May 12, 2025 www.paloalto.gov/budget
FY 2026 PROPOSED
OPERATING AND
CAPITAL BUDGETS
Finance Committee
Update & Council
Discussion
City Council
Item #4
1 BUDGET CONVERSATIONS & CALENDAR
2 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/budget
• FY26 Proposed Budget – All Funds totals $1.0 billion
• General Fund budget total $312.5 million
• Capital budget totals $316.2 million in FY 2026 and $1.18 billion over the five-year Capital Improvement Program (CIP)
• Budget and meeting details listed at www.paloalto.gov/budget FY26 PROPOSED BUDGET OVERVIEW
3 SUMMARY OF FINANCE COMMITTEE
REVIEW TO DATE
May 12, 2025 www.PaloAlto.gov/budget 4
5 “PARKING LOT” OF GENERAL FUND BUDGET
6 “PARKING LOT” (as of May 7th 5:30PM, Cont’d)
Date Parking Lot Items
FY26 Amount
(cost)/source
Potential FY27
Amount Dept
7-May Restore Uncertainty Reserve minimum of $6M for FY27 ($4M) & FY28 (minimum of $2M)
- 6,000,000 All GF
Depts
7-May Paramedic Transport Fee Revenue 700,000 700,000 FIR Subtotal Sources (Revenue) $ 700,000 $ 6,700,000
6-May One-time 5% Reduction in Transfer to CIP 1,550,000 - Capital 6-May One-time 10% Reduction in Transfer to CIP (incremental from 5% to 10%) 1,550,000 - Capital 6-May One-time 15% Reduction in Transfer to CIP (incremental from 10% to 15%) 1,550,000 - Capital 7-May Reduce Use of Uncertainty Reserve (UR) by $6M or more (Amount TBD based on Capital Items & Revenue Offsets)
1,350,000 2,000,000 All GF
Depts
7-May Fire Single Role Model - without 3 months of overtime (600,000) (1,200,000) FIR 7-May Non-Profit Workplan (brings total from $235k to $346k) – with direct funding to specified nonprofits
(111,000) (111,000) NON
7-May CSD Grants Community Events Program (50,000) (50,000) CSD 7-May Youth Connectedness Initiative (YCI) Funding (50,000) (50,000) CSD Subtotal Costs (Expenses) $ 5,189,000 $ 589,000
Potential Funds Remaining Net (cost) / source $ 5,889,000 $ 7,289,000
MULTI YEAR GENERAL FUND BALANCING
7 ($ in millions) FY 2025 FY 2026 FY 2027
Forecasted (Deficit)/Surplus ($6.8) ($12.0) ($7.6)
Use of
Reserves &
Funding
Changes
Use of Uncertainty Reserve (UR) $3.5 $12.0 $4.0
Tentative Reduced Use of UR - -$5.9 -
Use of Budget Stabilization Reserve $2.6 - -
Tentative Ongoing Funding Sources - $0.7 $0.7
Tentative Ongoing Costs - -$0.8 -$1.4
Use of DSD Reserve $0.7 - -
Projected (Deficit)/Surplus $0 $0 ($4.3)
Ending
Reserve
Balances
Uncertainty Reserve $12.0 $6.0 $2.0
Budget Stabilization Reserve $54.0 $54.0
17.6%
$54.0
Retain Minimum of $6M in Uncertainty Reserve (UR)
Finance Committee recommended targets
• Retain $6M in Uncertainty Reserve to offset anticipated shortfall in FY27 and beyond • General Guidance: savings of $4M one-time, $2M (minimum) of on-going (effective FY26) • Clarification: This $6M savings includes the CIP reductions, to be discussed later.
