposed
budgets and recommend
amendment(s)
Study Session City Council:
Finance Committee check-in
with the City Council
Non-Profit Partnerships Workplan:
May 9 – Proposal deadline
June 10 - P&S review & recommend awards
June 16 - Council budget adoption includes
funding appropriation and grantees
City Council: FY 2026 Proposed
Budget Overview:
Discuss guidance for Finance
Committee colleagues
City Council Budget
Adoption:
Adopt Operating & Capital
budgets (as amended by
the Finance Committee)
Finance Committee Budget Wrap-up:
Based on the input from the May
budget meetings, recommend final
adjustment(s) to proposed budgets
for Council adoption
www.paloalto.gov/councilpriorities 4
Vision
The government of the City of Palo Alto
exists to promote and sustain a superior
quality of life in Palo Alto. In partnership
with our community, our goal is to
deliver cost-effective services in a
personal, responsive and innovative
manner.
CITY VISION AND COUNCIL PRIORITIES
www.paloalto.gov/budget
ECONOMIC OUTLOOK
• Economic uncertainty, stagnation
• Tariff, inflation, supply chain disruptions
• Federal administration
FY 2026 BUDGET
• Conservative approach
• Balanced budget
• Strong fiscal management to preserve valued & innovative services • Raise revenues through updated rates and fees
• Strategic preparation for range of economic conditions. 5 www.paloalto.gov/budget
• Operating budget totals $1.0 billion ($312.5 million in General Fund) • Capital budget totals $316.2 million in FY 2026 and $1.18 billion over the five-year Capital Improvement Program (CIP)
• Second year of two-year strategy using one-time funds to balance FY 2026 shortfall with Uncertainty Reserve.
• Limited service investments and Council Priorities continue valued and innovative services, especially support public safety and utilities.
PROPOSED BUDGET OVERVIEW
6 Use of one-time funding
• $12.0M Uncertainty Reserve recommended to:
• Offset FY 2026 deficit and fully appropriates the balance. • Maintain Budget Stabilization Reserve (BSR) at $54.0M or 17.3%, within 15% to 20% range, and below 18.5% target by $3.8M.
Labor Agreements: The SEIU new contract is effective March 2025 to December 2027.
All other labor agreements expire in June 2025, and negotiations are underway.
Capital Investments: Base transfer to Capital Improvement Fund ($18.3M in FY26)(Total $32.6M: Base $17.2M, Interest $1.1M, TOT $14.3M) resume pre-pandemic levels as planned starting with the 2023-27 CIP
City's Pension & Other Post-Employment Benefits (OPEB): Proactive funding of long- term liabilities (pension and retiree medical) to accelerate funding target, reduce cost and liability, and enhance fiscal stability.
CITYWIDE BUDGET STRATEGIES
7 CAUTIOUS ASSUMPTIONS
8 REVENUES
• Cautious
assumptions
• Property Tax
• Sales Tax
• TOT
• UUT
• Charges for
Service (updated)
EXPENDITURES
• Maintain vacancy
assumption at 5%
• Limited
investments in
services &
Council priorities
RISK
MITIGATION
• Budget
Stabilization
Reserve
• Prefund Liabilities
• Infrastructure
Investments
ALL FUNDS SOURCES & EXPENSES
9 FY 2026 Sources $1.0 Billion FY 2026 Expenses $1.0 Billion
HISTORICAL FULL-TIME STAFFING COMPARISON
1,104 FTE Citywide
608 FTE GF
+12 FTE all funds
Great Recession
10Pandemic
GENERAL FUND SOURCES & EXPENSESE
11 FY 2026 GF Revenues $312.5 Million FY 2026 GF Expenditures $312.5M
MULTI-YEAR GENERAL FUND BALANCING
• Measured approach to ongoing costs with limited one-time surpluses • Preserve valued and innovative services to the community. • Risk mitigation strategies (17.3% budget stabilization reserve in FY26 and prefund liabilities) • Reflects economic stagnation as outlined in the FY 2026-2035 Long Range Financial Forecast. • Current actions to control costs, anticipate FY 2024 savings to partially offset FY 2027 shortfall. 12 ($ in millions) FY 2025 FY 2026 FY 2027
Use of Uncertainty Reserve ($6.1) ($12.0) $0
Use of BSR and DSD Reserve* ($2.6) $0 $0
Net Operating Margin $0 $0 ($9.6)
* $2.6M from BSR to increase Uncertainty Reserve to offset anticipated FY26 shortfall. 13 GENERAL FUND REVENUES – MAJOR TAXES
$51
$57 $59
$63
$66 $68
$74
$31 $29
$33
$37 $37 $36 $36
$19
$5
$17
$25 $28 $28 $29
$16
$15
$16 $19 $19 $21 $21
$7
$11
$12 $6 $7 $9 $9
$5 $5 $6 $0
$10
$20
$30
$40
$50
$60
$70
$80
2020
Actual
2021
Actual
2022
Actual
2023
Actual
2024
Actual
2025
Adjust
2026
Budget
MILLIONS
Property Tax Sales Tax TOT UUT DDT Business Tax
46%
14 • FY26 Proposed Budget reduces $95.3M
(8.5%) from prior year – primarily due to
CIP completed projects.
