Agenda packet — Palo Alto City Council, September 8, 2025 (part 1 of 4)

CITY COUNCIL
Regular Meeting
Monday, September 08, 2025
Council Chambers & Hybrid
5:30 PM
Amended Agenda
Amended agenda items appear below in RED (Time Estimates Updated) Palo Alto City Council meetings will be held as “hybrid” meetings with the option to attend by teleconference or in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. The meeting will be broadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media Center https://midpenmedia.org.

VIRTUAL PARTICIPATION
CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900-6833

PUBLIC COMMENTS
General Public Comment for items not on the agenda will be accepted in person for up to three minutes or an amount of time determined by the Chair. General public comment will be heard for 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.

Public comments for agendized items will be accepted both in person and via Zoom for up to three minutes or an amount of time determined by the Chair. Requests to speak will be taken until 5 minutes after the staff’s presentation or as determined by the Chair. Written public comments can be submitted in advance to [email protected] and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your subject line.

PowerPoints, videos, or other media to be presented during public comment are accepted only by email to [email protected] at least 24 hours prior to the meeting. Once received, the Clerk will have them shared at public comment for the specified item. To uphold strong cybersecurity management practices, USB’s or other physical electronic storage devices are not accepted.

Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting.

TIME ESTIMATES
Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. 1 September 08, 2025
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.

CALL TO ORDER

AGENDA CHANGES, ADDITIONS AND DELETIONS
PUBLIC COMMENT (5:30 - 6:00 PM)
Members of the public may speak in-person ONLY to any item NOT on the agenda. 1-3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.

COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:00 - 6:15 PM) Members of the public may not speak to the item(s).

STUDY SESSION (6:15 - 7:15 PM)

1. 414 California Avenue [25PLN-00140]. Request for Council Prescreening to Rezone the Subject Property from Community Commercial (2) (CC[2]) to Planned Community/Planned Home Zoning and to Allow Construction of a Mixed-Use Building with 37 Units in a Six-Story Structure on a 16,231-Square-Foot (0.37 Acre) Site. CEQA Status: Not a Project. Item Removed Off Agenda (Rescheduled for September 15, 2025 City Council Meeting)

2. San Francisquito Creek Joint Powers Authority Update on Reach 2 Flood Control Project
CONSENT CALENDAR (7:15 - 7:20 PM)
Items will be voted in one motion unless removed from the calendar by three Council Members.

3. Approval of Minutes from August 11 and August 18, 2025 Meetings

4. Adoption of an Ordinance Amending the Fiscal Year 2026 Municipal Fee Schedule to Reflect Council-Directed Changes to Existing Fees and Add a New Subsidized Fee for Stand-Alone Residential Gas, Water and Space Heating Equipment Permits. CEQA Status:

Not a Project

5. Approval of Construction Contract No. C26195620 with Public Restroom Company in the Amount Not-to-Exceed $412,940 and Authorization for the City Manager or Their Designee to Negotiate and Execute Change Orders Up to a Not-to-Exceed Amount of $41,294 to Provide and Install a Modular Restroom Building at Mitchell Park for the Park Restroom Installation Capital Improvement Program Project (PG-19000); CEQA status – exempt under CEQA Guidelines Section 15303
2 September 08, 2025
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas.

6. Approve Amendment #1 of the Memorandum of Agreement (MOA) with the California Alternate Energy and Advanced Transportation Financing Authority (CAEATFA), to Extend the Term of the Agreement from Two Years to Five Years, to Continue to Enable the Residents of Palo Alto to Participate in the GoGreen Home Energy Financing Program.

Supplemental Report added

7. Authorization to Execute Amendment to Legal Services Contract S26195198 with Colantuono Highsmith & Whatley PC to Increase Amount by $205,000 for Total Not-to- Exceed Amount of $255,000; CEQA Status – Not a Project.

8. Adoption of an Emergency Ordinance Amending Palo Alto Municipal Code Chapters

16.04 (California Building Code, California Code of Regulations, Title 24, Part 2, Volumes 1 & 2), 16.05 (California Mechanical Code, California Code of Regulations, Title 24, Part 4), and 16.14 (California Green Building Standards Code, California Code of Regulations, Title 24, Part 11) to Make Non-Substantive Changes Addressing Comments from the California Building Standards Commission. CEQA Status: Exempt Pursuant to CEQA Guidelines Sections 15061(b)(3) and 15308.

9. Approval of the Purchasing Card Audit and Extension Deadline for Two FY2024 Audit Project Task Orders and Amendment of the FY2024 and FY2025 Task Order Budgets to Realign the Authorized Budgets with a Net Zero Impact, as Recommended by the Policy & Services Committee; CEQA – Not a Project

10. Approve Purchase Order S26195255 with Dasher Technologies, Utilizing a State of California Blanket Purchase Agreement, to Procure Rubrik Data Backup and Security Solution for a 3-Year Term for a Not-To-Exceed Amount of $106,933; CEQA Status - Not a Project.

11. Approval of Professional Service Contract Number C26195633 with H.T. Harvey & Associates in an Amount Not to Exceed $195,004 for Services to Manage a Wetland Remedial Mitigation Plan for a Period of 2 Years. CEQA Status – Categorically Exempt.

12. FIRST READ: Adopt an Ordinance Amending PAMC Chapter 10.56 (Special Speed Zones) to Update Speed Limit Studies for 22 Streets and Decrease the Speed Limit for a Portion of Deer Creek Road; and Approve the 2024 Traffic Survey; CEQA status – categorically exempt.

13. FIRST READING: Adoption of an Ordinance Amending Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code to Reflect Changes in Law. CEQA Status – Exempt under CEQA

3 September 08, 2025
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.

Guidelines Section 15061(b)(3).

14. SECOND READING: Ordinance Adopting the 2025 Fire Hazard Severity Zone Map Issued by the State Fire Marshal (FIRST READING: August 11, 2025 PASSED 6-0-1, Lythcott- Haims Absent)

15. SECOND READING: Ordinance Adding Use of Council Chambers Fees to the FY 2026 Municipal Fee Schedule (FIRST READING: August 11, 2025 PASSED 6-0-1, Lythcott-Haims absent)

16. SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Chapter

2.21 (Architectural Review Board) and Chapter 2.25 (Parks and Recreation Commission) of the Palo Alto Municipal Code to Amend Procedures for Electing a Chair and Vice Chair (FIRST READING: August 11, 2025, PASSED 6-0-1, Lythcott-Haims Absent)

17. SECOND READING: Ordinance of the Council of the City of Palo Alto Restating Procedures for Expedited Permitting Processing for Electric Vehicle Charging Systems (FIRST READING: August 11, 2025 PASSED 6-0-1, Lythcott-Haims Absent) CITY MANAGER COMMENTS (7:20 - 7:35 PM)

BREAK (15 MINUTES)

ACTION ITEMS (Item 18: 7:50 - 9:05 PM, Item 19: 9:05 - 10:20 PM) Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished Business and Council Matters.

18. Discuss the FY 2026 budget amendments to reduce General Fund appropriations by approximately $6.2 million as Recommended by the Finance Committee and Approve the FY 2026 Budget Amendments in Various Funds. CEQA Status - Not a Project.

19. Adoption of an Emergency Ordinance Amending Palo Alto Municipal Code (PAMC) Chapter 16.04 to Add Local Administrative Amendments Related to Certificates of Occupancy and Definitions to the 2022 California Building Code, and an Emergency Ordinance Amending PAMC Chapter 16.17 to Adopt the 2025 California Energy Code and Local Amendments Thereto. CEQA Status – Exempt Under CEQA Guidelines Section 15061(b)(3) and 15308.

ADJOURNMENT

4 September 08, 2025
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
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INFORMATION REPORTS
Information reports are provided for informational purposes only to the Council and the public but are not listed for action or discussion during this meeting’s agenda.

Community Engagement Plan for Rail Grade Separation Project at Churchill Avenue, Meadow Drive, and Charleston Road Crossings
B.

Fiscal Year 2025 Significant Gifts and Donations to the City of Palo Alto

OTHER INFORMATION
Standing Committee Meetings this week

Council Appointed Officers Committee September 9, 2025
Policy & Services Committee September 9, 2025
City Schools Liaison Committee September 11, 2025
Public Comment Letters
Schedule of Meetings

AMENDED AGENDA ITEMS

Item Removed Off Agenda (Rescheduled for September 15, 2025 City Council Meeting)

Supplemental Report added

5 September 08, 2025
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
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City Council
Staff Report
From: City Manager
Report Type: STUDY SESSION
Lead Department: Planning and Development Services
Meeting Date: September 8, 2025
Report #:2506-4838
TITLE
414 California Avenue [25PLN-00140]. Request for Council Prescreening to Rezone the Subject Property from Community Commercial (2) (CC[2]) to Planned Community/Planned Home Zoning and to Allow Construction of a Mixed-Use Building with 37 Units in a Six-Story Structure on a 16,231-Square-Foot (0.37 Acre) Site. CEQA Status: Not a Project.

RECOMMENDATION
Staff recommends that Council conduct a prescreening and provide informal comments regarding the applicant’s request to rezone 414 California Avenue from Community Commercial (2) (CC(2)) to Planned Community/Planned Home Zoning (PHZ).1 Comments provided during the prescreening process are not binding on the City nor the applicant.

EXECUTIVE SUMMARY
This prescreening is a request by the applicant to rezone the subject property, which is currently zoned Community Commercial (CC[2]) to “Planned Home Zoning (PHZ).” The project site is 16,230 square feet, and most recently was occupied by Bank of the West. The existing building is currently vacant. The proposed project includes restaurant/retail space, and 37 housing units. The project also proposes encroachments and modifications within the public right-of-way on California Avenue and Mimosa Lane.

In accordance with Palo Alto Municipal Code (PAMC) Section 18.79.030(A), a prescreening review is required for legislative changes, including rezoning, prior to submittal of a formal application. Prescreenings are intended to solicit early feedback on proposed projects and, like all study sessions, cannot result in any formal action. Since this proposal may return to the City Council as a formal application, Councilmembers should refrain from forming firm opinions supporting or opposing the project.
1 Referred to in this report as "Planned Home Zoning" to emphasize the focus on housing as the benefit to the community. PAMC Section 18.38, which outlines the requirement and process for Planned Community (PC) Zoning, remains the underlying code supporting application of this policy.

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Following this prescreening, the applicant may choose to file a formal application to amend the zoning for the site. Planned Community Rezoning applications require an initial review by the Planning and Transportation Commission (PTC) followed by a formal recommendation from the Architectural Review Board, a formal recommendation from the PTC, and Council’s final decision as set forth in PAMC Chapter 18.38.

BACKGROUND
On February 3, 2020, Council unanimously endorsed using Planned Home Zoning (PHZ) for housing and mixed-use housing projects to help spur housing production. In exchange for deviation from the development standards, as allowed under the rezoning if approved by Council, the project must include at least 20% of the housing units as deed restricted, or equivalent based on a menu of options, for lower income households.

Project Description
The preliminary schematic drawings, included in Attachment D, are conceptual, as is appropriate at this stage of project consideration. As shown in these schematic drawings, the applicant is proposing an approximately 83,218-square-foot mixed-use building with 14 rental units and 23 condominium units. The units would be a mix of studio (10), one-bedroom (11), two-bedroom (8), and three-bedroom (8) units. The plans did not specify which of the units would be rental or condominium in the plans. The proposed project would have a lot coverage of approximately 16,068 square feet (99% of the site). This includes portions of the property which are currently used for surface parking, and the private access alley between 414 California Avenue and 410 California Avenue (The Cobblery). The proposed development would be six stories tall and extend to a height of 78 feet, six inches to the building parapet, and 83 feet to the top of the roof deck stair access. The below grade parking garage would contain two levels of parking with a total of 74 parking spaces, 20 of which would be tandem spaces. The proposed ground floor includes two spaces designated for eating and drinking (restaurant use) and a residential lobby, and two retail/restaurant support spaces, shown as a bakery and butcher on the floor plan (sheet A202). The ground floor includes three roof overhangs that encroach into the public right-of-way on California Avenue and Mimosa Lane. The residential units would be on the upper five floors.

The primary pedestrian entrances for the ground floor restaurants and the residential lobby are designed to front Mimosa Lane, which is proposed to be redesigned to be a pedestrian only street with outdoor seating located along the project frontage within the public right-of-way.

Secondary pedestrian entrances are also provided from California Avenue for the two smaller tenant spaces. The sole vehicle entrance is located at the rear of the site on New Mayfield Lane.

With the existing closure of a portion of California Ave., New Mayfield Lane is accessible from Cambridge Avenue. The upper floors are wrapped with balconies, providing private open space for residential uses. Five of the units have private roof decks.

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Surrounding Uses
This project is located within the California Avenue downtown district adjacent to a wide variety of retail, restaurants, and personal services. The site is specifically between Country Sun Natural Foods market and The Cobblery cobbler. The adjacent buildings are both one story, and buildings in the vicinity vary from one story to four stories.

The project site is on the portion of California Avenue which is permanently closed to vehicles.

On May 21, 2025 the Retail Committee recommended approval of the Car Free California Avenue Outdoor Activation Program to City Council3. That staff report includes a map of the potential/proposed improvements to the California Avenue right-of-way, including in front of 414 California Avenue. California Avenue and adjacent streets are also used for the Farmer’s Market every Sunday morning, as well as community events such as 3rdThursday.

On June 17, 20254 Council approved the resolutions associated with outdoor dining and permit fees enabling activation to continue in its current state. Council also provided direction to staff to revise the outdoor activation program guidelines seeking revisions for outdoor parklet like structures and bike lane adjustments.

ANALYSIS
Staff will prepare a thorough analysis of the Zoning Code and Comprehensive Plan compliance upon submittal of a formal application, if filed. A review of the conceptual plans, below, summarizes staff’s preliminary review of the proposal and highlights key policy considerations associated with the applicant’s request.

Comprehensive Plan Compliance
The Comprehensive Plan designation is Community Commercial. High-density housing is identified as an allowed use in some locations within this land use designation, including this one within one half-mile of the California Avenue CalTrain station. This property is not identified as a Housing Inventory site in the City’s Housing Element, nor was it in the previous 2015-2023 Housing Element Cycle.

Zoning Compliance
This property is within the California Avenue downtown district. This property is zoned CC(2).

A summary of the project’s consistency with these development standards is detailed in Attachment B. The applicant is requesting to deviate, through the Planned Community rezoning process from the following development standards:
Height: 83 feet in height where up to 37 feet is allowed (60 feet under HIP); 3 Retail Committee Staff Report, May 21, 2025, Item 1:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=17618 4 City Council Staff Report, June 17, 2025, Item 17:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=17567 Item 1
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Floor Area: A 5.13:1 FAR where a maximum of 2.0 total FAR is allowed (0.6 residential FAR allowed)(2.6:1 FAR allowed under HIP);
Open Space: 1,612 square feet of useable open space is proposed, all of which is private and available to five of the units, where 150 square feet of usable open space per unit is required. See additional discussion below.
Parking: 88 parking spaces are proposed where 169 spaces are required (161 required under HIP). This site is eligible to use AB 2097 to reduce parking to 0 with a TDM plan. Roof overhangs encroach into the public right of way on California Avenue and Mimosa Lane.
Portions of the upper floors, where the elevators and stairways are located, do not meet the 10 foot required rear setback for residential uses. No street-side setback is proposed on Mimosa Lane, where five feet is required; The project also deviates from several Objective Design Standards in PAMC Chapter 18.24, such as:
Stepback (PAMC 18.24.050(b)(1)): The building massing as proposed is not stepped back where it is more than 20 feet taller the average height of an adjacent building. This step back would start within two vertical feet of the height of the adjacent building. The step back would be a minimum depth of six feet along both the façade on the primary building frontage and the facing façade of the adjacent building, and the step shall occur for a minimum of 70% of each façade length.
Façade Modulation (PAMC 18.24.050(b)(3)): Additional information would be needed to analyze the façade modulation. The side and rear facades lack upper floor modulation.
Base/Middle/Top (PAMC 18.24.060(c)(1): Although the design has a strong base and middle, the top is less defined. The fenestration variation is also limited on the upper floors.

Planned Community/PHZ projects are not required to comply with Chapter 18.24 of the code.

However, it is analyzed for the purposes of understanding how the design could be improved to be more consistent with the standard project requirements. Under the CC(2) zoning a project could also opt to be evaluated in accordance with the context-based design criteria in-lieu of the objective design standards under 18.24.

Usable Open Space
The proposed plans include balconies at all upper levels, wrapping most of the façade, however these four foot wide balconies do not count as useable open space as they do not meet the minimum depth requirement of six feet. Additionally, five roof decks are proposed. In the CC(2) zoning district, roof decks are only allowed if they are for common open space, and these are private open space (PAMC 18.40.240 [c]).

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Refuse Pick Up
The project currently proposes a shared refuse room for residential and commercial uses, which is not allowed by the Code. Additonally the refuse room is not sufficiently sized to accommodate the project’s needs and would need to be redesigned. Staff would expect the trash room to be designed in a manner that allows the bins to be pulled directly from the trash room and would not support staging of the bins within public right-of-way.

Public Right-of-way Modifications and Encroachments
The closure of Mimosa Lane would require a Comprehensive Plan Amendment to Amend Map T-5 and a Resolution to Close this public street to vehicular traffic, similar to the efforts lead by the City for the closure of portions of California Avenue and Ramona Street. This proposal would need to be evaluated as staff understands it could have impacts on deliveries to neighboring properties and activation of the public space for events such as 3rd Thursday and the farmers' market or other civic events. The project also includes canopies that extend into the public right-of-way on California Avenue and along Mimosa Lane. There are several existing buildings along California Avenue that have existing minor canopy encroachments. Staff has generally allowed existing legal noncomplying buildings to maintain their canopies when modifying the facade, with approval of a permanent encroachment permit, but has not generally allowed new permanent encroachments.

PC Special Requirements
The project is not within 150 feet of residential uses or residential zones. Therefore, the PC Special Requirements (PAMC 18.38.150) do not apply.

Housing Incentive Program or State Density Bonus Law Alternatives As an alternative to the PHZ process the applicant could consider a State Density Bonus Law project and may request waivers and concessions from certain standards in accordance with State Density Bonus Law requirements. However, because the CC(2) zone does not regulate maximum density, a density bonus is calculated based on allowable FAR and proposed average unit size. The highest number of units achievable under State Density Bonus Law is 16 units. The Housing Incentive Program provides an additional path but would be insufficient for the proposed building heights, floor area and other standards.

Multi-Modal Access & Parking
414 California is approximately 0.3 miles from the California Avenue CalTrain Station, providing potential for future residents to walk or bike to CalTrain. It is also approximately 120 feet from the nearest Valley Transit Authority (VTA) bus stop, served by lines 22 and Rapid 522. This project has not yet been analyzed for consistency with the City’s Bicycle and Pedestrian Transportation Plan and other transportation policies such as Council’s Local Transportation Impact Analysis Policy adopted on June 15, 2019 (CMR 11256). This analysis would be conducted as a part of any formal application and reviewed by the Office of Transportation.

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However, staff notes that the plans proposed modifications to California Avenue and Mimosa Lane do not align with what is currently planned for street improvements in this area proposed by the City, as recommended for approval by the Retail Committee.