Framework: Alternatives to achieve savings
• Revenue enhancements (new information, alternative funding, FY25 balance carryover) • Capital projects: Defer capital projects, debt finance and/or review debt service reserve level • General Fund operating savings:
• Re-evaluate FY26 proposals
• Staffing - review functions/specifics, and vacancies
• Contracts and general expenses
• Other adjustments – if any
8www.paloalto.gov/budget
Retain Minimum of $6M in Uncertainty Reserve (UR)
Policy Considerations
• Review Impacts: services, projects, Council priorities, community and workforce Proposed Timeline
• Time needed to develop and deliberate with Finance Committee, Council, community and workforce
• Proposed Schedule:
• May 20th Finance Committee -- Identified budget savings and discuss impacts • June 16th – Council adopts FY26 budgets with remaining “placeholder” savings • August 19th Finance Committee – Review specific remaining budget savings for FY26. • September - Council approval of specific budgetary savings 9www.paloalto.gov/budget
10 FY 26-30 CAPITAL IMPROVEMENT REDUCTIONS 5%/10%/15%
www.PaloAlto.gov/budget
• Evaluate proposed projects timing with a priority
to delay/defer projects to manage funding availability
and project prioritization (Example: restrooms at
Foothills Nature Preserve)
• Some flexibility to move planned projects and
investments between the years; however, there will
be impacts (e.g. cost escalation, deferred
maintenance, growing backlog of aging infrastructure)
• Staff expect some ability to reallocate funding sources such as funding shifts done in recent years. Requires
de-prioritization of other projects planned for these
alternative sources.
Priorities to achieve project
prioritization (deferral) characteristics:
• Aesthetic (as opposed to
functional) enhancements
• Deferral won't cause deteriorating
conditions
• Projects or portions of projects without
significant rework or disruption of
dependencies
• Cost escalation is unclear or not
expected
FIRE & AMBULANCE SERVICE AUGMENTATION
Finance Committee Recommended Revenue Appropriation
• Muni Fee Study increase for Paramedic Transport Fees ($0.7M in FY 2026 and ongoing)
• Council would need to adopt these fees June 16th, effective July 1, 2025.
Finance Committee Recommended Single-role, Phase In Proposal • FY26 Cost: $0.6M; Ongoing annual cost: $1.2M
• 12-hour peak single-role ambulance (estimated to being service in April 2026) • Continued cross-staffing of Engine 64
Finance Committee discussed a wide range of options for service delivery and further investments.
11www.paloalto.gov/budget
Received 19 applications totaling $747,000. (Excludes 3 applications totaling $73,000 received after deadline.) If Direct Allocations are excluded, applications total $451,000.
12 Nonprofit Partnership Workplan Phase I Rec. Adjustments Category
FY2026 Prop.
Op. Budget
FC Rec $
Changes
FC Rec $
Allocations
Total
Funding
Nonprofit Partnership Workplan Phase I
(Application process currently underway)
$235,000 $111,000 ($246,000) $100,000
Community Events – CSD Grants $0 $50,000 - $50,000
DIRECT ALLOCATIONS – General Nonprofit partnerships ongoing contracts:
Project Safety Net $100,000 - - $100,000
Youth Connectedness Initiative (YCI) $0 $50,000 - $50,000 Magical Bridge $0 - $150,000 $150,000
Third (3rd) Thursday $0 - $40,000 $40,000
United Nations Association Film Festival $0 - $45,000 $45,000 Envir. Volunteers Foothills Nature Preserve $0 - $11,000 $11,000 Total $335,000 $211,000 $0 $546,000
APPLICATION STATUS
Nonprofit Workplan
Phase 1
Finance Committee recommends:
• Revise the proposed FY 2026 rates to retain the current FY 2025 rate structure, with rate increases to meet the revenue requirement for FY 2026 in the gas utility • In FY 2026 only, apply a combination of climate credit and interest income to G2 customers (small and medium meter capacities) in the total amount of $1.1 M* • Refer staff to return to the Utilities Advisory Commission (UAC) to further review the FY 2025 Cost of Services Study (COSA) assumptions and principles *Upon further review of calculations, this figure is miss-stated, a $2.2 M credit is needed for the subset of G2 customers. The stated $1.1 M will be sufficient if review and adoption of alternative rates are completed by January 2026.
NON-GENERAL FUND: GAS UTILITY RATES
13 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
14 • Receive update on the detailed work
reviewing the budget documents
• Clarify understanding of current status
and policy decision the Committee seeks
feedback on
• Provide guidance to Finance Committee
colleagues for their final recommended
adjustments scheduled on May 20. City
Council FY 2026 Budget Adoption
scheduled on June 16
• Budget and meeting details listed at
www.paloalto.gov/budget
COUNCIL DISCUSSION
15