• Adds 12.25 full-time equivalent (or 1.1%
increase) staff supporting high-quality
services and Council Priorities.
FY 2026 PROPOSED BUDGET INVESTMENTS
15 Public Safety CSA
• Upstaffing Fire Engine 64 at Fire Station #4 with cross- staffing, brings firefighting capacity from 5 to 6 stations. • Enhancing organizational resilience – add Police recruit hire ahead, uses SUMC funding for Psychiatric
Emergency Response Team (PERT).
• Funding police and fire equipment and vehicles.
Community & Library Services CSA
• Continued extended hours & days for library
branches and programming
• Resources for Art Center rentals, Public Art Program, children & teen programs, therapeutic recreation
resources and summer camps.
FY 2026 PROPOSED BUDGET INVESTMENTS
16 Planning, Transportation & Infrastructure CSA
• Enhance University Ave & California Ave pressure washing and cleaning services. Limited funding to continue PA Link. • Investments in development center staffing to support economic recovery efforts, housing for social and economic balance, and support Council priorities.
• Resources for traffic control, RWQCP System operations and maintenance , gas and water infrastructure
maintenance, watershed protection and crossbore program phase 4.
FY 2025 PROPOSED BUDGET INVESTMENTS
17 Internal Support & Administration CSA
• Proactive funding of long-term liabilities.
• Funding the adopted labor agreements and support
negotiations underway.
• Reserving funds for real property investments.
• Supporting organizational resilience with talent
recruitment, employee childcare pilot program
(carryforward), BayPass Commuter Program for
employee benefit and transportation, and resources to
support information technology, enterprise services
and financing.
• Leadership and support from the City Manager’s
Office for implementation of Council Priority projects
- Builds on investments from FY 2024 &
FY 2025 in alignment with Measure K
Priority Spending
- Grade separation, safety improvements,
and bike & ped. transportation plan
- Project Homekey, San Antonio
Coordinated Area Plan, Geng Road Safe
Parking
- Public Safety services appropriated in
adopted budget, additional staffing for
dispatch, traffic team, fire engine at FS2,
and recruitment & retention through
competitive labor agreements
- Annual administration including
outreach, renewals, compliance review
and collections
Investments Funded by Business Tax – Measure K
18 CAPITAL IMPROVEMENT PROGRAM (CIP) –
OVERVIEW 5-YR PLAN
19 CAPITAL IMPROVEMENT PROGRAM (CIP) –
OVERVIEW 5-YR PLAN
20 To be completed in FY 26: Roth Building Phase I, Computer Aided Dispatch Upgrade, and Foothills Rebuild Fire Mitigation 5-Year CIP: Churchill Ave./Alma St. Railroad Crossing Safety Improvements, Ramona St. Streetscape Update, Library Furniture Replacements, Center Drive Capacity Upgrades, and RWQCP Outfall Line Construction
OTHER FUNDS
FY 2025
Adopted
FY 2026
Proposed
FY 2026
Proposed
w/Gas Credit
Electric 9.0% 6.% 6.%
Gas 12.5% 22% * 13% **
Water 9.5% 10% 10%
Wastewater 15.0% 20% 20%
Fiber 2.6% 2.4% 2.4%
Refuse 0% 0% 0%
Storm Drain 2.6% 2.4% 2.4%
Monthly Bill
Change
9%
$34.50
11%
$44.70
9%
$38.40
Additional actions included in the
Proposed Budget address non-General
Fund activities including but not
limited to:
• Parking Funds (General Fund
support)
• Enterprise Funds, rate changes to
the right
21 * Without climate credit
** 4/15/2025 FC Review of Climate Credit:
One-time flat $73.20 credit to residential G-1
customers only. The total cost is about $1.6M
from the Cap-and-Trade Reserve, enough
to fund whole home electrification incentives for
about 182 homes.
www.paloalto.gov/budget
The community is encouraged to join the budget
conversations:
• Finance Committee Budget Hearings:
May 6 at 9:00 A.M.
May 7 at 9:00 A.M.
May 20 at 1:00 P .M. – Wrap-up
• City Council Budget Discussion:
May 12 at 5:30 P .M.
• City Council Budget Adoption:
June 16 at 5:30 P .M.
All meeting details listed at https://www.paloalto.gov/budget
JOIN THE BUDGET CONVERSATION
22 • Provide general guidance to Finance
Committee colleagues for their upcoming
detailed work reviewing the budget
documents
• Clarify understanding of budget process,
materials, and the City Council and
Finance Committee roles
Budget and meeting details listed at All
meeting details listed at
https://www.paloalto.gov/budget
COUNCIL DISCUSSION
23