Parking
All parking is proposed in two levels of below-grade parking. Access to the parking garage would be provided from New Mayfield Lane through a single entrance/exit. Of the 74 proposed parking spaces, 20 would be in tandem to other spaces. Under the zoning code, 169 stalls would be required based on the sizes of the housing units. Under AB 2097, no spaces are required with implementation of a TDM plan. One loading space is proposed, interior to the building at grade, with access adjacent to the parking garage entrance; the functionality of this space for deliveries or ride share services remains to be evaluated.

Potential space for bicycle parking is identified on both levels of the parking garage. It is unclear how many bikes each space could hold. The rooms are only accessible by stair or elevator and do not have a protected path within the garage. Thirty-seven long term and four short term spaces are required for the proposed residential use, and five long term and seven short term spaces are required for the proposed commercial use.

Inclusionary Requirement and Jobs Housing Imbalance
The intent of limiting PHZ projects to residential and residential mixed-use is to address the job/housing imbalance and to support increased housing production within the City, consistent with the City’s RHNA allocation. PHZ projects are required to provide more housing than jobs on site. The proposed mixed-use project would demolish an approximately 6,135 sf bank and develop a mixed-use project with approximately 15,063 sf of retail and 37 residential units. The net new commercial sf would result in the need for 5 new housing units, which is less than the 37 proposed. Therefore, the project complies with this requirement.

The project is required to provide 20% of the units at Below Market Rate at an average of 80% AMI in accordance with Council’s requirements for projects seeking to rezone using the PHZ process. The applicant is currently proposing 18.9% BMR units (7 units) at unspecified income levels. Additionally, the project proposes a mix of rental and condominium units, and does not specify how many of which type would be provided at BMR. Until more information is provided, this project cannot be fully analyzed for compliance with Council’s requirements.

POLICY IMPLICATIONS
The City Council has previously identified California Avenue as an area to accelerate housing, though the effort is not currently resourced. California Avenue would benefit from a policy document to guide future housing and development proposals. In the absence of such a framework, individual property owners are advancing projects independently. In addition to the Item 1
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subject project, a builder’s remedy application is being processed for 17-, 11-, and 7-story buildings at 156 California Avenue. While the City has broad discretion to evaluate PHZ applications due to their legislative nature, the lack of a coordinated planning policy that considers proximity to the rail station, the California Avenue street closure, parcel sizes, street access, and broader urban design and placemaking objectives may result in a less cohesive neighborhood character.

The conceptual plans for the subject project also propose use of the public right-of-way, raising a unique policy question for the City Council. Staff must analyze the access implications of this proposal. Developer-funded improvements could support pedestrian activity in the area, though in an ad hoc manner. Council’s support for or opposition to such improvements would significantly affect both the project and the surrounding neighborhood. Use of the public right- of-way as part of a PHZ application has not been considered previously and may warrant further public benefits, beyond the minimum benefits typically associated with these projects.

FISCAL/RESOURCE IMPACT
The recommendation in this report does not have any significant fiscal or budgetary impacts.

STAKEHOLDER ENGAGEMENT
The Palo Alto Municipal Code requires notice of this public hearing be published in a local paper and mailed to owners and occupants of property within 600 feet of the subject property at least ten days in advance. Notice of a public hearing for this project was published in the Daily Post on July 31, which is 10 days in advance of the meeting. Postcard mailing occurred on July 29, which is 12 days in advance of the meeting.

As of the writing of this report no project-related public written comments were received.

ENVIRONMENTAL REVIEW
The prescreening is a preliminary review process in which Councilmembers may provide comment, but no formal action will be taken. Therefore, no review under the California Environmental Quality Action (CEQA) is required at this time. A full review in accordance with CEQA would be initiated with the formal filing of a development application.

ATTACHMENTS
Attachment A: Location Map
Attachment B: Zoning Comparison Table
Attachment C: Applicant’s Description Letter
Attachment D: Link to Project Plans
APPROVED BY:

Jonathan Lait, Planning and Development Services Director Item 1
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VEN
UE
ASH

FIELD LANE
NEW M
AYFIE
CA
LIFORN

IA AVENUE

CALIFORNIA AVENUE

PERAL LA

MIMOSA LANE
CA
MBRI

DGE AVENUE
JACA

RANDA LANE
Lot C-8
Lot C-4
Parking
This map is a product of the
City of Palo Alto GIS
This document is a graphic representation only of best available sources.

Legend
Project Site
Current Features
0' 48'
Attachment A
Location Map
414 California Ave.

CITY OF PALO ALTO
I
N
C

O R P O R A
T
E
D

CAL I FORN IA
P a l o A l t o
T h e C i t y o f
A
P
R
I L 1 6 1
8 9
4 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2016 City of Palo Alto ekallas, 2025-08-22 14:45:33
Attachment A. Location Map (\\cc-maps\Encompass\Admin\Personal\Planning.mdb) Item 1
Attachment A - Location Map

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ATTACHMENT B

ZONING COMPARISON TABLE
414 California Ave, 25PLN-00140
Table 1: COMPARISON WITH CHAPTER 18.16 (CC(2) DISTRICT) AND CHAPTER 18.14 (HOUSING INCENTIVES) Mixed Use and Residential Development Standards
Regulation Required Proposed
Minimum Site Area, width and
depth No Requirement 16,230.95 sf.

Minimum Front Yard 0' - 10' to create an 8' - 12'
effective sidewalk width
0 ft. ground floor
10 ft. upper floor, except at
elevator/stairs
Rear Yard (New Mayfield Lane) 10' for residential portion; no requirement for commercial
portion
0 ft. ground floor
10 ft. upper floor, except at
elevator/stairs
Interior Side Yard No Requirement 2 ft. 6.5 in. on ground floor 1 ft. 1.75 in. on upper floors
Street Side Yard (Mimosa Lane) 5 feet
0 ft. ground floor
10 ft. upper floor, except at
elevator/stairs
Min. yard for lot lines abutting or
opposite residential districts or
residential PC districts
Not applicable, no abutting
residential districts/PCs Not applicable
Build-to-lines (7)
50% of frontage built to setback
on California Avenue;
33% of side street built to setback
on Mimosa Lane
Complies
Max. Site Coverage 100% (16,230.95 sf) 99% (16,068 sf)
Max. Building Height (CC(2)) 37 feet (4) 78 feet 6 inches to parapet 83 feet to top of roof deck access
Max. Building Height (HIP) 60 feet (4) See above
Max. Floor Area Ratio (FAR)
(CC(2))

0.6:1 residential (9,738.6 sf)

2.0:1 non-residential (32,460 sf)
Not to exceed 2.0:1 (32,460 sf)
total

4.17: 1 Residential (67,667.43 sf)

0.96:1 Non-residential (15,550.72
sf)

5.13: 1 (83,218.15 sf) total
Max. Floor Area Ratio (FAR) (HIP)

2.6 residential or residential with
mixed-use on the ground floor
(42,198.6 sf)
See above
Max. Residential Density No Maximum Complies
Daylight Plane for lot lines
abutting one or more residential
zone districts other than an RM-
40 or PC Zone
None Not applicable
Usable Open Space (Private
and/or Common) 150 sf per unit
1,612 sf of useable open space =
43 sf per unit, however only 5 of
the units have access to these
spaces.

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Comparison Table

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Minimum Mixed Use Ground
Floor Commercial FAR

0.25:1 (4,057.7 sf)
Retail Preservation applies Approximately 15,063 sf proposed (1) No parking or loading space, whether required or optional, shall be located in the first 10 feet adjoining the street property line of any required yard.
(2) Any minimum front, street side, or interior yard shall be planted and maintained as a landscaped screen excluding areas required for access to the site. A solid wall or fence between 5 and 8 feet in height shall be constructed along any common interior lot line.. (4) As measured to the peak of the roof or the top of a parapet; penthouses and equipment enclosures may exceed this height limit by a maximum of five feet, but shall be limited to an area equal to no more than ten percent of the site area and shall not intrude into the daylight plane.
(7) 25 foot driveway access permitted regardless of frontage.

Table 2: CONFORMANCE WITH CHAPTER 18.52 (Off-Street Parking and Loading) Type Required Existing Proposed
Special Requirements This project is located
within a half mile of the
California Ave. CalTrain
Station. AB 2097
applies.
0 parking spaces
required.
74 parking stalls
proposed, TDM plan
will be required.

Vehicle Parking per PAMC

18.52 per land use
1 per studio/1 bed
2 per 2+ bed
(53 spaces)
For ground floor uses:
1 space for each 60
gross sq. ft. of public
service area, plus 1
space for each 200
gross sq. ft. for all
other areas.

Seating area is
approximately 3,254 sf
(54.23 spaces)
Rest of ground floor is
approximately 12,296
sf (61.48 spaces)
169 spaces required
14 spaces paid into the
parking district.
20 spaces provided
onsite.
74 parking stalls
proposed plus 14
district spaces
88 spaces total.

Vehicle Parking per PAMC

18.14 (HIP) plus PAMC 18.52
for non-residential land uses.
1 per studio/1 bed

1.5 per 2+ bed
(45 spaces)
For ground floor uses:
1 space for each 60
gross sq. ft. of public
service area, plus 1
space for each 200
See above See above
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Comparison Table

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gross sq. ft. for all
other areas.

Seating area is
approximately 3,254 sf
(54.23 spaces)
Rest of ground floor is
approximately 12,296
sf (61.48 spaces)
161 spaces required
Bicycle Parking 1 LT space per unit (37)
1 ST space per 10 units
(4)
12 spaces for the
ground floor uses (5 LT,
7 ST)
None provided,
potential bike parking
area shown on both
garage levels.

Loading Space 1 loading spaces for
less than 100,000 sf
No loading space
required for residential
projects with fewer
than 50 units.
1 off-street space
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Comparison Table

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SPF:architects
8609 Washington Blvd. Culver City, CA | www.spfa.com
WRITTEN PROJECT DESCRIPTION - 414 CALIFORNIA AVENUE, PALO AL TO

Project Summary:

The proposed development at 414 California Avenue is a new six-story mixed-use building that includes approximately 10,000 square feet of ground floor restaurant and market uses, 14 affordable and market-rate apartments, and 23 for- sale residential condominiums. Two levels of subterranean parking provide 74 total spaces. The overall building height is 75’-0” to the top of the roof structure and 78’-6” to the top of parapet—intentionally designed to remain below the 75’ occupiable floor threshold that would classify the building as a high-rise.

Located within the California Avenue Commercial District and surrounded by existing commercial and multi-family buildings, the project is consistent with the City’s ongoing effort to densify infill sites near transit and services. There are no single-family homes in the immediate vicinity, and the scale and intensity of the proposed development are well- suited to the surrounding context. While the proposed commercial uses and square footage are permitted by code, the project seeks rezoning to allow an increase in residential floor area (beyond the current 0.6:1 RFA limit) and overall height. We believe these modifications support the City’s broader planning goals and regional housing objectives.

Design Concept & Site Relationship:

The design approach takes inspiration from the cultural and material heritage of the region—most notably the Muwekma Ohlone Tribe, the area's Indigenous inhabitants. The façade expresses this influence through a refined architectural screen system that references traditional basket weaving and ceremonial regalia. This “Golden Weave” exterior system functions not only as an expressive visual motif, but also as an environmental filter, offering solar shading and layered transparency across the upper residential levels.

Ground floor uses activate both California Avenue and Mimosa Lane with a curated mix of restaurants, butcher, bakery, and market-style retail. These uses are complemented by upgraded public realm improvements, including widened sidewalks, planters, and seating areas, designed to reinforce the project’s “Gateway to California Avenue” concept. An enhanced pedestrian experience is prioritized, while vehicular access is located at the rear of the property via New Mayfield Lane.

The massing is stepped to respect zoning code and urban adjacencies:
• The building steps back at residential floors to provide a consistent 10-foot setback above the podium, complying with city standards.
• Balconies protrude 4’-0” into the residential setback. • Stairs are exposed and articulated to break up the building volume and provide light, and air into the center of the building.
• Private rooftop terraces are set back for individual and neighborhood privacy.

Preliminary Review Focus:

We respectfully request Council and ARB to provide feedback in the following areas:
• Density: Is the proposed increase in Residential Floor Area and density in alignment with the future growth and evolution of California Avenue?
• Massing & Height: Does the project appropriately scale to its commercial surroundings? We are under the high-rise classification and believe this six-story massing is a reasonable for the site. • Public Realm Interface: Does the project contribute positively to the pedestrian experience at California Avenue and Mimosa Lane?
• Zoning Compatibility: Given the absence of single-family residences in the area and the site's location in an active commercial zone, we believe the increased density and height are well justified. Does the Board agree with this position?
• Cultural Heritage: The design draws from the heritage of the Muwekma Ohlone Tribe and other Indigenous communities of the region. We welcome feedback on how this is reflected in the architecture and are exploring ways to deepen the connection. A dedicated zone on the California Avenue façade is envisioned for a permanent artwork honoring Indigenous history, and the landscape strategy may be refined to further acknowledge the site's cultural significance.

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Project Description

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If you need assistance reviewing the above documents, please contact the Project Planner or call the Planner-on-Duty at 650-617-3117 or email [email protected]
Project Plans
In order to reduce paper consumption, a limited number of hard copy project plans are provided to Council members for their review. The same plans are available to the public, at all hours of the day, via the following online resources.

Directions to review Project plans and environmental documents online:

1. Go to: bit.ly/PApendingprojects

2. Scroll down to find “414 California” and click the address link

3. On this project-specific webpage you will find a link to the project plans and other important information
Direct Link to Project Webpage:
https://www.paloalto.gov/Departments/Planning-Development-Services/Current- Planning/Projects/414-California-Ave
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Project Plans

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City Council
Staff Report
Report Type: CONSENT CALENDAR
Lead Department: City Clerk
Meeting Date: September 8, 2025
Report #:2508-5066
TITLE
Approval of Minutes from August 11 and August 18, 2025 Meetings

RECOMMENDATION
Staff recommends that the City Council review and approve the minutes.

ATTACHMENTS
Attachment A: August 11, 2025 Draft Action Minutes
Attachment B: August 18, 2025 Draft Action Minutes
APPROVED BY:

Mahealani Ah Yun, City Clerk
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CITY COUNCIL

DRAFT ACTION MINUTES

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Regular Meeting
August 11, 2025
The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual teleconference at 5:30 P.M.

Present In Person: Burt, Lauing, Lu, Reckdahl, Stone, Veenker Present Remotely:

Absent: Lythcott-Haims

Agenda Changes, Additions and Deletions

Public Comment

Council Member Questions, Comments and Announcements

Study Session

1. 4256 El Camino Real [25PLN -00095]. Request for Council Prescreening to Rezone the Subject Property from Commercial Services to Planned Community/Planned Home Zoning and to Allow Construction of a Multi -Family Apartment Complex with 120 Units in a Six -Story Structure on a 25,950 -Square-Foot (0.6 Acre) Site. CEQA Status: Not a Project.

NO ACTION

2. 332 Forest Avenue [25PLN -00130]. Request for Council Prescreening to Rezone the Subject Property from Multifamily Residential (RM -40) to Planned Home Zoning (PHZ) and to Allow Construction of a New Multi-Family Apartment Complex with 82 units in an Eight-Story Structure on a 25,000 Square Foot (0.57 Acre) Site. CEQA Status: Not a Project.

NO ACTION
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DRAFT ACTION MINUTES

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City Council Meeting
Draft Action Minutes: 08/11/2025
Consent Calendar
Councilmember Lu Recused from Agenda Item Number 7 and 13.

Vice Mayor Veenker Recused from Agenda Item Number 13.

MOTION: Vice Mayor Veenker moved, seconded by Mayor Lauing to approve Agenda Item Numbers 3-15.

MOTION PASSED ITEMS 3-6, 8-12, 14-15: 6-0-1, Lythcott-Haims Absent MOTION PASSED ITEM 7: 5-0-1-1, Lythcott-Haims Absent, Lu Recused MOTION PASSED ITEM 13: 4-0-1-2, Lythcott-Haims Absent, Lu, Veenker Recused

3. Approval of Minutes from June 9, June 16, and June 17, 2025 Meetings

4. Ordinance Adopting the 2025 Fire Hazard Severity Zone Map Issued by the State Fire Marshal

5. Adoption of Memorandums of Agreement with the Palo Alto Police Officers’ Association (PAPOA) and the Palo Alto Police Managers Association (PMA) for Terms Ending June 30, 2028, and Corresponding Salary Schedules; CEQA Status – Not a Project

6. Adoption of a Resolution Establishing Fiscal Year 2026 Property Tax Levy for General Obligation Bonds (Measure N Libraries)

7. Adopt a Resolution to Modify Evergreen Park -Mayfield Residential Preferential Parking Program Employee Permit Allotment and Zone Revisions and Create New Two -Hour Parking Areas Adjacent to El Camino Real; CEQA Status: Exempt pursuant to CEQA Guidelines Sections 15061(b)(3) and 15301.

8. Adopt a Council Chambers Use Policy as recommended by the Policy and Services Committee and Adopt an Ordinance Adding Use of Council Chambers Fees to the FY 2026 Municipal Fee Schedule; CEQA status: Not a project

9. Approval of Five (5) On -Call Consulting Contracts to Provide Long Term Planning Policy Development support for the Planning and Development Services over a Five-Year Term, as needed: 1) Aaron Welch Planning, 2) Ascent Environmental, Inc. 3) Lexington Planning LLC, 4) PlaceWorks, Inc., 5) Raimi & Associates Inc. in an amount not to exceed $2,000,000; CEQA Status: Not a Project.

10. Approval of Increase of Construction Contingency for Contract No. C24189237 with SAK Construction, LCC in the amount of $1,800,000, Funded by the Wastewater Treatment Enterprise Fund for the Joint Intercepting Sewer Rehabilitation (Phase 1) Project (WQ 24000), and Approval of a Budget Amendment in the Wastewater Treatment Fund; Item 3
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2025 Draft Action Minutes

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DRAFT ACTION MINUTES

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City Council Meeting
Draft Action Minutes: 08/11/2025
CEQA Status - Exempt under CEQA Guidelines Section 15301 (Repairs to Existing Facilities)

11. Approval of Amendment No. 1 to Contract No. C22182051 with EPI -USE Labs LLC to Increase the Compensation by $939,675 for the City’s AWS Cloud and SAP Basis Support Services and Extending the Term by 12 months to December 31, 2026; CEQA status - exempt under 15061(b)(3).

12. Approval of Amendment #1 to Contract C23184669A With LifeMoves to Extend the Contract by Two Years Through July 1, 2025 – June 30, 2027 in the Amount of $512,377 for a Total Contract Value Not To Exceed $972,377 for the Provision of Homeless Outreach Service; and Amend the FY 2026 Budget in the General Fund and the Permanent Local Housing Allocation (PLHA) Grant Fund; CEQA Status – Not A Project.

13. QUASI-JUDICIAL. 3150 El Camino Real [24PLN -00231]: Approval of a Vesting Tentative Map to Merge Five Parcels Together to Create One 111,030 -Square-Foot Parcel to Facilitate Construction of 368 New Residential Rental Units. CEQA Status: Streamlined CEQA Review in Accordance with Section 15183. Zoning District: CS (Service Commercial).

14. FIRST READING: Adoption of an Ordinance to align chair and vice chair selection language for the Parks and Recreation Commission (Palo Alto Municipal Code Ch. 2.25) and the Architectural Review Board (Palo Alto Municipal Code Ch. 2.21) with the City’s other Boards, Commissions, and Committees (BCCs); and Adoption of a Resolution doing the same for the Storm Water Management Oversight Committee – CEQA Status: Not a Project

15. FIRST READING: Adoption of an Ordinance Adding PAMC Chapter 16.15 to Restate Procedures for Expedited Permitting of Electric Vehicle Charging Systems to Comply with State Law. CEQA Status: Exempt under CEQA Guidelines Section 15061(b)(3).

City Manager Comments
Ed Shikada, City Manager

Action Items

16. PUBLIC HEARING: Consideration of Objections for Weed Abatement Assessments; and Adoption of Resolution Confirming the Weed Abatement Report and Ordering Abatement Costs to be a Special Assessment on the Properties Specified in the Report; CEQA status - categorically exempt.

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DRAFT ACTION MINUTES

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City Council Meeting
Draft Action Minutes: 08/11/2025
MOTION: Councilmember Reckdahl moved, seconded by Council member Stone to adopt a resolution confirming the report and ordering abatement costs to be a special assessment on the properties specified in the report (Attachment A).

MOTION PASSED: 6-0-1, Lythcott-Haims Absent

17. Approval of Resolutions Amending the Amended and Restated Water Supply Agreement Between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County and the Updated Tier 2 Drought Response Implementation Plan; CEQA Status: Not a Project and Categorically Exempt under CEQA Guidelines Sec. 15307, 15308
MOTION: Councilmember Stone moved, seconded by Council member Lu to approve two resolutions:

1. Amending the Amended and Restated Water Supply Agreement between the City and County of San Francisco and Wholesale Customers in Alameda County, San Mateo County and Santa Clara County (Attachment A) and;

2. Approve the updated Tier 2 Drought Response Implementation Plan (Attachment B).

MOTION PASSED: 6-0-1, Lythcott-Haims Absent

Adjournment: The meeting was adjourned at 10:02 P.M.

ATTEST: APPROVED:
____________________ ____________________
City Clerk Mayor NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC)

2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section

2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council found action minutes and the video/audio recordings of Council proceedings to be the official records of both Council and committee proceedings. These recordings are available on the City’s website.

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2025 Draft Action Minutes

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CITY COUNCIL

DRAFT ACTION MINUTES

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Regular Meeting
August 18, 2025
The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual teleconference at 5:30 P.M.

Present In Person: Burt, Lauing, Lu, Lythcott-Haims, Reckdahl, Stone, Veenker Lythcott-Haims arrived at 5:34 P.M.

Present Remotely:

Absent:

Special Orders of the Day

1. Remarks from Congressman Sam Liccardo, United States Representative of California’s 16th Congressional District

NO ACTION

2. Proclamation Honoring Young Tran for his Service to the City of Palo Alto

NO ACTION

3. Celebrating the Palo Alto Tsuchiura Marathon Runner

NO ACTION

Closed Session

4. CONFERENCE WITH CITY ATTORNEY--ANTICIPATED LITIGATION Authority: Gov Code 54956.9(d)(4), initiation of litigation. Number of matters: one.

AA1. CONFERENCE WITH CITY ATTORNEY-POTENTIAL LITIGATION Subject: Potential litigation regarding 156 North California Avenue, as set forth in letter(s)
Authority: Government Code Section 54956.9(d)(2); One case, as Defendant.

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City Council Meeting
Draft Action Minutes: 08/18/2025
MOTION: Councilmember Burt moved, seconded by Council member Reckdahl to go into Closed Session.

MOTION PASSED: 7-0
Council went into Closed Session at 6:25 P.M.

Council returned from Closed Session at 9:05 P.M.

Mayor Lauing announced no reportable action.

Agenda Changes, Additions and Deletions

Public Comment

Council Member Questions, Comments and Announcements

Study Session

5. Productivity of Council Meetings for Second Half of 2025

NO ACTION

Consent Calendar
MOTION: Council member Lu moved, seconded by Vice Mayor Veenker to approve Agenda Item Numbers 6, 8-15 (Agenda Item Number 7 Removed Off Agenda).

MOTION PASSED ITEMS 6, 8-15: 7-0

6. Staff and the Climate Action and Sustainability Committee Recommendation to Accept the E-Mobility Strategic Roadmap; CEQA Status - Under CEQA Guidelines Section 15183, Projects Consistent with an Existing General or Comprehensive Plan do not Require Additional CEQA Review
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City Council Meeting
Draft Action Minutes: 08/18/2025

7. Approval of Retail Committee Recommendations for Streetscape Improvements and Outdoor Activation Standards for Pedestrian Only Ramona Street; CEQA Status - categorically exempt. Agenda Item Number 7 Removed Off Agenda

8. Approval to Dedicate a Seat at Lucie Stern Community Theatre to Eugenie Watson; CEQA status – not a project.

9. Approval of Contract No. C26195197 with Santa Clara County Fire Safe Council for on - call services related to fuel reduction maintenance for wildfire hazard mitigation and public education, for a five -year term and not -to-exceed amount of $2,500,000. CEQA status: Exempt (CEQA Guidelines Section 15304)

10. Approval of General Service Contract No. C26194766 with Securitas Technology Corporation, Utilizing Sourcewell Cooperative Agreement No. 121024 -SCS, to Procure Fire Alarm Systems Monitoring, Inspection, Testing, Repair, and Related Services for a Period of Four Years in the Not -To-Exceed Amount of $404,646; CEQA Status – Not a Project

11. Approval of Purchase Order C26195602 with Carahsoft Technology Corporation to Procure DocuSign eSignature Software for a One -Year Term Not -To-Exceed Amount of $145,180; CEQA status - Not a project

12. Approval of Professional Service Contract C26194516 with Interweave Production Group with Not-To-Exceed Amount of $280,170, for a Term of Three Years, CEQA Status – Not a Project.

13. Approval of Six (6) On -Call Consulting Contracts to Provide Specialized Technical Expertise for the Planning and Development Services Department over a Five -Year Term, as needed: 1) David J. Powers & Associates, Inc., 2) Economic and Planning Systems, Inc., 3) Keyser Marston Associates, Inc., 4) Page and Turnbull Inc., 5) Rincon Consultants, Inc., 6) Strategic Economics, in the Amount not to exceed $2,000,000 ; CEQA Status: Not a Project.

14. Approval to Extend the Lease Between 285 Hamilton LLC, and the City of Palo Alto for the Premises Located at 285 Hamilton Avenue (Development Center) for 36 months, at a Starting Base Rent of $49,420.45 per Month and Increasing 3 Percent Annually; CEQA Status – Exempt Under CEQA Guidelines Section 15061(b)(3)

15. PUBLIC HEARING: Adoption of Resolution Correcting Clerical Errors in Three Electric Rate Schedules: E-16 (Unmetered Electric Service), E-EEC-1 (Export Electricity Compensation), and E -NSE-1 (Net Surplus Electricity Compensation); CEQA Status: Not a project under CEQA Guidelines Sections 15378(b)(4) and (5) and Exempt Under Section 15273(a).

Item 3
Attachment B - August 18,
2025 Draft Action Minutes

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DRAFT ACTION MINUTES

Page 4 of 4 ends

City Council Meeting
Draft Action Minutes: 08/18/2025
City Manager Comments
Ed Shikada, City Manager

Action Items

16. Approval of a Director’s Interpretation Pursuant to PAMC Section 18.01.025 Concluding That Noncomplying Residential Gross Floor Area may not be Relocated Within a Structure; Denial of the Associated Appeal; Direction to Prepare a Future Code Amendment for Administrative De Minimis Exceptions to the Zoning Code; CEQA:

Exempt Pursuant to CEQA Guidelines Section 15061(b)(3)
Agenda Item Number 16 not heard and deferred to September 15, 2025 City Council Meeting.

Adjournment: The meeting was adjourned at 10:25 P.M.

ATTEST: APPROVED:
____________________ ____________________
City Clerk Mayor NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC)

2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section

Item 3
Attachment B - August 18,
2025 Draft Action Minutes

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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: September 8, 2025
Report #:2507-4952
TITLE
Adoption of an Ordinance Amending the Fiscal Year 2026 Municipal Fee Schedule to Reflect Council-Directed Changes to Existing Fees and Add a New Subsidized Fee for Stand-Alone Residential Gas, Water and Space Heating Equipment Permits. CEQA Status: Not a Project

RECOMMENDATION
Staff recommends that the City Council adopt an ordinance amending the Fiscal Year 2026 Municipal Fee Schedule to reflect Council-Directed changes to various existing fees and add a new subsidized fee for stand-alone residential gas water and space heating equipment permits.

EXECUTIVE SUMMARY
The Council adopted the FY 2026 Municipal Fee Schedule on June 16, 2025. The proposed ordinance will amend the FY 2026 Municipal Fee Schedule by reducing certain fee amounts and removing certain outdated fees. The proposed amendment would also establish a subsidized permit fee for the installation of stand-alone residential gas powered, water and space heating equipment. The fee amount is lower than full cost recovery to encourage installers of residential water and space heating equipment to obtain permits, thereby helping ensure these appliances are installed in a safe and code-compliant manner. This subsidy will be funded by the General Fund, staff reviewed alternative funding options such as the Gas Cap and Trade and Gas Public Benefits Funds and concluded that these funding sources were ineligible for that purpose.

BACKGROUND
The City of Palo Alto’s FY 2026 Municipal Fee Schedule was developed through a series of staff reports presented to Council between March and June 2025. These reports implemented recommendations from cost-of-service studies, corrected prior assumptions, and codified updates through ordinance adoption. Key reports included the Planning and Development Services cost of services study1, citywide cost of services study2, fee updates for departments 1 Finance Committee, March 4, 2025; Agenda Item #2, 2501-4019, https://portal.laserfiche.com/Portal/DocView.aspx?id=146000&repo=r- 704298fc&searchid=eee8438f-ca58-45f5-8143-d787259b83c9
2 Finance Committee, April 29, 2025: Agenda Item #2, 2503-4351, https://portal.laserfiche.com/Portal/DocView.aspx?id=167215&repo=r-704298fc Item 4
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not included in the prior two studies5, corrections of assumptions and updated language6, additional staff recommended technical adjustments7, and final adoption via ordinance8.

The FY 2026 Municipal Fee Schedule adopted by the Council on the June 16 report included an incorrect version of a fee study report prepared in connection with the proposed fee and omitted technical adjustments approved by the Finance Committee on May 20. This report and the proposed ordinance address those issues. In addition, the proposed ordinance establishes a fee for stand alone residential gas water and space equipment permits based on the Finance Committee’s recommendation and Council direction to set the fee for these permits below "full cost recovery” level to encourage compliance and enhance community safety. Staff was asked to explore options for how such a subsidy might be structured and funded. At its April 29, 2025 meeting the Finance Committee also recommended that Council direct staff to implement targeted subsidies for building permit fees for appliance electrification. The City has adjusted its electrification programs to provide permit subsidies of $328 to $638 for residential space and water heating, which will be adjusted as permit fees change in the future.

ANALYSIS
The Municipal Fee Schedule is updated annually through a series of Council actions supported by cost-of-service studies, policy guidance, and department-submitted adjustments. Fees not explicitly revised in a staff report are subject to the Council-approved General Rate Increase.

This approach generally provides efficiency, however a subsequent review of the FY 2026 schedule identified several discrepancies where the final document may not have fully reflected Council direction or a given department's recommendations. The proposed ordinance amends the FY 2026 Municipal Fee Schedule consistent with Council’s direction and departments’ recommendations. Specifically, these changes would:
Reduce various copying and printing fees
Reduce certain pet/animal services fees
Modify the art studio facility rental fee structure to a per square foot per month basis Specify the rental registry fee for non-exempt unit
Establish a subsidized permit fee for stand-alone residential gas powered water and space heating equipment
Eliminate certain fees for Fire Department services
5 Finance Committee, May 7, 2025; Agenda Item #4; 2504-4591, https://www.paloalto.gov/files/assets/public/v/1/administrative-services/city-budgets/fy- 2026-city-budget/proposed/may-7/finance-committee-5.25-supp-report-fy-2026-proposed- municipal-fee-schedule.pdf
6 Finance Committee, May 20, 2025; Agenda Item #2 Supplemental Report, 2505-4644, https://portal.laserfiche.com/Portal/DocView.aspx?id=175928&repo=r-704298fc&searchid=70fee93e-2731-4934-9a0d- 05cb8a690ab4
7 Finance Committee, May 20, 2025; Agenda Item #2, 2503-4243, https://portal.laserfiche.com/Portal/DocView.aspx?id=175930&repo=r-704298fc&searchid=5d70cb12-2bb0-4852-98df- c16498b7aab7
8 Finance Committee, June 16, 2025; Agenda Item #23, 2503-4250, Staff Report 2503-42 https://portal.laserfiche.com/Portal/DocView.aspx?id=188956&repo=r-704298fc&searchid=dc3ad098-42ec- 4b99-9d42-8e3a90ef6c3450
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Exhibit A of the proposed ordinance sets forth the specific adjustments to the FY 2026 Municipal Fee Schedule. Attachment B includes the final report by Matrix and technical adjustments approved by Council on May 20, 2025, that were not incorporated into the final adopted fee schedule.

FISCAL/RESOURCE IMPACT
There is no fiscal impact associated with the corrections to the FY 2026 Municipal Fee Schedule.

The adjustments reflect Council’s previously authorized direction and intent, and do not represent new fee actions.

For the stand-alone gas powered residential water and space heating equipment permits, the fee of $328 aligns with the cost of an instant permit, but lower than full cost recovery level of $633-$806. Staff evaluated alternative funding options to increase the cost recovery level for these permit types such as through the Gas Cap and Trade and Gas Public Benefits Funds and concluded that these sources are not suitable for this purpose due to use of funding restrictions. Based upon historical data, the city would forego approximately $50,000 per year of cost recovery for the stand-alone gas powered residential equipment permit, subsidized by the General Fund. Staff will monitor fee activity and return to Council with budget adjustments if needed.

STAKEHOLDER ENGAGEMENT
Staff engaged with affected departments to verify the fee changes and confirm consistency with operational needs and cost recovery objectives. In alignment with Council direction, staff also coordinated across departments to evaluate potential funding sources to increase the cost recovery level for lower permit fees related to stand alone residential gas water and space equipment installations.

ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) because the proposed amendment to the 2026 Municipal Fee Schedule is a government funding mechanism which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. CEQA Guidelines section 15378(b)(4).

ATTACHMENTS
Attachment A: Ordinance Amending the FY26 Municipal Fee Schedule Attachment B: Corrected Matrix Report & Technical Adjustments from May 20 APPROVED BY:

Lauren Lai, Administrative Services Director
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*NOT YET APPROVED*
1 141_20250818_ts24
Ordinance No. ___

Ordinance of the Council of the City of Palo Alto Amending the Fiscal Year 2026 Municipal Fee Schedule to Amend and Remove Various Fees

The Council of the City of Palo Alto ORDAINS as follows:

SECTION 1. Findings and Declarations. The City Council finds and declares as follows:

A. On June 16, 2025, the City Council adopted Ordinance 5658, which adopted the City’s budget for fiscal year 2026 (FY26). Ordinance 5658 included the FY26 Municipal Fee Schedule.

B. The City Council now desires to amend the FY26 Municipal Fee Schedule through this Ordinance to adjust the fee amounts for specific fees and remove some fees.

SECTION 2. The Council of the City of Palo Alto amends the Fiscal Year 202 6 Municipal Fee Schedule by adjusting certain fee amounts, removing certain fees, and establishing a new fee for permits for residential gas water and space heating equipment as set forth in Exhibit “A” and incorporated herein by reference.

SECTION 3. The f ees amended in this Ordinance are not taxes, as defined by Article XIII C of the California Constitution, because one or more exceptions enumerated in subdivision (e) of Section 1 of Article XIII C apply, and the fee amounts are no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.

SECTION 4. The Council finds that this ordinance is not a “project” under CEQA because amending the Municipal Fee Schedule is a government funding mechanisms or fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. CEQA Guidelines section 15378(b)(4).

//
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Attachment A - Ordinance
Amending the FY26
Municipal Fee Schedule and
List of Fee Changes 2

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*NOT YET APPROVED*
2 141_20250818_ts24
SECTION 5. This ordinance shall be effective upon adoption as an amendment to the City’s FY26 budget.

INTRODUCED:

PASSED:

AYES:

NOES:

ABSENT:

ABSTENTIONS:

ATTEST:

____________________________ ____________________________ City Clerk Mayor

APPROVED AS TO FORM: APPROVED:

____________________________ ____________________________ Assistant City Attorney City Manager

____________________________
Director of Administrative
Services

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Attachment A - Ordinance
Amending the FY26
Municipal Fee Schedule and
List of Fee Changes 2

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*NOT YET APPROVED*
3 141_20250818_ts24
Exhibit A
(see following page)
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Attachment A - Ordinance
Amending the FY26
Municipal Fee Schedule and
List of Fee Changes 2

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List of Fee Changes Exhibit A
Department   Service ‐ Fee Title   FY 2026 Adopted   FY 2026 Update Note Administrative Services Documents and Photocopies ‐ Black & White ‐ All Sizes Single: $0.16/page; Double‐Sided: $0.32/page Single: $0.15/page; Double‐Sided: $0.30/page Placeholder rate maintained to avoid interim overcharging
Administrative Services Documents and Photocopies ‐ Color (1‐100) 8.5" x 11" Single: $0.43/page; Double‐Sided: $0.86/page   Single: $0.40/page; Double‐Sided: $0.80/page Placeholder rate maintained to avoid interim overcharging
Administrative Services Documents and Photocopies ‐ Color (1‐100) 8.5" x 14" Single Single: $0.75/page; Double‐Sided: $1.50/page   Single: $0.70/page; Double‐Sided: $1.40/page Placeholder rate maintained to avoid interim overcharging
Administrative Services Documents and Photocopies ‐  ‐ Color Ink Jet Plot ‐ 18" x 24" Single: $0.85/page; Double‐Sided $1.70/page   Single: $0.80/page; Double‐Sided $1.60/page Placeholder rate maintained to avoid interim overcharging
General Citywide Plans, Standards & Large Format Printing ‐ Color Ink Jet Plot ‐ 18" x 24" $3.20 per page   $3.00 per page Placeholder rate maintained to avoid interim overcharging
General Citywide Plans, Standards & Large Format Printing ‐ Color Ink Jet Plot ‐ 24" x 36" $6.40 per page Color Ink Jet Plot ‐ 36" x 48" $12.80 per page   $6.00 per page Color Ink Jet Plot ‐ 36" x 48" $12.00 per page Placeholder rate maintained to avoid interim overcharging
General Citywide Plans, Standards & Large Format Printing ‐ Color Ink Jet Plot ‐ 36" x 48" $12.80 per page   $12.00 per page Placeholder rate maintained to avoid interim overcharging
General Citywide Plans, Standards & Large Format Printing ‐ Small Format B&W Prints 8.5"x11" $0.16 and 11"x17" $0.27   8.5"x11" $0.15 and 11"x17" $0.25 Placeholder rate maintained to avoid interim overcharging
General Citywide Plans, Standards & Large Format Printing ‐ Small Format Color Prints 8.5" x 11" $0.43 and 11" x 17" $0.86   8.5" x 11" $0.40 and 11" x 17" $0.80 Placeholder rate maintained to avoid interim overcharging
General Citywide Plans, Standards & Large Format Printing ‐ Standard Color/Mono 8.5" x 11" and 11" x 17" $1.28 each   $1.20 each Placeholder rate maintained to avoid interim overcharging
General Citywide Plans, Standards & Large Format Printing ‐ Standard Drawings & Specifications $19.20 each   $18.00 each Placeholder rate maintained to avoid interim overcharging
Community Services Adoptions ‐ Dogs (6 months ‐ 5 years) Resident: $175.00 per pet Non‐Resident: $205.00 per pet
Resident: $175.00 per pet
Non‐Resident: $175.00 per pet Vendor sets pricing
Community Services Adoptions ‐ Dogs (under 6 months) Resident: $300.00 per pet Non‐Resident: $350.00 per pet
Resident: $300.00
Non‐Resident: $300.00 Vendor sets pricing
Community Services Animal Services ‐ Routine Deworming (roundworms and hookworms) $75.00 per pet   $10.00 per pet Vendor sets pricing Community Services Facilities Rental ‐ Art Studio Short Term Resident: $114.00 per week Non‐Resident: $131.00 per week
Resident: $1.14 per sq ft per month
Non‐Resident: $1.27 per sq ft per month
Room sizes vary; fees are based on the square footage
of the assigned room.

Planning & Development
Services Rental Registry Exempt: $0 per unit
Non‐Exempt: $0 per unit
Exempt: $0 per unit
Non‐Exempt: $35.00 per unit FY 2026 exemption approved; non‐exempt fee omitted Planning & Development
Services
Residential Gas Water and Space Heating Equipment
- Stand Alone N/A $328.00 per permit Unsubsidized cost: $633 - $806 Fire Compliance ‐ Alarm Registration Fee ‐ New $56.00 per incident Removed Sunsetting; intended for deletion based on discussions, but never formally removed
Fire Compliance ‐ Alarm Registration Fee ‐ Renewal $42.00 per incident   Removed Sunsetting; intended for deletion based on discussions, but never formally removed
Fire Compliance ‐ Alarm Registration Fee ‐ Late Fee $20.00 per incident Removed Sunsetting; intended for deletion based on discussions, but never formally removed
Fire Compliance ‐ Alarm Registration Reinstatement $20.00 per incident   Removed Sunsetting; intended for deletion based on discussions, but never formally removed
Fire Compliance ‐ Returned Check Fee $25.00 per incident   Removed Sunsetting; intended for deletion based on discussions, but never formally removed
Fire Fire Department Training (Full Day) $167.00 per class Removed Not used in over decade; intended for deletion but never formally removed
Fire Fire Department Training (Half Day or Less) $83.00 per class Removed Not used in over decade; intended for deletion but never formally removed
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Attachment A - Ordinance
Amending the FY26
Municipal Fee Schedule and
List of Fee Changes 2

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Item No. 4 Page 1 of 1

Finance Committee
Supplemental Report
From: Lauren Lai, Administrative Services Director
Meeting Date: May 20, 2025
Item Number: 2
Report #:2505-4644
TITLE
Supplemental Report - Recommendation to the City Council to Approve the Citywide Cost of Services Study and Proposed Municipal Fee Adjustments

BACKGROUND
This is informational only and Committee action is not required.

On April 29, 20251, staff presented Item 2 to the Finance Committee. An error was identified in Attachment B: Citywide Cost of Services Study Report, on pages 29 and 40, which incorrectly referenced the City of Thousand Oaks.

ATTACHMENTS
Attachment A: Citywide Cost of Services Study Report – Corrected APPROVED BY:

Lauren Lai, Administrative Services Director
1 Finance Committee, April 29, 2025; Agenda Item #2; SR#2503-4351, https://portal.laserfiche.com/Portal/DocView.aspx?id=167675&repo=r-704298fc Item 2
Item 2 Supplemental
Report

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Matrix Report & Technical
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PALO ALTO, CA
COST OF SERVICES (USER FEE) STUDY – MUNICIPAL FEES MAY 2025 Item 2
Attachment A - Citywide
Cost of Services Study
Report - Corrected

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Matrix Report & Technical
Adjustments from May 20

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MATRIX CONSULTING GROUP
INTRODUCTION AND EXECUTIVE SUMMARY 1 LEGAL FOUNDATIONS AND POLICY 3 USER FEE STUDY METHODOLOGY 6 RESULTS OVERVIEW 8 OFFICE OF THE CITY CLERK 9 COMMUNITY SERVICES 11 FIRE EMS 17 POLICE 24 POLICE – ANIMAL CONTROL 28 PUBLIC WORKS 31 REAL ESTATE AND PROPERTY MANAGEMENT 34 REVENUE COLLECTION 36 COST RECOVERY CONSIDERATIONS 37

TABLE OF CONTENTS
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Cost of Services Study
Report - Corrected

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Matrix Report & Technical
Adjustments from May 20

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PALO ALTO MUNICIPAL FEE STUDY REPORT
MATRIX CONSULTING GROUP 1
The report, which follows, presents the results of the Cost of Services (User Fee) Study conducted by Matrix Consulting Group for the City of Palo Alto, California. PROJECT BACKGROUND AND OVERVIEW The purpose of this study is to evaluate and determine the full cost (direct and indirect) of providing a variety of city services. Matrix Consulting Group analyzed the cost-of-service relationships that exist between fees for service activities in the following departments: City Clerk, Revenue, Real Estate, Public Works, EMS, and Community Services. The results of this study provide a tool for understanding current service levels and the cost for those services. GENERAL PROJECT APPROACH AND METHODOLOGY The methodology employed by Matrix Consulting Group is a widely accepted “bottom up” approach to cost analysis, where time spent per unit of fee activity is determined for each position within a Department or Program. Once time spent for a fee activity is determined, all applicable City costs are then considered in the calculation of the “full” cost of providing each service. The following table provides an overview of types of costs applied in establishing the “full” cost of services provided by the City: TABLE 1: OVERVIEW OF COST COMPONENTS Cost Component Description Direct Fiscal Year 2025 Budgeted salaries, benefits, and allowable expenditures. Indirect Program, departmental, clerical, and Citywide support. Together, the cost components in the table above comprise the calculation of the total “full” cost of providing a service, regardless of whether a fee for that service is charged. The work accomplished by Matrix Consulting Group in the analysis of the proposed fees for service involved the following steps: • Department / Program Staff Interviews: The project team interviewed department / program staff regarding their needs for clariﬁcation to the structure of existing fee items or for addition of new fee items. • Data Collection: Data was collected for each permit / service, including time estimates. In addition, all budgeted costs and staﬃng levels for Fiscal Year 2025 were entered into Matrix Consulting Group’s analytical software model. • Cost Analysis: The full cost of providing each service included in the analysis was established.

INTRODUCTION AND EXECUTIVE SUMMARY
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Cost of Services Study
Report - Corrected

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Matrix Report & Technical
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PALO ALTO MUNICIPAL FEE STUDY REPORT
MATRIX CONSULTING GROUP 2
• Review and Approval of Results with City Staff: Department management has reviewed and approved these documented results. A more detailed description of user fee methodology and legal and policy considerations are provided in subsequent chapters of this report. SUMMARY OF RESULTS Overall, this study found that the City is under-recovering for most of its administrative, EMS, Public Works, and Recreation services. Each of these service areas serve a different population and constituency and should be reviewed individually to determine how and where fees should be set. CONSIDERATIONS FOR COST RECOVERY POLICY AND UPDATES Matrix Consulting Group recommends that the City use the information contained in this report to review current Cost Recovery Policies, including mechanisms for the annual update of fees for service. ADOPT A FORMAL COST RECOVERY POLICY The Government Finance Oﬃcers Association’s (GFOA) best practices for Establishing Government Charges and Fees states that governmental entities should adopt formal policies regarding charges and fees which include the jurisdiction’s intention to recover the full cost or partial costs of providing services, sets forth circumstances under which the jurisdiction might set a charge for fee at less than or more than 100% of full cost, and outlines the considerations that might inﬂuence the jurisdiction’s pricing decision. Whenever a cost recovery policy is established at less than 100% of the full cost of providing services, a known gap in funding is recognized and may then potentially be recovered through other revenue sources. Matrix Consulting Group recommends that the City continue to review, update, and apply its formalized cost recovery policies to each service area included in this Study. ADOPT AN ANNUAL FEE UPDATE / INCREASE MECHANISM The purpose of a comprehensive update is to completely revisit the analytical structure, service level estimates and assumptions, and to account for any major shifts in cost components or organizational structures that have occurred since the City’s previous analysis. GFOA best practices for Establishing Government Charges and Fees states that governmental entities should review, and update charges and fees periodically based on factors such as the impact of inﬂation, other cost increases, adequacy of cost recovery, use of services, and the competitiveness of current rates to avoid large infrequent fee increases. Therefore, it is recommended the City establish a practice of conducting comprehensive analyses every ﬁve to seven years to captures any changes to organizational structure, processes, code amendments, as well as any new service areas. In between comprehensive updates, the City should continue its practice of updating fees annually based on internal cost factors Item 2
Attachment A - Citywide
Cost of Services Study
Report - Corrected

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Matrix Report & Technical
Adjustments from May 20

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PALO ALTO MUNICIPAL FEE STUDY REPORT
MATRIX CONSULTING GROUP 3

This section of the report is intended to provide an overview of the legal rules and regulations that govern what is considered a fee for service, how those fees can be calculated, general principles, philosophies, and general policy considerations for setting fees for service. LEGAL FRAMEWORK A “user fee” is a charge for service provided by a governmental agency to a public citizen or group. California has several Government Codes and Propositions that regulate fees for service, with the purpose of ensuring that fees are reasonable and justiﬁed. The most prominent and relevant of these includes: • Proposition 26: Passed in 2010, speciﬁcally outlined the difference between a fee and a tax and dictates that fees must be directly related to a service and cannot exceed the reasonable cost of that service. • Government Code § 50076: clariﬁes that fees for service costs are not special taxes and do not need voter approval. • Government Code § 65104: gives local governments the authority to charge planning and zoning fees to recover processing costs. When determining fees for service it is important to ensure there is a direct beneﬁt – the service is provided directly to the payer, and that it is cost based, and does not exceed the reasonable cost of providing the service. EXCEPTIONS TO THE RULE While Proposition 26 deﬁnes what constitutes a user fee, and how those fees can be determined, it also provides a key exception for fees charged for facility or property rentals. This exception outlines that fees for use of government property (e.g., renting public buildings, parks, or event spaces) are voluntary transactions. Therefore, governments can charge market-based rental fees for these services. GENERAL PRINCIPLES AND PHILOSOPHIES REGARDING USER FEES Local governments are providers of many types of general services to their communities. While all services provided by local government are beneﬁcial to constituents, some services can be classiﬁed as globally beneﬁcial to all citizens, while others provide more of a direct beneﬁt to a speciﬁc group or individual. The following table provides examples of services provided by local government within a continuum of the degree of community beneﬁt received:

LEGAL FOUNDATIONS AND POLICY
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Cost of Services Study
Report - Corrected

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Matrix Report & Technical
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PALO ALTO MUNICIPAL FEE STUDY REPORT
MATRIX CONSULTING GROUP 4
TABLE 2: SERVICES IN RELATION TO BENEFIT RECEIVED

Funding for local government is obtained from a myriad of revenue sources such as taxes, ﬁnes, grants, special charges, user fees, etc. In recent years, alternative tax revenues, which typically offset subsidies for services provided to the community, have become increasingly limited. These limitations have caused increased attention on user fee activities as a revenue source that can offset costs otherwise subsidized (usually) by the general fund. In Table 3, services in the “global beneﬁt” section tend to be funded primarily through voter-approved tax revenues. In the middle of the table, one typically ﬁnds a mixture of taxes, user fees, and other funding sources. Finally, in the “individual / group beneﬁt” section of the table lie the services provided by local government that are typically funded almost entirely by user fee revenue. The following are two central concepts regarding the establishment of user fees: v Fees should be assessed according to the degree of individual or private beneﬁt gained from services. For example, the processing and approval of a land use or building permit will generally result in monetary gain to the applicant, whereas Police services and Fire Suppression are examples of services that are essential to the safety of the community at large. v A proﬁt-making objective should not be included in the assessment of user fees. In fact, California laws require that the charges for service be in direct proportion to the costs associated with providing those services. Once a charge for service is assessed at a level higher than the actual cost of providing a service, the term “user fee” no longer applies. The charge then becomes a tax subject to voter approval. Therefore, it is commonly accepted that user fees are established at a level that will recover up to, and not more than, the cost of providing a particular service. GENERAL POLICY CONSIDERATIONS REGARDING USER FEES Undoubtedly, there are programs, circumstances, and services that justify a subsidy from a tax-based or alternative revenue source. However, it is essential that jurisdictions prioritize the use of revenue sources for the provision of services based on the continuum of beneﬁt received. "Global" Community Beneﬁt •Police •Park Maintenance •Fire Suppression "Global" Beneﬁt and an Individual or Gorup Beneﬁt •Recreation / Community Services •Fire Prevention Individual or Group Beneﬁt •Building Permits •Planning and Zoning Approval •Engineering Development Review Item 2
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Within the services that are typically funded by user fees, the Matrix Consulting Group recognizes several reasons why City staff or the Council may not advocate the full cost recovery of services. The following factors are key policy considerations in setting fees at less than 100 percent of cost recovery: • Limitations posed by an external agency. The State or an outside agency will occasionally set a maximum, minimum, or limit on the jurisdiction’s ability to charge a fee. Examples includes time spent copying and retrieving public documents and / or transportation permits. • Encouragement of desired behaviors. Keeping fees for certain services below full cost recovery may provide better compliance from the community. For example, if the cost of a permit for changing a water heater in residential home is higher than the cost of the water heater itself, many citizens will avoid pulling the permit. • Beneﬁt received by user of the service and the community at large is mutual. Many services that directly beneﬁt a group or individual equally beneﬁt the community. Examples include Planning Design Review, historical dedications, and certain types of special events. The Matrix Consulting Group recognizes the need for policies that intentionally subsidize certain activities. The primary goals of a User Fee Study are to provide a fair and equitable basis for determining the costs of providing services and ensure that the City complies with State law. SUMMARY OF LEGAL RESTRICTIONS AND POLICY CONSIDERATIONS Once the full cost of providing services is known, the next step is to determine the “rate” or “price” for services at a level which is up to, and not more than, the full cost amount. The Council is responsible for this decision, which often becomes a question of balancing service levels and funding sources. The placement of a service or activity within the continuum of beneﬁt received may require extensive discussion and at times fall into a “grey area.” However, with the resulting cost of services information from a User Fee Study, the Council can be assured that the adopted fee for service is reasonable, fair, and legal. The City will need to review all fees for service in this analysis. Where subsidies are identiﬁed, they City should increase the fees to reduce the deﬁcit; where over-recoveries are identiﬁed, the fee must be reduced to comply with the law.

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The Matrix Consulting Group utilizes a cost allocation methodology commonly known and accepted as the “bottom-up” approach to establishing User Fees. The term means that several cost components are calculated for each fee or service. These components then build upon each other to comprise the total cost for providing the service. The following chart describes the components of a full cost calculation:

The general steps utilized by the project team to determine allocations of cost components to a particular fee or service are: • Calculate fully burdened hourly rates by position, including direct and indirect costs; • Develop time estimates for the average time spent to deliver each service included in the study; and • Distribute the appropriate amount of the other cost components to each fee or service based on the staff time allocation basis or another reasonable basis. The results of these allocations provide detailed documentation for the reasonable determination of the actual cost of providing each service. One of the key study assumptions utilized in the “bottom up” approach is the use of time estimate averages for the provision of each fee-related service. Utilization of time estimates is a reasonable and defensible approach, especially given that experienced staff members who understand service levels and processes unique to the City developed these estimates. The project team worked closely with City staff in developing time estimates with the following criteria: • Estimates are representative of average times for providing services. Extremely diﬃcult or abnormally simple projects are not factored in the analysis. • Estimates reﬂect the time associated with the position or positions that typically perform a service. • Estimates are reviewed by the project team for “reasonableness” against their experience with other agencies. • Estimates were not based on time in motion studies, as they are not practical for the scope of services and time frame for this project.

DIRECT (Salaries, Beneﬁts, Productive Hours) INDIRECT (Departmental Admin, Services & Supplies, Citywide Overhead etc.) Total Cost

USER FEE STUDY METHODOLOGY
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• Estimates match the current or proposed staﬃng levels to ensure there is no over-allocation of staff resources to fee and non-fee related activities. The Matrix Consulting Group agrees that while the use of time estimates is not perfect, it is the best alternative available for setting a standard level of service on which to base a jurisdiction’s fees for service and meets the requirements of California law. The alternative to time estimating is actual time tracking, often referred to billing on a “time and materials” basis. Except in the case of anomalous or very large and complex projects, the Matrix Consulting Group believes this approach to not be cost effective or reasonable for the following reasons: • Accuracy in time tracking is compromised by the additional administrative burden required to track, bill, and collect for services in this manner. • Additional costs are associated with administrative staff’s billing, refunding, and monitoring deposit accounts. • Customers often prefer to know the fees for services in advance of applying for permits or participating in programs. • Departments can better predict revenue streams and staff needs using standardized time estimates and anticipated permit volumes. Situations arise where the size and complexity of a given project warrants time tracking and billing on a “time and materials” basis. The Matrix Consulting Group has recommended taking a deposit and charging Actual Costs for such fees as appropriate and itemized within the current fee schedule.

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The motivation behind a cost of services (User Fee) analysis is for the City Council and Departmental staff to maintain services at a level that is both accepted and effective for the community and to maintain control over the policy and management of these services. It should be noted that the results presented in this report are not a precise measurement. In general, a cost-of-service analysis takes a “snapshot in time,” where a ﬁscal year of ﬁnancial and operational information is utilized. Changes to the structure of fee names, along with the use of time estimates, allow only for a reasonable projection of subsidies and revenue. Consequently, the Council and Department staff should rely conservatively upon these estimates to gauge the impact of implementation going forward. Discussion of results in the following chapters is intended as a summary of extensive and voluminous cost allocation documentation produced during the Study. Each chapter will include detailed cost calculation results for each major permit category including the following: • Modiﬁcations: discussions regarding any proposed revisions to the current fee schedule, including elimination or addition of fees. • “Per Unit” Results: comparison of the full cost of providing each unit of service to the current fee for each unit of service (where applicable). • Annualized Results: utilizing volume of activity estimates annual subsidies and revenue impacts were projected where appropriate. The full analytical results were provided to City staff under separate cover from this summary report.

RESULTS OVERVIEW
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The Oﬃce of the City Clerk serves as a municipal recordkeeper, with duties that include processing ordinances and resolutions, preparing Council agendas and minutes, and managing municipal elections. This Oﬃce also acts as the City’s repository for records and process records requests. The fees examined within this study relate to appeals, documents & photocopies, domestic partner registries, and subscriptions. The following subsections discuss fee schedule modiﬁcations and detailed per unit results for the fee-related services provided by the Oﬃce of the City Clerk. FEE SCHEDULE MODIFICATIONS In discussions with City Clerk staff, the following modiﬁcations to the current fee schedule were proposed: • Eliminated Fees: the ‘Certiﬁcation Fee’ was removed from the schedule as this service is no longer provided by Clerk staff. • New Fees: fees for ‘Black and White’, ‘Color’, and ‘Digital Copy’ services were added to the fee schedule to collect additional revenues for these services. The modiﬁcations noted above ensure that the proposed fee schedule better reﬂets the services being provided by City Clerk staff. DETAILED RESULTS The Oﬃce of the City Clerk collects fees for appeals, document and photocopy services, domestic partner registries, and subscription related services. The total cost calculated for each service includes direct staff costs, and Departmental and Citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. TABLE 3: TOTAL COST PER UNIT RESULTS – CITY CLERK Fee Name Unit Current Fee Total Cost Difference Appeals Appeal Costs Exceeding Appeals Filing Fee Deposit Refer To Planning and Development Services Appeals and Request for Hearing before City Council or Planning & Transportation Commission Each Refer To Planning and Development Services Documents & Photocopies Fair Political Practices Commission Photocopies1 Per Page $0.10 $0.10 $0 Black & White2 Per Page $0.10 $0.10 $0 Color2 Per Page $0.25 $0.25 $0 Digital Copy3 Each Actual Cost 1 The total cost associated has been set according to CA Govt Code § 81008(a). 2 The total cost associated has been set according to GOV § 7922.530. 3 The total cost associated has been set according to GOV § 6253.9(a).

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Fee Name Unit Current Fee Total Cost Difference Domestic Partner Registry Domestic Partners Registration Fee Each $38 $78 ($40) Subscriptions Candidate Filing Fee4 Each $25 $25 $0 Both Appeal fees refer to the Planning and Development Services section of the municipal fee schedule, as depending on the type of application being appealed, these amounts can vary. All Document and Photocopy fees, as well as Subscription fees have been set to align with state codes. The ‘Domestic Partners Registration Fee’ shows a current subsidy of $40. ANNUAL RESULTS Due to the nature of City Clerk fees, most of which are set by the state, no annual results were calculated. 4 The total cost associated has been set according to ELEC § 10228 Item 2
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The Community Services Department (CSD) provides a variety of recreational opportunities, including parks, hiking trails, ﬁtness facilities, pools, and a municipal golf course. It also offers engaging programs for all ages, from educational classes to art exhibits and the Palo Alto Jr. Museum and Zoo. The focus of this analysis was the programmatic cost recovery associated with the following divisions: Arts and Sciences, Open Space, Parks and Golf, and Recreation and Cubberley. The following sections outline the cost recovery associated with the Community Services department as a whole, as well as each division. COMMUNITY SERVICES DEPARTMENT COST RECOVERY The typical cost recovery for parks and recreational service is between 20% and 50%. This range reﬂects the belief that these services primarily beneﬁt the community at large and therefore should be subsidized through taxpayers. As part of this analysis, the project team calculated the cost recovery for the Community Services Department based on its direct costs of operations and accounting for any indirect costs (Departmental / Divisional administration and Citywide overhead). Direct cost recovery compares budgeted costs against generated revenues. To determine direct departmental cost recovery, the project team compared FY24 budgeted revenues to FY25 budgeted costs. The following table shows by program: Revenue, Budget, the associated difference, and cost recovery percentage. TABLE 4: CSD DEPARTMENTAL COST RECOVERY – DIRECT COSTS Division FY24 Rev FY25 Exp5 Cost Recovery CSD Arts and Sciences $4,673,381 $10,105,808 46% CSD Open Space, Parks and Golf $6,174,447 $16,169,915 38% CSD Recreation and Cubberley $5,853,093 $7,916,070 74% Total $16,700,920 $34,191,793 49% The Department is at a 49% cost recovery level on a direct cost basis. This direct cost recovery is on the higher end of the typical cost recovery (20-50%). The range of cost recovery levels between programs is typical for parks and recreation fees. For example, the optional nature of fees related to recreation services usually equates to those fees being set closer to cost recovery. On the other hand, services provided in relation to youth or senior services tend to be subsidized to account for the community beneﬁt. Total cost recovery looks at direct program costs, departmental / divisional administration, and citywide overhead and compares those costs against generated revenues. For programmatic services to be provided, recreation management and administration staff support is needed. Furthermore, support 5 The FY25 Budget does not include CSD Administration, as those costs are considered part of the overhead.

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services are also needed from other City departments, including Finance, Human Resources, City Attorney, Facility, Maintenance, and so forth. The following table shows by division the indirect costs: TABLE 5: CSD DEPARTMENTAL COST RECOVERY – INDIRECT COSTS INCLUDED Division Depart. OH6 Citywide OH Total Indirect Cost CSD Arts and Sciences $818,588 $1,876,689 $2,695,277 CSD Open Space, Parks and Golf $1,309,790 $1,684,736 $2,994,526 CSD Recreation and Cubberley $641,215 $1,297,111 $1,938,326 Total $2,769,593 $4,858,536 $7,628,129 The project team accounted for roughly $8 million in indirect overhead costs. The table below compares FY24 Revenue to FY25 Total Direct and Indirect Costs (Full Cost), highlighting the difference and associated cost recovery percentage. TABLE 6: CSD DEPARTMENTAL COST RECOVERY – FULL COSTS Division FY24 Rev FY25 Full Cost Cost Recovery CSD Arts and Sciences $4,673,381 $12,801,084 37% CSD Open Space, Parks and Golf $6,174,447 $19,164,441 32% CSD Recreation and Cubberley $5,853,093 $9,854,396 59% Total $16,700,920 $41,819,922 40% Based on the analysis, the Department has a Full Cost recovery level of 40%, which is still within the typical range of 20-50% for parks and recreation services. Of the total direct and indirect expenditures, approximately 81% are direct expenditures, 12% is Citywide overhead, and 7% is Administrative costs. ARTS & SCIENCES COST RECOVERY The Arts & Sciences Division offers a variety of visual and performing arts programs for youth and adults. Additionally, it oversees the daily operations of the Art Center, Junior Museum and Zoo (JMZ), Children’s Theatre, Community Theatre, Cubberley Theatre, the Public Art Program, and the Cubberley Artist Studios Program. The following table shows by cost center: Revenue, Budget, the associated difference, and cost recovery percentage. TABLE 7: ARTS & SCIENCES COST RECOVERY – DIRECT COSTS Division FY24 Rev FY25 Exp7 Cost Recovery Visual Arts, Classes, Exhibitions $1,458,479 $2,912,659 50% Community Theater $198,608 $526,696 38% Junior Museum & Zoo $2,226,536 $3,770,337 59% Children's Theater $784,891 $2,329,639 34% Total $4,668,515 $9,539,331 49% 6 This represents the FY25 budgeted expenditures for the CSD Community Services Administration division only as the remaining divisions (i.e. Animal Shelter, Human Services Administration, Child Care Services, etc.) are not overhead to all of CSD. 7 The FY25 Budget does not include Arts & Culture Administration, as these costs are considered part of the overhead.

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The Arts & Sciences division is at a 49% cost recovery level on a direct cost basis. This direct cost recovery is within the typical cost recovery (20-50%). The next table shows associated indirect costs included: TABLE 8: ARTS & SCIENCES COST RECOVERY – INDIRECT COSTS INCLUDED Division Depart. OH8 Citywide OH Total Indirect Cost Visual Arts, Classes, Exhibitions $299,056 $220,601 $519,657 Community Theater $54,078 $3,705 $57,783 Junior Museum & Zoo $387,117 $587,606 $974,723 Children's Theater $239,194 $394,237 $633,431 Total $979,446 $1,206,149 $2,185,595 The project team accounted for roughly $2 million in indirect overhead costs. The table below compares FY24 Revenue to FY25 Total Direct and Indirect Costs (Full Cost), highlighting the difference and associated cost recovery percentage. TABLE 9: ARTS & SCIENCES COST RECOVERY – FULL COSTS Division FY24 Rev FY25 Full Cost Cost Recovery Visual Arts, Classes, Exhibitions $1,458,479 $3,432,316 42% Community Theater $198,608 $584,479 34% Junior Museum & Zoo $2,226,536 $4,745,060 47% Children's Theater $784,891 $2,963,071 26% Total $4,668,515 $11,724,926 40% Based on the analysis, the Arts & Sciences division has a full cost recovery level of 40%. Of the total direct and indirect expenditures, approximately 82% are direct expenditures, 10% is Citywide overhead, and 8% is Administrative costs. The full cost in Table 9, which equals roughly $11.7 million, varies from the full cost in Table 6, which equals $12.8 million, due to the exclusion of direct and indirect costs in relation to program cost centers9 which do not generate revenue. These exclusions ensure the division’s full cost recovery rate is not artiﬁcially reduced. In addition to the overall cost recovery range typically seen in relation to parks and recreation fees, there are typical cost recovery target ranges based upon the Matrix Consulting Group's experience conducting recreation fee studies. On the low end, classes and programs tend to have a 30% to 50% cost recovery as the intention is to balance cost recovery without inhibiting attendance or producing barriers to entry. The Division’s classes and programs are on the higher end of this cost recovery range, which makes sense as the classes / programs offered are unique (ceramics, science, etc) and this drives the desirability. Facility rentals tend to be on the higher end at 50% to 80% cost recovery as rentals are primarily for individual 8 This represents the proportionate split of the FY25 budgeted expenditures for both the CSD Administration and Arts & Culture Administration division across all Arts & Science speciﬁc cost centers. 9 Cost centers excluded include the following: 80020210, 80020310, 80020410, 80020414, & 80020710.

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beneﬁt and the community has the option to use the City’s facilities or other facilities based on their needs. The Divisions facility cost recoveries are lower than this cost recovery range. OPEN SPACE, PARKS & GOLF COST RECOVERY The Open Space, Parks, and Golf Division is responsible for the upkeep and operations of the City’s parkland and open spaces. Additionally, it maintains a full-service golf complex. The following table shows by cost center: Revenue, Budget, the associated difference, and cost recovery percentage. TABLE 10: OPEN SPACE, PARKS & GOLF COST RECOVERY – DIRECT COSTS Division FY24 Rev FY25 Exp10 Cost Recovery Parks $318,377 $3,263,358 10% Facilities $777,232 $8,877,486 9% Golf $5,078,837 $3,639,805 140% Total $6,174,447 $15,780,648 39% The Open Space, Parks & Golf Division is at a 39% cost recovery level on a direct cost basis. This direct cost recovery is within the typical cost recovery (20-50%). The next table shows by the indirect costs included: TABLE 11: OPEN SPACE, PARKS & GOLF COST RECOVERY – INDIRECT COSTS INCLUDED Division Depart. OH11 Citywide OH Total Indirect Cost Parks $362,910 $370,383 $733,293 Facilities $987,243 $1,129,580 $2,116,823 Golf $404,773 $128,904 $533,677 Total $1,754,926 $1,628,867 $3,383,793 The project team accounted for roughly $3 million in indirect overhead costs. The table below compares FY24 Revenue to FY25 Total Direct and Indirect Costs (Full Cost), highlighting the difference and associated cost recovery percentage. TABLE 12: OPEN SPACE, PARKS & GOLF COST RECOVERY – FULL COSTS Division FY24 Rev FY25 Full Cost Cost Recovery Parks $318,377 $3,996,651 8% Facilities $777,232 $10,994,309 7% Golf $5,078,837 $4,173,482 122% Total $6,174,447 $19,164,441 32% 10 The FY25 Budget does not include Open Space & Science Administration, as these costs are considered part of the overhead. 11 This represents the proportionate split of the FY25 budgeted expenditures for both the CSD Administration and Open Space & Science Administration division across all Open Space & Science speciﬁc cost centers.

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Based on the analysis, the Open Space, Parks & Golf division has a full cost recovery level of 2%. Of the total direct and indirect expenditures, approximately 83% are direct expenditures, 8% is Citywide overhead, and 9% is Administrative costs. Typically, maintenance cost centers are support and do not generate high levels of revenue, this is reﬂected in the low-cost recovery. At 124%, the Golf program generates a high amount of revenue. This excess in cost recovery is typical for specialized services. RECREATION & CUBBERLEY COST RECOVERY The Recreation and Cubberley Division is responsible for various youth and adult programming, including sports, camps, aquatics, special events, and much more. Additionally, it oversees the operations of three community centers, a teen center, the MakeX studio, and, through a public-private partnership, the Rinconada Pool. The following table shows by cost center: Revenue, Budget, the associated difference, and cost recovery percentage. TABLE 13: RECREATIONS & CUBBERLEY COST RECOVERY – DIRECT COSTS Division FY24 Rev FY25 Exp12 Cost Recovery Adult Classes & Programs $264,978 $448,565 59% Aquatics $9,717 $71,698 14% Youth Classes & Programs $1,712,792 $2,431,945 70% Recreation Facilities $2,449,245 $3,526,093 69% Parks, Fields, & Courts $1,411,534 $712,006 198% Special Events $640 $259,405 0% Total $5,848,906 $7,449,712 79% The Recreation & Cubberley division is at a 79% cost recovery level on a direct cost basis. This direct cost recovery is higher than the typical cost recovery (20-50%). The next table shows by the indirect costs included: TABLE 14: RECREATIONS & CUBBERLEY COST RECOVERY – INDIRECT COSTS INCLUDED Division Depart. OH13 Citywide OH Total Indirect Cost Adult Classes & Programs $67,290 $57,340 $124,630 Aquatics $10,755 $17,794 $28,549 Youth Classes & Programs $364,818 $129,396 $494,214 Recreation Facilities $528,952 $718,160 $1,247,112 Parks, Fields, & Courts $106,809 $281,959 $388,768 Special Events $38,914 $32,982 $71,896 Total $1,117,538 $1,237,631 $2,355,169 12 The FY25 Budget does not include Recreation & Cubberley Administration, as these costs are considered part of the overhead. 13 This represents the proportionate split of the FY25 budgeted expenditures for both the CSD Administration and Recreation & Cubberley Administration division across all Recreation & Cubberley speciﬁc cost centers.

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The project team accounted for roughly $2 million in indirect overhead costs. The table below compares FY24 Revenue to FY25 Total Direct and Indirect Costs (Full Cost), highlighting the difference and associated cost recovery percentage. TABLE 15: RECREATIONS & CUBBERLEY COST RECOVERY – FULL COSTS Division FY24 Rev FY25 Full Cost Cost Recovery Adult Classes & Programs $264,978 $573,195 46% Aquatics $9,717 $100,247 10% Youth Classes & Programs $1,712,792 $2,926,160 59% Recreation Facilities $2,449,245 $4,773,206 51% Parks, Fields, & Courts $1,411,534 $1,100,773 128% Special Events $640 $331,301 0% Total $5,848,906 $9,804,881 60% Based on the analysis, the Recreation & Cubberley division has a full cost recovery level of 60%. Of the total direct and indirect expenditures, approximately 76% are direct expenditures, 13% is Citywide overhead, and 11% is Administrative costs. The full cost in Table 15, which equals roughly $9.80 million, varies from the full cost in Table 6, which equals $9.85 million, due to the exclusion of direct and indirect costs in relation to program cost centers14 which do not generate revenue. These exclusions ensure the division’s full cost recovery rate is not artiﬁcially reduced. In addition to the overall cost recovery range typically seen in relation to parks and recreation fees, there are typical cost recovery target ranges based upon Matrix Consulting Group's experience conducting recreation fee studies. Typically, classes and programs have a 30% to 50% cost recovery. The Division’s youth and adult programming are on the higher end of the cost recovery range. At 130%, the parks, ﬁelds, and court rentals generate additional revenues above cost. This excess in cost recovery is typical for rentals partially due to their optional nature, as the community can choose to use the City’s amenities, and in part due to the individual beneﬁt of rentals. SUMMARY Overall, the Community Services Department is within the typical cost recovery range, and while classes / programs are within range, rentals and specialized services are higher in cost recovery. The department should utilize the target cost recovery ranges as a guideline to setting rates. Within these larger program categories, there can be different cost recovery targets for sub-programs or subsections. For example, within Recreation, there would be different cost recovery goals for adult vs. youth services. 14 Cost centers excluded include the following: 80080311 & 80080312.

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The City provides comprehensive in-house ambulance and emergency medical services, which includes staﬃng its ﬁre engines with Fireﬁghter / Paramedics for Advanced Life Safety (ALS) and Basic Life Safety (BLS) calls, as well as several ambulances. The following subsections discuss the current EMS related cost per transport, the full cost calculated for the different types of services (i.e., ALS, BLS, etc.), mileage charge, oxygen use, as well as the annual revenue impacts. EMS SPECIFIC LEGAL FRAMEWORK EMS fees have traditionally been considered under the umbrella of user fees or fees for service. As such, these fees are subject to the same legal rules and regulations as other user fees, i.e., the fee cannot exceed the cost to provide the service. However, EMS fees are unique from other fees for service as the fee payer dictates the rate they will pay, which is often less than the current fee charged for the service. For example, traditionally, if the fee for a water heater permit is $150, any individual who pulls a water heater permit must pay $150. However, in the case of EMS fees, if the fee for transport is $150, depending upon your insurance provider, the City may get paid $0, $50, $100, or the full $150. Therefore, the two types of fees are not equal. While the City has historically set its EMS fees at full cost, it has run into the traditional conundrum of not being able to achieve full cost recovery, as the fee charged is not the fee rate paid. The focus of this analysis is to provide the City with defensible, full cost fees. Depending on the City’s payor mix, the City will not be able to recover the full cost of EMS services, however, it will be in full compliance with the law. EMS COST PER TRANSPORT CALCULATION To calculate the full cost associated with EMS fees, the project team evaluated the City’s direct and indirect costs associated with these activities. The City has the following types of expenses that are EMS-related: • EMS Program: this program houses the direct costs associated with EMS staff, supplies, and contract services, such as billing. • Indirect Costs: These costs reﬂect departmental overhead associated with the Fire Chief and other support personnel, as well as Citywide overhead associated with Finance, Human Resources, etc. • EMS Staffed Fireﬁghters: The City has recently increased its staﬃng associated with EMS services to include additional ﬁreﬁghter paramedics to increase the number of transports they can provide. The following table shows the total FY25 budgeted EMS costs based on these expenses:

FIRE EMS
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MATRIX CONSULTING GROUP 18
TABLE 16: TOTAL EMS-RELATED COSTS Expense Type FY25 Budget Direct EMS Expenses $5,910,989 Citywide and Departmental Overhead $896,281 EMS Staffed Fireﬁghters $7,214,994 Total EMS Related Expenses $13,602,558 The total Fire EMS related costs are roughly $13.6 million. To determine the total cost per transport the project took the $13.6 million in EMS costs and divided it by the average total number of transports conducted by the Department over the past three ﬁscal years, as shown in the following table: TABLE 17: TOTAL EMS COST PER TRANSPORT Expense Type FY25 Budget Direct EMS Expenses $3,602,558 Total # of Transports 3,840 Total Cost Per Transport $3,543 Based upon EMS direct and indirect costs of $13.6 million and approximately 3,800 annual transports, the City’s cost per transport is approximately $3,543. ALS AND BLS COST CALCULATION While $3,543 is the overall cost per transport, this is converted into two types of fees – Advanced Life Support (ALS) and Basic Life Support (BLS). The typical methodology for converting eh overall cost per transport to these two service areas is based upon a factor that can be applied to each depending upon the level of effort. This factor is based upon discussions with staff, ensuring that the overall split of services totals the overall revenue to be recovered. The following table shows the calculation of the cost for each service area based on the cost per transport, the effort factor, and the resulting full cost per unit. TABLE 18: COST CALCULATION PER UNIT – ALS AND BLS Category Cost Per Transport Effort Factor Cost Per Unit ALS $3,543 1.1 $3,897 BLS $3,543 0.9 $3,188 As the table indicates, the total cost calculated is $3,897 for an ALS transport and $3,188 for a BLS transport. The following table compares the City’s current fee, to the full cost calculated: TABLE 19: TRANSPORT FEES – COST PER UNIT COMPARISON Category Current Fee Full Cost Difference ALS Transport Base Rate $2,966 $3,897 ($931) BLS Transport Base Rate $2,556 $3,188 ($632) The City is under-recovering for both its transportation categories, with the ALS subsidy at $931 and the BLS subsidy at $632.

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MATRIX CONSULTING GROUP 19
MILEAGE CALCULATION Along with the ability to bill for transportation and treatment-related activities, the City can also bill for the mileage that is incurred from the transportation scene to the hospital. The mileage charge is typically meant to account for maintenance, fuel, and replacement costs. In FY25 the EMS program budgeted $419,706 for vehicle equipment maintenance, fuel, and replacement costs. To determine the cost per mile, the project team divided the $419,700 by the average number of miles billed for transport-related activities. The following table shows the resulting cost per mile: TABLE 20: COST PER MILE CALCULATION Category Amount Total EMS Mileage Cost $419,706 Avg Mileage Billed 13,268 Total Cost Per Mile $31.63 The total cost per mile was calculated at $31.63. The following table compares the current fee per mile to the full cost per mile: TABLE 21: MILEAGE– COST PER UNIT COMPARISON Category Current Fee Full Cost Difference Mileage $35 $32 $3 Based on the cost calculated, the City is over-recovering by approximately $3 per mile. It is important to note that even though the City shows an over-recovery, due to its payor mix it does not actually receive $35 per mile. The actual reimbursement amount depends on the payor mix of the agency. OXYGEN CALCULATION As with the mileage charge, the City also bills for oxygen usage. The cost for oxygen usage was calculated based on the rental and re-ﬁlling costs for oxygen and the number of tanks. The following table shows the cost per tank calculation: TABLE 22: COST PER TANK CALCULATION Category Amount Oxygen Cost $7,075 Total # of Oxygen Tanks 15 Cost Per Tank $472 The cost per tank through this study was calculated at $472. However, each trip or use of oxygen does not take up a full tank. The project team calculated the number of trips it takes to utilize a full oxygen tank. This trip calculation was done based on the average number of transports, the average number of oxygen uses, and the percentage of time the tank is reﬁlled / checked. The following table shows the number of trips calculated per oxygen tank utilization:

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MATRIX CONSULTING GROUP 20
TABLE 23: # OF TRIPS PER OXYGEN TANK CALCULATION Category Amount Total # of Transports 3,840 Total # of Oxygen Uses 1,152 # of Trips per Oxygen Tank 3.33 % of Time Tank is Reﬁlled / Check 50% # of Trips per Oxygen Tank – Utilized 1.67 Even though, on average, it takes a little over three trips before the oxygen tank would need to be reﬁlled, based upon discussion with staff, the City does not wait until the oxygen tank is fully depleted before reﬁlling it. As such, the tank is reﬁlled or checked about every one and a half trips. The following table takes the total cost per tank and then divides it by the number of trips per oxygen tank utilization to determine the cost per oxygen use: TABLE 24: COST PER OXYGEN USE Category Amount Cost Per Tank $472 # of Trips per Oxygen Tank – Utilized 1.67 Cost Per Oxygen Use $283 The total cost per oxygen use calculated is $283. The following table compares the City’s current fee to the total cost calculated and the resulting difference: TABLE 25: OXYGEN – COST PER UNIT COMPARISON Category Current Fee Full Cost Difference Oxygen Use $179 $283 ($104) The City is under-recovering by approximately $100 per oxygen use, recovering approximately 63% of its costs. COMPLIANCE FEES The City currently assess an hourly fee for engine company inspections. This fee is only assessed when the engine company is required to perform a second reinspection. The following table compares the City’s current fee to the total cost calculated and the resulting difference: TABLE 26: EMS – COMPLIANCE FEES Category Current Fee Full Cost Difference Engine Company Second Reinspection $279 $994 ($715) The City’s current fee is under-recovering by approximately $700. While the large difference can be attributed to increased costs associated with Engine services, the more likely reason for the large disparity is due to the current fee not being set at full cost recovery.

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MATRIX CONSULTING GROUP 21
FIRST RESPONDER FEE While discussing current EMS services with City staff, it was noted that the current ALS and BLS fees only account for EMS speciﬁc costs, but do not cover the costs associated with engine incident responses. Therefore, it was proposed that a First Responder Fee be established to provide the City with a mechanism to recover these costs. Based on a thirty (30) minute call out, the full cost calculated for the First Responder Fee would be $497. ANNUAL REVENUE IMPACTS As noted at the beginning of this chapter, EMS services differ from other fee-related services, as the user is billed after services are provided, typically with bills going through insurance companies ﬁrst. Depending on the user’s insurance, the City may only receive a fraction of the amount billed. Therefore, based on the make-up of the users of EMS services, the revenue the City receives is dramatically lower than what is billed. The following subsections outline the City’s current payer mix and annual cost recovery. PAYOR MIX Those who use EMS transport services typically fall into one of ﬁve (5) categories: Medicaid, Medicare, Private Insurance, Worker’s Comp, or Other. The following table outlines the payor mix for EMS services in as well as the average recovery for Fiscal Year 2024. TABLE 27: EMS SERVICE PAYOR MIX Payor Type FY24 % of Payors Average Recovery Medicaid 15% 43% Medicare 53% 26% Private Insurance 26% 86% Worker’s Comp 1% 34% Other 5% 5% For Medicaid and Medicare services, the insurance provider sets a standard amount it will reimburse for various EMS services – regardless of the fees billed by the service provider. The amount the City receives from Private Insurance, Worker’s Comp, and Other users depends on the medical plan of the individual. As shown in the table above, the majority of the City’s users are on Medicare which has an average recovery rate of 26%, while the highest recovery rate (86%) belongs to those with Private Insurance, who comprise roughly 25% of the total users. ANNUAL REVENUE RECOVERY – CURRENT FEE There are two types of annual revenue recoveries that can be calculated for EMS services: 1. Potential Revenue vs. Total Cost: this compares assumed revenue generation based on 100% collection of fees billed compared to the full cost of providing the service.

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2. Annual Revenue Collected vs. Annual Cost: this shows the amount collected compared to the annual cost associated with those activities. Based upon the current fee charged by the Fire Department for EMS-related activities and the projected annual cost, the project team calculated that the department would have had a $5.2 million deﬁcit or recovered approximately 69% of its costs. The following table shows by fee category the annual amount billed, the annual cost, and the surplus / deﬁcit: TABLE 28: EMS ANNUAL COST RECOVERY – BILLED VS TOTAL COST Category Potential Revenue Total Cost Difference Transport Mileage $464,380 $419,698 $44,682 BLS $3,023,748 $3,771,849 ($748,101) ALS $7,880,662 $10,354,075 ($2,473,413) First Responder Fee $1,908,170 ($1,908,170) Oxygen $206,208 $326,016 ($119,808) Total $11,574,998 $16,779,808 ($5,204,810) Of the $5.2 million, the biggest impact relates to ALS related transports, while nearly $2 million is related to First Responder services which aren’t currently being assessed. However, as noted above, what the City bills is not what the City recovers. Therefore, the following table compares the revenue collected by the City to the City’s total cost of providing services, and the associated difference: TABLE 29: EMS ANNUAL COST RECOVERY – RECOVERED VS TOTAL COST Category Recovered Revenue Total Cost Difference Transport Mileage $207,757 $419,698 ($211,941) BLS $1,192,728 $3,771,849 ($2,579,121) ALS $3,283,567 $10,354,075 ($7,070,508) First Responder Fee $0 $1,908,170 ($1,908,170) Oxygen $53,614 $326,016 ($272,402) Total $4,737,667 $16,779,808 ($12,042,141) While the City billed for nearly $11.6 million in transport related services, it only received roughly $4.7 million in offsetting revenue. When comparing the $4.7 million to their total annual costs, their deﬁcit is approximately $12 million, resulting in a cost recovery rate of only 28%. ANNUAL REVENUE RECOVERY – TOTAL COST Should the City increase their fees to reﬂect the full cost of providing EMS services, including implementation of the First Responder fee, they would see an increase in annual revenue. The following compares current collected revenue to projected revenue collections based on a full cost fee and estimates a potential revenue increase.

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MATRIX CONSULTING GROUP 23
TABLE 30: EMS ANNUAL COST RECOVERY – POTENTIAL REVENUE Category Recovered Revenue Revenue at Full Cost Fee Potential Revenue Increase Transport Mileage $207,757 $191,897 ($15,860) BLS $1,192,728 $1,351,895 $159,166 ALS $3,283,567 $3,813,738 $530,171 First Responder Fee $0 $374,400 $374,400 Oxygen $53,614 $84,764 $31,150 TOTAL $4,737,667 $5,816,694 $1,079,027 Should the City adopt EMS transport fees at the full cost shown in this report, based on the average annual workload it could generate approximately $5.8 million in revenue, which would represent an increase of roughly $1 million. Projected revenue associated with the First Responder Fee assumes 75% recovery from only Private Payors. However, given that the First Responder fee is new, and the ability for the City to recover these billed services is unknown, we would conservatively project the City’s potential revenue increase at only $700,000.

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MATRIX CONSULTING GROUP 24
The Palo Alto Police Department is responsible for providing emergency and non-emergency public safety services to the citizens of Palo Alto. As part of this duty, the department administers fees for background checks, vehicle impoundments, and variety of permits for speciﬁc businesses, such as taxicabs and ﬁrearms dealers. Oﬃcers also assist with Special Events and administer related fees accordingly. The following subsections discuss fee schedule modiﬁcations and detailed per unit results for the fee-related services provided by the Police Department. FEE SCHEDULE MODIFICATIONS In discussions with Police Department staff, the following modiﬁcations to the current fee schedule were proposed: • Eliminated Fees: The following fees were eliminated as they represent services no longer offered by the Police Department: – Adult Entertainment – Closing-out Sale – Adult Entertainment – Closing-out Sale Renewal (Two Maximum) – Background Check – New – Department of Justice Fingerprint and Rolling Fee – FBI Fingerprint Fee – Noise Exception Permit – Parenting Project Materials – Parenting Project Program – Valet Parking – Sign & Curb Markings • New Fees: Police Department staff proposed the addition of the following fees to the fee schedule, as they represent either services already offered and not codiﬁed or new services the City would like to offer: – Civil Subpoena Appearance Fee – Towed Stored Vehicle Fee • Expanded Fees: Staff proposed expanding the ‘Taxicab – Driver’ fee to include two categories (‘New’ and ‘Renewal’) to better account for a difference in processing time. • Modiﬁed Fees: The ‘Subpoena Fee’ was clariﬁed to read ‘Subpoena Fee for Documents,’ and the ‘Special Event / Film Permit’ fee was modiﬁed to read ‘Film / Photography Permit.’ The modiﬁcations noted above ensure that the proposed fee schedule better reﬂets the services being provided by Police Department staff.

POLICE
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DETAILED RESULTS The Police Department collects fees for high-risk business regulation, vehicle impoundments, special events, and miscellaneous administrative tasks. The total cost calculated for each service includes direct staff costs and Departmental, Divisional, and Citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. TABLE 31: TOTAL COST PER UNIT RESULTS – POLICE Fee Name Unit Current Fee Total Cost Difference Background Check OPM/DOD Background Check Per Application $5 $112 ($107) Impoundment Fees - Vehicle Vehicle Impoundment Fee Each $158 $162 ($4) Vehicle Repossession Receipt15 Each $15 $15 $0 Towed Stored Vehicle Fee Each New $162 Personnel Rates Emergency Response Fee Per Incident Actual Cost Special Fees Clearance Letter Each $35 $131 ($96) Digital Media Reproduction Fee Each $65 $281 ($216) Location Crime Statistics Fee Each $86 $359 ($273) Offsite Document Retrieval Per Item Actual Cost Report Copy Fee16 Each $15 $15 $0 Research Fee Per Hour $160 $245 ($85) Subpoena Fee For Documents17 Per Hour $24 $24 $0 Civil Subpoena Appearance Fee18 Per Person Per Day $275 $275 $0 Firearms Dealer Firearms Dealer Master Permit - New Per Year $3,564 $3,637 ($73) Firearms Dealer Master Permit - Renewal Per Year $644 $970 ($326) Miscellaneous Helicopter Landing Fee Per Occurrence $79 $81 ($2) One Day Liquor Permit Fee: For Proﬁt Rate Per Permit $65 $76 ($11) Non-Proﬁt Rate Per Permit $49 $76 ($27) Secondhand Dealers DOJ Per Application $300 $300 $0 New Per Application $481 $242 $239 Renewal Per Application $120 $121 ($1) Taxicab Master License: New Per Year $3,589 $7,274 ($3,685) Renewal Per Year $1,609 $2,425 ($816) Driver: New Per Year $65 $242 ($177) 15 Ca. Gov. Code § 26751 16 EVI § 1563(b)(6) 17 EVI § 1563(b)(1) 18 GOV § 68097.2 (b) Item 2
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Fee Name Unit Current Fee Total Cost Difference Renewal Per Year $65 $81 ($16) Vehicle Inspection for Each Vehicle Per Year $92 $81 $11 Replacement or Transfer Fee Each $80 $40 $40 Valet Parking Permit Application Per Application $863 $970 ($107) Permit Application Renewal (Annual) Per Year $130 $242 ($112) Short-Term Application Fee Per Application $406 $229 $177 Special Events Personnel Rates for events where 100% of the proceeds go to a Profit Organization: Community Services Oﬃcer Per Hour $111 $215 ($104) Police Agent Per Hour $245 $272 ($27) Police Oﬃcer Per Hour $206 $244 ($38) Police Reserve Per Hour $88 $58 $30 Police Sergeant Per Hour $272 $291 ($19) Personnel Rates for events where 80% of the proceeds go directly to Non-Profit Organizations: Community Services Oﬃcer Per Hour $92 $215 ($123) Police Agent Per Hour $212 $272 ($60) Police Oﬃcer Per Hour $171 $244 ($73) Police Reserve Per Hour $72 $58 $14 Police Sergeant Per Hour $232 $291 ($59) Personnel Rates for events where 80% or more of the proceeds go directly to Non-Profit Organizations or events declared as co-sponsored by the City of Palo Alto: Community Services Oﬃcer Per Hour $87 $215 ($128) Police Agent Per Hour $185 $272 ($87) Police Oﬃcer Per Hour $160 $244 ($84) Police Reserve Per Hour $65 $58 $7 Police Sergeant Per Hour $205 $291 ($86) Special Fees: Special Event Permit 201 - 400 Attendees Per Permit $334 $582 ($248) 401 – 600 Attendees Per Permit $359 $2,036 ($1,677) Each Add’l 200 Attendees Each $53 $291 ($238) Film / Photography Permit: Large Commercial Filming Per Permit $306 $582 ($276) Low-Impact Filming Permit (Cast & Crew 35 or less) Per Permit $306 $291 $15 Student Filming / Photography Per Permit $306 $291 $15 Photography Permit Per Permit $306 $145 $161 Temporary Street Closure Each Refer to PW Fee Schedule The Police Department’s fees show a mix of under- and over-recoveries but generally under-recover. The largest undercharge is for a New Taxicab Master License at about $3,700. The smallest deﬁcit is for the ‘Secondhand Dealers – Renewal’ fee at just $1. Of the fees that show over-recoveries, the largest overcharge is for a ‘Short-Term Application Fee’ for Valet Parking at around $175, and the smallest is the ‘Vehicle Inspection for Each Vehicle’ fee for taxicab drivers at approximately $10.

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ANNUAL RESULTS Because of the limited workload information available for Police, no annual results were calculated.

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MATRIX CONSULTING GROUP 28
The Animal Control Division of the Palo Alto Police Department oversees enforcement of animal-related ordinances, responds to issues involving animals in the City, and provides permits and licensing for pets and livestock and related events. The fees examined in this study related to animal permits, disposal, animal impoundments, pet licenses, and pet quarantines. The following subsections discuss fee schedule modiﬁcations and detailed per unit results for the fee-related services provided by the Animal Control Division. FEE SCHEDULE MODIFICATIONS In discussions with Animal Control staff, the following modiﬁcations to the current fee schedule were proposed: • Eliminated Fees: The following fees were eliminated as they represent services no longer offered by Animal Control: – Disposal – Dogs, Cats, Rabbits (up to 20lbs) – Disposal – Dogs (up to 75lbs) – Disposal – Dogs (76lbs and over) – Disposal – Each Additional Animal – Disposal – Large Animals (up to 150lbs) – Disposal – Small Animals and Birds – Riding Academy – Special Impoundment Fee – Dog • New Fees: Police Department staff proposed the addition of the following fees to the fee schedule, as they represent either services already offered and not codiﬁed or new services the City would like to offer: – Pet Licenses – Senion Citizen / Veteran – Rabies Exemption – Service Dog Tag • Modiﬁed Fees: The names of the following fees were modiﬁed to provide greater clarity: – Animal Permits – Dangerous Animal Permit – Animal Permits – Livestock / Apiary – Animal Permits – Pet Show – Animal Permits – Traveling Menagerie or Petting Zoo POLICE – ANIMAL CONTROL
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– Disposal – Service Fee – Pet Licenses – Spayed or Neutered (Altered) – Pet Licenses – Unaltered The modiﬁcations noted above ensure that the proposed fee schedule better reﬂets the services being provided by Animal Control. DETAILED RESULTS Animal Control collects fees for animal-related permitting, impoundment, pet licenses, and miscellaneous other services. The total cost calculated for each service includes direct staff costs, and Departmental, Divisional, and Citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. TABLE 32: TOTAL COST PER UNIT RESULTS – ANIMAL CONTROL Fee Name Unit Current Fee Total Cost Difference Animal Permits Boarding Per Permit $219 $384 ($165) Breeding Permit - Cat, Dog, or Bird Per Permit $133 $384 ($251) Kennel, Birds, or Animals Per Permit $219 $384 ($165) Livery Stable, Boarding Stable Per Permit $219 $384 ($165) Livestock / Apiary Per Permit $80 $220 ($140) Pet Shop/Groomer Per Permit $219 $384 ($165) Pet Show Per Permit $80 $327 ($247) Pony Ride, Pony Ring Per Permit $219 $327 ($108) Traveling Menagerie or Petting Zoo Per Permit $219 $327 ($108) Dangerous Animal Permit Per Permit $432 $384 $48 Disposal Service Fee Each $60 $107 ($47) Impoundment Fees Impoundment Fees - Cat: First Offense Per Occurrence $36 $213 ($177) Second Offense Per Occurrence $54 $213 ($159) Third and Subsequent Offenses Per Occurrence $74 $213 ($139) Impoundment Fees - Dog - Licensed: First Offense Per Occurrence $36 $213 ($177) Second Offense Per Occurrence $54 $213 ($159) Third Offense Per Occurrence $72 $213 ($141) Fourth Offense Per Occurrence $135 $213 ($78) Fifth to Tenth Offense Per Occurrence $181 $213 ($32) Eleventh and Subsequent Offenses Per Occurrence $203 $213 ($10) Impoundment Fees - Dog - Unlicensed: First Offense Per Occurrence $61 $213 ($152) Second Offense Per Occurrence $93 $213 ($120) Third Offense Per Occurrence $115 $213 ($98) Fourth Offense Per Occurrence $154 $213 ($59) Fifth to Tenth Offense Per Occurrence $209 $213 ($4) Item 2
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Fee Name Unit Current Fee Total Cost Difference Eleventh and Subsequent Offenses Per Occurrence $246 $213 $33 Impoundment Fees - General: Other Animals (Small) - Bird, Rabbit, Reptile, etc. Per Occurrence $31 $213 ($182) Other Animals (Large) - Horse, Cow, Pig, Goat, etc. Per Occurrence $123 $213 ($90) State Mandated Fees19 First Offense Per Occurrence $35 $35 $0 Second Offense Per Occurrence $50 $50 $0 Third and Subsequent Offenses Per Occurrence $100 $100 $0 Pet Licenses 12 Months Unaltered Per Dog $45 $52 ($7) Spayed or Neutered (Altered) Per Dog $22 $52 ($30) Senior Citizen / Veteran Per Dog New $52 24 Months Unaltered Per Dog $67 $71 ($4) Spayed or Neutered (Altered) Per Dog $33 $71 ($38) Senior Citizen / Veteran Per Dog New $71 36 Months Unaltered Per Dog $90 $90 $0 Spayed or Neutered (Altered) Per Dog $45 $90 ($45) Senior Citizen / Veteran Per Dog New $90 Service Dog Tag Per Dog New $52 Rabies Exemption Per Dog New $38 Replacement License Tags (Dogs) Each $5 $33 ($28) Special Fees Animal Control Oﬃcer Per Hour $91 $213 ($122) Quarantine Home Inspection Fee Each $46 $427 ($381) Animal Control’s fees generally under-recover the associated costs. The fee that shows the largest under-recovery is the ‘Quarantine Home Inspection Fee’ at around $400, followed by the fee for a ‘Breeding Permit – Cat, Dog, or Bird’ ($250). The fee with the smallest undercharge is the ‘Impoundment Fees – Dog – Unlicensed – Fifth to Tenth Offense’ at about $5. Only two fees show an over-recovery (‘Dangerous Animal Permit’ and ‘Impoundment Fees – Dog – Unlicensed – Eleventh and Subsequent Offenses’), both of which can be considered penalties. ANNUAL RESULTS Because of the limited workload information available for Animal Control, no annual results were calculated. 19 CA Food & Agri Code § 30804.7 Item 2
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The Public Works department aims to ensure the City’s infrastructure is well-maintained, promote the protection of the City’s urban forest, and protect quality of life through the prevention of pollution, and promotion of environmental policies and regulations. Though the Department provides a variety of services that span multiple funds, the focus of this analysis was on Operations, Storm Drain, and Wastewater services. The following subsections discuss fee schedule modiﬁcations and detailed per unit results for the fee-related services provided by the Animal Control Division. FEE SCHEDULE MODIFICATIONS In discussions with Public Works staff, some minor modiﬁcations to each division’s fee structures were proposed. These modiﬁcations are outlined in the following points: • Operations: Staff determined that the addition of two fees: Disposal and Use of Equipment would help better outline the services provided. Conversely, Overtime & Holiday rates associated with Electric Vehicle Charger Connections and Charging, as well as Newsrack Impoundment were removed as those services are no longer needed or provided. • Storm Drain: Staff determined that the Storm Drain Inspection Fee should be renamed to better reﬂect the service being provided to: Stormwater Treatment Feature Operations and Maintenance Inspection. Additionally, the Base fee was lowered from four (4) hours to three (3) hours. • Wastewater Treatment: Staff determined that the Exceptional Waste – (High Volume) and Exceptional Waste (Low Volume) categories under Industrial Waste Discharge should be consolidated into a singular fee. Similarly, the Full (Categorical) and Full (Non-Categorical) were also consolidated into a singular fee, along with the Septic Tank & Portable Toilet Waste Disposal fees which were consolidated into a single per gallon Discharge fee The modiﬁcations outlined above strengthen the schedules associated with each division, and ensure that the services provided are clearly identiﬁed, and accurately reﬂect the time associated with each service. DETAILED RESULTS The Public Works divisions included in this analysis collect a variety of fees for services. The total cost calculated for each service includes direct staff costs and Departmental, Divisional, and Citywide overhead. The following subsections outline the detailed per unit results for Operations, Storm Drain, and Wastewater. OPERATIONS Operations staff provide services relating to Maintenance and Repair, Map / Plan Review, and Tree Removals. The following table details the fee name, current fee, total cost, and difference associated with each service offered.

PUBLIC WORKS
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MATRIX CONSULTING GROUP 32
TABLE 33: TOTAL COST PER UNIT RESULTS – PUBLIC WORKS OPERATIONS Fee Name Unit Current Fee Total Cost Difference Maintenance & Repair Regular Time: Construction & Repair Per Hour $184 $185 ($1) Electric Vehicle Charger Connection Per Connection $0.00 to $2.00 Electric Vehicle Charger Connection Overstay Per Hour $0.00 to $5.00 Electric Vehicle Charging Per Kilowatt Hour $0.24 Newsrack Impoundment Fee First Day Base $208 Each Subsequent Day Each Subsequent Day $3 Supervision Per Hour $187 $228 ($41) Sweeping Services Per Hour $151 $179 ($28) Traffic Control/Graffiti Services Per Hour $138 $163 ($25) Traffic Property Damage Per Hour $138 $163 ($25) Tree Services Per Hour $161 $172 ($11) Overtime & Holiday: Construction & Repair Per Hour $272 $222 $50 Supervision Per Hour $282 $276 $6 Sweeping Services Per Hour $227 $213 $14 Traffic Control/Graffiti Services Per Hour $208 $194 $14 Traffic Property Damage Per Hour $208 $194 $14 Tree Services Per Hour $226 $208 $18 Disposal Each Actual Cost Use of Equipment Each Actual Cost Map/Plan Review Fees Home Improvement Exception - Trees Per Application $487 $575 ($88) IR Review - Trees Per Application $759 $575 $184 Tree Removal Protected Tree Removal Per Removal $499 $460 $39 Record Management Fee Per File $32 $174 ($142) Tree Removal Per Inch of Damage Plus Planting Installation $153 The majority of the services provided by Operations are charged hourly, with some of those services showing under-recoveries, and others show over-recoveries. Fees associated with Electric Vehicle Charger Connections and charging were not evaluated through this analysis as they are not a time-based service. Newsrack impoundments and Tree Removals also weren’t reviewed as these are penalties. Overall, Operations fees are generally recovering their costs on a per unit basis, and inline with typical cost recovery levels of between 80% and 100%. STORM DRAIN Storm Drain staff provide services relating to ﬂood variance, ﬂood zone determination, and temporary elevation benchmarks. The following table details the fee name, current fee, total cost, and difference associated with each service offered.

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MATRIX CONSULTING GROUP 33
TABLE 34: TOTAL COST PER UNIT RESULTS – PUBLIC WORKS STORM DRAIN Fee Name Unit Current Fee Total Cost Difference Flood Variance Fee Each City Cost plus 15% Flood Zone Determination Letter Per Letter $147 $419 ($272) Stormwater Treatment Feature Operations and Maintenance Inspection: Up to 3 Hours Base $59920 $540 $60 Per Hour Thereafter Per Hour Thereafter $123 $187 ($64) Temporary Elevation Benchmarks Per Benchmark $500 $505 ($5) The Flood Zone Determination Letter shows a subsidy of approximately $272, while the the base rate for a Stormwater Treatment Feature Operations and Maintenance Inspection shows an overage of $60. With the exception of the Flood Zone Determination Letter, the fees charged for Storm Drain services are within the typical cost recovery range of 80% - 100%. WASTEWATER TREATMENT Wastewater Treatment staff provide services relating to Industrial Waste Discharge, and Recycled Water. The following table details the fee name, current fee, total cost, and difference associated with each service offered. TABLE 35: TOTAL COST PER UNIT RESULTS – PUBLIC WORKS WASTEWATER Fee Name Unit Current Fee Total Cost Difference Industrial Waste Discharge Fees: Automotive Per Year $699 $1,523 ($824) Basic Per Year $4,120 $5,735 ($1,615) Best Management Practices (BMP) Per Year $1,541 $2,856 ($1,315) Exceptional Waste Per Permit Modified $3,473 N/A Full Per Year Modified $6,898 N/A Groundwater Per Year $1,576 $1,614 ($38) Industrial Waste Discharge Fees - Liquid Waste Disposal Fee: Septic Tank & Portable Toilet Waste Disposal Permit Processing Each $105 $542 ($437) Discharge Fee Per Gallon $0.1021 $0.77 ($0.67) Recycled Water Fees: Recycled Water Permit Processing Per Permit $52 $452 ($400) All fees charged by Wastewater staff show an under-recovery, the largest being for Basic Industrial Waste Discharge at $1,615. Overall, fees associated with Wastewater services are below the typical cost recovery level of 80% - 100%. 20 The current fee has been modiﬁed to provide a true three-hour comparison. 21 The current fee has been modiﬁed to provide a true per gallon comparison.

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MATRIX CONSULTING GROUP 34
ANNUAL RESULTS Workload statistics at a level suﬃcient to evaluate annual revenue impacts were not available, therefore no annual results were calculated.

Real Estate and Property Management is a division within the Administrative Services Department. This Division is responsible for the management of City-owned properties, including the acquisition, leasing, and sale of property. The fees examined within this study relate to Conveyance and Easement Vacation services. The following subsections discuss fee schedule modiﬁcations and detailed per unit results for the fee-related services provided by the Real Estate and Property Management division. FEE SCHEDULE MODIFICATIONS In discussions with Real Estate and Property Management staff it was determined that no modiﬁcations to the current fee structure were needed. DETAILED RESULTS The Real Estate and Property Management division collects fees associated with easement vacations, property transfer tax exemptions, and other conveyances. The following table details the fee name, current fee, total cost, and difference associated with each service offered. TABLE 36: TOTAL COST PER UNIT RESULTS – REAL ESTATE AND PROPERTY MANAGEMENT Fee Name Unit Current Fee Total Cost Difference Conveyance Commercial/Non-Residential/Residential - Long Term (More than 12 months) Each $1,750 $4,613 ($2,863) Consent to Assignment, Amendment, Extension or Hypothecation of a lease or sublease where the City is lessor Each $780 $1,648 ($868) Easement Document Preparation and Processing (Commercial & Residential) Each $1,700 $1,648 $52 License/Grant Deed Preparation Each $1,930 $4,613 ($2,683) Property Transfer Tax Exemption Fee Each $245 $577 ($332) Public Notice Mailing/Posting/Advertising (Commercial & Residential) Deposit $116 $116 $0 Telecommunication Application Processing Fee Each $3,426 Easement Vacation General Each $4,892 Summary Each $2,083 $3,295 ($1,212) All but one of the fees charged by Real Estate and Property Management staff show an under-recovery. The largest subsidy relates to ‘Commerial / Non-Residential / Residential – Long Term (More than 12 months) Conveyance’ at $2,863, while the least subsidized fee is for a ‘Property Transfer Tax Examption

REAL ESTATE AND PROPERTY MANAGEMENT
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MATRIX CONSULTING GROUP 35
Conveyance’ at $13. ‘Easement Document Preparation and Processing (Commercial & Residential) Conveyance’ shows an over-collection of $52, and should be reduce in order to comply with current fee regulations. It should be noted that time estiamtes were not provided by staff for services relating to ‘Telecommunication Application Processing Conveyance’ and ‘General Easement Vacation’, therefore, not total cost was calculated. ANNUAL RESULTS Given the minimal workload associated with the real estate and property management, no annual results were calculated.

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MATRIX CONSULTING GROUP 36
Revenue Collection is a division within the Administrative Services Department. This Division is responsible for the collection of general city revenues associated with utility billing, parking permits, TOT payments, and other miscellaneous receivables. The fees examined within this study relate to Documents and Photocopies, Parking, and Miscellaneous services. The following subsections discuss fee schedule modiﬁcations and detailed per unit results for the fee-related services provided by the Revenue Collection division. FEE SCHEDULE MODIFICATIONS In discussions with Revenue Collection staff, it was determined that Documents & Photocopies fees relating to ‘Annual Comprehensive Financial Report (ACFR)’, ‘Budget Book’, and ‘Municipal Fee Schedule’ would be eliminated. These fees are being removed as the associated materials can now be found on the City’s website, no longer requiring staff time for processing. DETAILED RESULTS The Revenue Collection division collects fees associated with certiﬁed mailings, duplicate receipts, returned checks, and parking permit investigations. The following table details the fee name, current fee, total cost, and difference associated with each service offered. TABLE 37: TOTAL COST PER UNIT RESULTS – REVENUE COLLECTION Fee Name Unit Current Fee Total Cost Difference Documents & Photocopies Mailing (Certified) Each $4 $23 ($18) Miscellaneous Duplicate Receipt Each $9 $36 ($27) Returned Payment Charge (California Civil Code Section 1719)22 Each $25 $25 Parking Permit Investigation (non-refundable) Each $23 $36 ($13) Recreational Vehicle/Oversized Vehicle Per Application $22 $90 ($68) Of the services reviewed through this study all under-recover for the full cost of providing the service. The largest subsidy relates to ‘Recreation Vehicle / Oversized Vehicle’ at $68, while the smallest subsidy relates to ‘Permit Investigation (non-refundable)’ at $13. ANNUAL RESULTS Given the minimal workload associated with the reviewed services, no annual results were calculated. 22 The total cost associated has been set according to CIV § 1719(a).

REVENUE COLLECTION
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MATRIX CONSULTING GROUP 37
The following sections provide guidance regarding how and where to increase fees, determine annual update factors, and develop cost recovery policies and procedures. FEE ADJUSTMENTS This study has documented and outlined on a fee-by-fee basis where the City is under- and over-collecting for its fee-related services. City and Department management will now need to review the study results and adjust fees per Departmental and City philosophies and policies. The following dot points outline the major options the City has in adjusting its fees: • Over-Collection: Upon review of the fees that were shown to be over-collecting for costs of services provided, the City should reduce the current fee to be in line with the full cost of providing the service. • Full Cost Recovery: For fees that show an under-collection for costs of services provided, the City may decide to increase the fee to full cost recovery immediately. • Phased Increase: For fees with signiﬁcantly low cost recovery levels, or which would have a signiﬁcant impact on the community, the City could choose to increase fees gradually over a set period of time. The City will need to review the results of the fee study and associated cost recovery levels and determine how best to adjust fees. While decisions regarding fees that currently show an over-recovery are straightforward, the following subsections provide further detail on why and how the City should consider either implementing Full Cost Recovery or a Phased Increase approach to adjusting its fees. FULL COST RECOVERY Based on the permit or review type, the City may wish to increase the fee to cover the full cost of providing services. Certain permits may be close to cost recovery already, and an increase to full cost may not be signiﬁcant. Other permits may have a more signiﬁcant increase associated with full cost recovery. Increasing fees associated with permits and services that are already close to full cost recovery can potentially bring a Department’s overall cost recovery level higher. Often, these minimal increases can provide necessary revenue to counterbalance fees that cannot be increased. The City should consider increasing fees for permits for which services are rarely engaged to full cost recovery. These services often require speciﬁc expertise and can involve more complex research and review due to their infrequent nature. As such, setting these fees at full cost recovery will ensure that when the permit or review is requested, the City is recovering the full cost of its services.

COST RECOVERY CONSIDERATIONS
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MATRIX CONSULTING GROUP 38
PHASED INCREASES Depending on current cost recovery levels, some current fees may need to be increased signiﬁcantly to comply with established or proposed cost recovery policies. Due to the type of permit or review or the amount by which a fee needs to be increased, it may be best for the City to use a phased approach to reaching its cost recovery goals. As an example, you may have a current fee of $200 with a full cost of $1,000, representing 20% cost recovery. If the current policy is 80% cost recovery, the current fee would need to increase by $600, bringing the fee to $800, to comply. Assuming this service is something the City provides quite often and affects various members of the community, an instant increase of $600 may not be feasible. Therefore, the City could take a phased approach, whereby it increases the fee annually over a set period until cost recovery is achieved. Raising fees over a set period not only allows the City to monitor and control the impact to applicants but also ensure that applicants have time to adjust to signiﬁcant increases. Continuing with the example above, the City could increase the fee by $150 per year for the next four years, spreading out the increase. Depending on the desired overall increase and the impact to applicants, the City could choose to vary the number of years by which it chooses to increase fees. However, the project team recommends that the City not phase increases for periods greater than ﬁve years, as that is the maximum window after which a comprehensive fee assessment should be completed. ANNUAL ADJUSTMENTS Conducting a comprehensive analysis of fee-related services and costs annually would be quite cumbersome and costly. The general recommendation is that a comprehensive fee analysis should be conducted every three to ﬁve years. This allows jurisdictions to ensure they account for organizational changes, such as staﬃng levels and merit increases, and process eﬃciencies, code or rule changes, or technology improvements. Currently, Palo Alto updates their fees annually based on internal cost factors. Developing annual update mechanisms allows jurisdictions to maintain current levels of cost recovery, while accounting for increases in staﬃng or expenditures related to permit services. The two most common types of update mechanisms are Consumer Price Index (CPI) and Cost of Living Adjustment (COLA) factors. The following points provide further detail on each of these mechanisms: • COLA / Personnel Cost Factor: Jurisdictions often provide their staff with annual salary adjustments to account for increases in local cost of living. These increases are not tied to merit or seniority but rather meant to offset rising costs associated with housing, gas, and other livability factors. Sometimes these factors vary depending on the bargaining group of a speciﬁc employee. Generally, these factors are around two or three percent annually. • CPI / ECI Factor: A common method of increasing fees or cost is to look at regional cost indicators, such as the Consumer Price Index or Employment Cost Index. These factors are calculated by the Bureau of Labor Statistics, are put out at various intervals within a year, and are speciﬁc to states and regions.

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MATRIX CONSULTING GROUP 39
The City of Palo Alto should review its current options internally (COLA) as well as externally (CPI / ECI) to determine which option better reﬂects the goals of the Departments and the City. If choosing a CPI / ECI factor, the City should outline which CPI / ECI should be used, including speciﬁc region and adoption date. If choosing an internal factor, the City should be sure to specify which factor if multiple exist. POLICIES AND PROCEDURES This study has identiﬁed areas where the City is under-collecting the costs associated with providing services. This known funding gap is therefore being subsidized by other City revenue sources. Cost recovery policies and procedures ensure that current and future decision makers understand how and why fees were determined and set, as well as provide a road map for ensuring consistency when moving forward. The following subsections outline typical cost recovery levels and discuss the beneﬁts of reviewing target cost recovery goals and procedures to achieve increased cost recovery. TYPICAL COST RECOVERY The Matrix Consulting Group has extensive experience in analyzing local government operations across the United States and has calculated typical cost recovery ranges. The following table outlines typical cost recovery ranges by major service area. TABLE 38: TYPICAL COST RECOVERY RANGES BY MAJOR SERVICE AREA Service Areas Typical Cost Recovery Ranges Administration 40-70% Public Works 80-100% Parks & Recreation 20-50% Information presented in the table above is based on the Matrix Consulting Group’s experience in analyzing local governments’ operations across the United States and within California and reﬂects typical cost recovery ranges observed by local adopting authorities. COST RECOVERY POLICIES AND PROCEDURES The City currently has formal cost recovery policies that outline recovery goals based on services and community impacts. The City should review the results of this study in conjunction with adopted policies regarding cost recovery and make adjusts to meet current ﬁscal needs.

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- KŶƉƌŝůϮϵƚŚ ŽŵŵŝƩĞĞƌĞǀŝĞǁĞĚĂŶĚĂƉƉƌŽǀĞĚŵƵŶŝĐŝƉĂůĨĞĞƵƉĚĂƚĞƐďĂƐĞĚƵƉŽŶƚŚĞDĂƚƌŝǆ ĐŝƚǇǁŝĚĞĐŽƐƚŽĨƐĞƌǀŝĐĞƐƚƵĚǇǁŝƚŚĚŝƌĞĐƟŽŶĨŽƌƐŽŵĞ^ƚĂīĐůĂƌŝĮĐĂƟŽŶƐ͘dŚĞƐĞĚĞƉĂƌƚŵĞŶƚĨĞĞƐ ŝŶĐůƵĚĞĚ&ŝƌĞ͕WƵďůŝĐtŽƌŬƐ͕WŽůŝĐĞ͕ŶŝŵĂůŽŶƚƌŽů͕WƵďůŝĐtŽƌŬƐ͕ŝƚǇůĞƌŬĂŶĚĚŵŝŶŝƐƚƌĂƟǀĞ ^ĞƌǀŝĐĞƐĞƉĂƌƚŵĞŶƚ͘ ĂƐĞĚƵƉŽŶƚŚĞ^ƚĂīƵƉĚĂƚĞƐďĞůŽǁ͕ŽŵŵŝƩĞĞŵĂǇĐŽŶƟŶƵĞŝƚ͛Ɛ ƌĞĐŽŵŵĞŶĚĂƟŽŶƚŽƚŚĞŽƵŶĐŝůĨŽƌĂƉƉƌŽǀĂůŽĨĨĞĞƵƉĚĂƚĞƐŽŶ:ƵŶĞϭϲƚŚ. o ŽŵĞƐƟĐƉĂƌƚŶĞƌƐƌĞŐŝƐƚƌĂƟŽŶ– ŚŽǁĚŽĞƐƚŚŝƐĂůŝŐŶǁŝƚŚƚŚĞ^ƚĂƚĞƌĞŐŝƐƚƌĂƟŽŶĂŶĚĨĞĞƐ͘ ^ƚĂīƌĞĐŽŵŵĞŶĚƐĐŽŶƟŶƵŝŶŐƚŽŽīĞƌƚŽƚŚŝƐƐĞƌǀŝĐĞĂƚƚŚĞŝƚǇĂŶĚĂůŝŐŶŝŶŐǁŝƚŚ ƚŚĞ^ƚĂƚĞ͛ƐĨĞĞŽĨΨϯϯ. tŚŝůĞƚŚĞ^ƚĂƚĞŚĂƐƚǁŽĨĞĞƐ;ŝ͘Ğ͘ΨϯϯďǇŵĂŝůĂŶĚΨϭϱŝŶ- ƉĞƌƐŽŶͿ͕^ƚĂīƌĞĐŽŵŵĞŶĚƐƐƚƌĞĂŵůŝŶŝŶŐĂŶĚŚĂǀŝŶŐŽŶĞĨĞĞŽĨΨϯϯ͘ o ^&ĞĞƐ– ƐĞǀĞƌĂůĨĞĞƌĞĐŽŵŵĞŶĚĂƟŽŶƐƌĞƋƵŝƌĞĚƵƉĚĂƚĞŽĨĐŽƐƚƌĞĐŽǀĞƌǇƉŽůŝĐǇ ĚĞƐŝŐŶĂƟŽŶ͘dŚŽƐĞǁŝůůďĞƵƉĚĂƚĞĚŝŶƚŚĞŝƚǇ͛ƐĨĞĞƐŽŌǁĂƌĞĂĐĐŽƌĚŝŶŐůǇ͕ĂŶĚůŝƐƚĞĚ ďĞůŽǁ͗
DĂŝůŝŶŐ͗DĞĚŝƵŵĐŽƐƚƌĞĐŽǀĞƌǇ
ƵƉůŝĐĂƚĞZĞĐĞŝƉƚƐ͗DĞĚŝƵŵĐŽƐƚƌĞĐŽǀĞƌǇ
o ZĞĂů
ƐƚĂƚĞ-ŽŶǀĞǇĂŶĐĞ– ŽŵŵŝƩĞĞĚŝƌĞĐƚĞĚĨƵůůĐŽƐƚƌĞĐŽǀĞƌǇĂŶĚƚŚĞƌĞĐŽŵŵĞŶĚĞĚ ĨĞĞŝƐƵƉĚĂƚĞĚĂĐĐŽƌĚŝŶŐůǇ͗
Item 1
Attachment A - Additional
Staff Recommended
Technical Adjustments
Item 1: Staff Report Pg. 13 Packet Pg. 60 of 68
Item 4
Attachment B - Corrected
Matrix Report & Technical
Adjustments from May 20

Item 4: Staff Report
Pg.
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ƩĂĐŚŵĞŶƚ
ĚĚŝƟŽŶĂů^ƚĂīZĞĐŽŵŵĞŶĚĞĚdĞĐŚŶŝĐĂůĚũƵƐƚŵĞŶƚƐ
A-Ϯ
o ZĞŵŽǀĞƚǁŽƌĞĨĞƌĞŶĐĞƐƚŽƚŚĞŝƚǇŽĨdŚŽƵƐĂŶĚKĂŬƐĨƌŽŵƚŚĞDĂƚƌŝǆƌĞƉŽƌƚ͘dŚŝƐŝƐ ĚŽŶĞĂŶĚƚŚĞƌĞǀŝƐĞĚƌĞƉŽƌƚŝƐƉŽƐƚĞĚĂŶĚĂůƐŽƉƌŽǀŝĚĞĚĂƐĂƐƵƉƉůĞŵĞŶƚĂůƚŽ ŽŵŵŝƩĞĞDĂǇϮϬƚŚ ĂŐĞŶĚĂ͘
o WŽůŝĐĞ^ƉĞĐŝĂů
ǀĞŶƚƐ&ĞĞƐ– ƵƉĚĂƚĞƟƚůĞƚŽƉƌŽƉĞƌůǇƌĞŇĞĐƚĂƉƉůŝĐĂŶƚƐƚŚĂƚĂƌĞŶŽŶ-ƉƌŽĮƚ ĂŶĚĐŽ-ƐƉŽŶƐŽƌƐŚŝƉ͘&ĞĞƟƚůĞƐĂƌĞƵƉĚĂƚĞƐĂƐĨŽůůŽǁƐ͗
WĞƌƐŽŶŶĞůZĂƚĞƐĨŽƌ^ƉĞĐŝĂů
ǀĞŶƚƐ
WĞƌƐŽŶŶĞůZĂƚĞƐĨŽƌ^ƉĞĐŝĂů
ǀĞŶƚƐďǇEŽŶ-WƌŽĮƚKƌŐĂŶŝǌĂƟŽŶƐ
WĞƌƐŽŶŶĞůZĂƚĞƐĨŽƌ^ƉĞĐŝĂů
ǀĞŶƚƐŽ-^ƉŽŶƐŽƌĞĚďǇƚŚĞŝƚǇŽĨWĂůŽůƚŽ
o ŶŝŵĂůĐŽŶƚƌŽůŝŵƉŽƵŶĚŵĞŶƚĨĞĞƐ--ƌĞǀŝĞǁĞƐƉĞĐŝĂůůǇĨŽƌϱŽƌŵŽƌĞŝŶĐŝĚĞŶƚƐ͘^ƚĂī ƌĞĐŽŵŵĞŶĚƐƚŚĞƐĞĨĞĞƐƚŽƌĞŇĞĐƚƌĂƚĞƐŚŝŐŚĞƌƚŚĂŶĐŽƐƚƐĨŽƌϱŽƌŵŽƌĞŝŶĐŝĚĞŶƚƐ͗ o &ůŽŽĚǌŽŶĞĚĞƚĞƌŵŝŶĂƟŽŶůĞƩĞƌƐĨĞĞƐ– ƌĞǀŝĞǁƚŚĞĐŽƐƚ͘^ƚĂīƌĞǀŝĞǁĞĚĂŶĚĐŽŶĮƌŵƐƚŚĞ ĐŽƐƚƐĂƌĞƐƵƉƉŽƌƚĞĚďǇƐƚĂīƟŵĞŝŶĐƵƌƌĞĚĨŽƌƌĞǀŝĞǁĂŶĚĚŝƐĐƵƐƐŝŽŶǁŝƚŚƌĞƋƵĞƐƚŽƌŽĨ ŇŽŽĚǌŽŶĞĚĞƚĞƌŵŝŶĂƟŽŶůĞƩĞƌƐǁŚŝĐŚŽŌĞŶĞŶƚĂŝůƋƵĞƐƟŽŶƐ͕& DǌŽŶĞĐŽŶĮƌŵĂƟŽŶ
ĂŶĚŵĞĞƟŶŐƐǁŝƚŚƌĞƋƵĞƐƚŽƌ͘
o dĂǆŝĨĞĞ-ŶĞǁůŝĐĞŶƐĞĂƉƉůŝĐĂƟŽŶ– ƌĞǀŝĞǁƚŚĞĐŽƐƚĞƐƟŵĂƚĞ͘^ƚĂīƌĞǀŝĞǁĞĚƚŚĞ ĞƐƟŵĂƚĞĚƐƚĂīƟŵĞĂŶĚĚĞƚĞƌŵŝŶĞĚƚŚĂƚ^ƚĂīĐŽƵůĚĐŽŵƉůĞƚĞĂƚĂǆŝƉĞƌŵŝƚŶĞǁ ĂƉƉůŝĐĂƟŽŶǁŝƚŚŝŶϮϬŚŽƵƌƐŝŶƐƚĞĂĚŽĨƚŚĞƉƌŝŽƌϯϬŚŽƵƌĞƐƟŵĂƚĞ͕ĂŶĚƌĞĐĂůĐƵůĂƚĞĚƚŚĞ Item 1
Attachment A - Additional
Staff Recommended
Technical Adjustments
Item 1: Staff Report Pg. 14 Packet Pg. 61 of 68
Item 4
Attachment B - Corrected
Matrix Report & Technical
Adjustments from May 20

Item 4: Staff Report
Pg.
51 Packet Pg. 80 of 690

ƩĂĐŚŵĞŶƚ
ĚĚŝƟŽŶĂů^ƚĂīZĞĐŽŵŵĞŶĚĞĚdĞĐŚŶŝĐĂůĚũƵƐƚŵĞŶƚƐ
A-ϯ
ĐŽƐƚĞƐƟŵĂƚĞƚŽΨϰ͕ϴϰϵ. ^ƚĂīƌĞĐŽŵŵĞŶĚƐĨƵůůĐŽƐƚƌĞĐŽǀĞƌǇĂŶĚƐĞƫŶŐƚŚĞĨĞĞĂƚ Ψϰ͕ϴϰϵ͘
o ŽŵŵŝƩĞĞǁŝƐŚĞƐƚŽĐƌĞĂƚĞĂŶĞǁϭϬϬйĂƚĞŐŽƌǇǁŝƚŚŝŶƚŚĞŝƚǇ͛ƐŽƐƚZĞĐŽǀĞƌǇPŽůŝĐǇ. dŚŝƐǁŝůůďĞĂĚĚĞĚƚŽ&ŝŶĂŶĐĞŽŵŵŝƩĞĞĂƐĂƌĞĨĞƌƌĂůƚŽŽƵŶĐŝůĂŶĚŵĂǇďĞĐŽŶƐŝĚĞƌĞĚ ŝŶϮϬϮϱǁŽƌŬƉůĂŶ͘
Item 1
Attachment A - Additional
Staff Recommended
Technical Adjustments
Item 1: Staff Report Pg. 15 Packet Pg. 62 of 68
Item 4
Attachment B - Corrected
Matrix Report & Technical
Adjustments from May 20

Item 4: Staff Report
Pg.
52 Packet Pg. 81 of 690

City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Public Works
Meeting Date: September 8, 2025
Report #:2507-4968
TITLE
Approval of Construction Contract No. C26195620 with Public Restroom Company in the Amount Not-to-Exceed $412,940 and Authorization for the City Manager or Their Designee to Negotiate and Execute Change Orders Up to a Not-to-Exceed Amount of $41,294 to Provide and Install a Modular Restroom Building at Mitchell Park for the Park Restroom Installation Capital Improvement Program Project (PG-19000); CEQA status – exempt under CEQA Guidelines Section 15303

RECOMMENDATION
Staff recommends that the City Council:

1. Approve and authorize the City Manager or their designee to execute Contract No.

C26195620 with Public Restroom Company in an amount not-to-exceed $412,940 for purchase and installation of a modular restroom building at Mitchell Park for the Park Restroom Installation Capital Improvement Program Project (PG-19000); and

2. Authorize the City Manager or their designee to negotiate and execute one or more change orders to the contract with Public Restroom Company for related, additional but unforeseen work that may develop during the project, the total value of which shall not exceed $41,294.

BACKGROUND
Mitchell Park, a 21.4-acre community park, offers a variety of recreational activities for the community including recreational fields, a recently expanded dog park, picnic areas, playgrounds, multiple sports courts, and walking and biking trails. In 2015, the Magical Bridge Playground, an all-inclusive play space was added to the park near the tennis and pickleball courts, attracting a high volume of users daily. There are currently three public restroom buildings within the park including a two-stall restroom that mainly serves the south side of the park where the dog park, Magical Bridge Playground, two smaller playgrounds, athletic fields, a couple of picnic areas, and tennis and pickleball courts are located. Due to the heavy usage of Item 5
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the existing restroom, temporary portable restrooms funded by Friends of the Palo Alto Parks have been placed near the sports courts. To accommodate increased demand, this project proposes replacing the existing two-stall restroom with a four-stall modular restroom building at the same location.

ANALYSIS
Public Restroom Company provided the modular restroom buildings recently installed at Rinconada Park, Ramos Park, Cubberley Community Center playing fields, and Boulware Park.

The proposed restroom building at Mitchell Park will consist of four universal stalls, be about 14 feet by 28 feet in size, and match the style and color of the existing restroom building. The building will be fabricated offsite. The estimated fabrication time for the building is approximately 10-12 months. The City has had positive experiences working with Public Restroom Company and the quality and aesthetics of the modular buildings they have provided.

The cost of the prefabricated restroom building has increased as compared to previous restroom buildings at City facilities due to materials price increases and market conditions. For reference, the cost of the two-stall restroom buildings purchased in 2023 for Rinconada and Ramos Parks were approximately $270,000 each, and the four-stall restroom building purchased in 2023 for the Cubberley Community Center was approximately $340,000.

Palo Alto Municipal Code section 2.30.360 (j) allows the City to make cooperative purchases through a cooperative purchasing agency in lieu of conducting competitive solicitation.

Sourcewell, a cooperative purchasing agency serving governmental, education, non-profit, and other public agencies, issued a Request for Proposal (RFP) for the procurement for restrooms and shower facility solutions on the Sourcewell Procurement Portal in June 2021 and awarded a contract (Contract # 081721-PRM) to Public Restroom Company in October 2021. The City received a quote and preliminary renderings from Public Restroom Company for Mitchell Park Restroom in July 2025 as included in the Construction Contract. The City’s Procurement Officer has determined that Sourcewell’s solicitation method and contract are consistent with the municipal code.

This approach allows staff to purchase the modular restroom building directly from the vendor, rather than having a one-year or longer lead time following completion of the bidding process for both design and construction, and Council approval of a construction contract. The offsite building prefabrication would be cost-effective and would reduce onsite construction time and impact compared to the traditional design/bid/build process. Prior to completion of the building fabrication, staff will complete a bidding process to award a construction contract for site and utility work for the building installation. The restroom is anticipated to be installed in summer or fall 2026, largely dependent on how quickly Public Restroom Company is able to fabricate the restroom.

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Staff recommends the approval of Contract No. C261956201 with Public Restroom Company for the purchase of the modular restroom building for Mitchell Park, which includes the cost of building fabrication, design, installation, all required state inspections and approvals, and bonds.

FISCAL/RESOURCE IMPACT
Funding for the recommended contract is available in the Fiscal Year 2026 Adopted Capital Improvement Program Park Restroom Installation project (PG-19000).

STAKEHOLDER ENGAGEMENT
The proposed project replaces an existing smaller restroom with a larger restroom matching the style and aesthetics of the existing building and in relatively the same location. Appropriate measures will be taken to keep the existing restroom in operation until its replacement is ready as feasible. The community will be notified with construction updates and timeline when appropriate. A Park Improvement Ordinance (PIO) is not required because the proposed replacement of a smaller restroom building with a larger restroom building in the same location is not considered a substantial improvement to the park. The project is currently undergoing minor Architectural Review Board (ARB) review.

ENVIRONMENTAL REVIEW
The installation of a modular restroom building is categorically exempt from California Environmental Quality Act (CEQA) under Section 15303 (New Construction of Small Structures) of the CEQA guidelines.

APPROVED BY:

Brad Eggleston, Director Public Works/City Engineer
1 Public Restroom Company Contract for the Mitchell Park Modular Restroom Project C26195620; https://www.paloalto.gov/files/assets/public/v/1/public-works/engineering-services/c26195620-mitchell-park- restroom-contract-final.pdf
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: September 8, 2025
Report #:2507-4921
TITLE
Approve Amendment #1 of the Memorandum of Agreement with the California Alternate Energy and Advanced Transportation Financing Authority, to Extend the Term of the Agreement from Two Years to Five Years, to Continue to Enable the Residents of Palo Alto to Participate in the GoGreen Home Energy Financing Program

RECOMMENDATION
Approve Amendment #1 of the Memorandum of Agreement (MOA) with the California Alternate Energy and Advanced Transportation Financing Authority (CAEATFA), to Extend the Term of the Agreement from Two Years to Five Years, to Continue to Enable the Residents of Palo Alto to Participate in the GoGreen Home Energy Financing Program.

EXECUTIVE SUMMARY
To meet Palo Alto’s ambitious greenhouse gas reduction goals, residents will need to implement energy efficiency and electrification projects at their homes. These projects may need thousands of dollars in capital expenditure. The GoGreen Home Program is a long-standing State-run 1 financing program with participating financing companies (PFCs) to provide consumer financing for these types of projects at competitive rates2.

Since Palo Alto is not served by any investor-owned energy utilities, a separate agreement with the State was required to enable participation of Palo Alto residents. In September 2023, the Council approved a $300,000 agreement with CAEATFA for a two-year term (Staff Report: 2212- 04753). This program was intended to support single-family electrification, with the 1 Description of GoGreen Financing Program: https://gogreenfinancing.com/residential 2 Current interest rates range from 4% to 9.75% depending on the term of the loan and the credit rating of the borrower. In January 2025, the average interest rate for the 415 loans processed statewide was 6.48%, with an average term of 139 months2. There has been one participant from Palo Alto in the Program to date. 3 September 2023 Staff Report: https://portal.laserfiche.com/Portal/DocView.aspx?id=67742&repo=r-704298fc Item 6
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understanding that it would be most helpful for space heating rather than water heating projects.

As expected, the first loan for this program came after incentives for space heating electrification were launched in January 2025. The one loan, for a space heating project, was issued in May 2025 for $25,000 at an interest of 3.98% for a 30 month (2.5 years) term. As more space heating projects are completed more loans are expected.

BACKGROUND
The California Hub for Energy Efficiency Financing (CHEEF) was formed as a public-private partnership between the State and California’s investor-owned utilities (IOUs). It was authorized by the California Public Utilities Commission (CPUC) in 2013 and is administered by CAEATFA, an agency under the State’s Treasury Department. The GoGreen Home Program issued its first loan in 2016 and has only been available in areas served by an IOU such as Pacific Gas & Electric (PG&E).

The objective of the GoGreen Home Financing Program is to offer residential customers attractive financing options, through participating financial institutions, for energy efficiency and decarbonization projects by providing a ‘credit enhancement’ to lenders in the form of a loan loss reserve (LLR), funded by the IOUs and other participating entities (e.g., TECH Clean California).

CPAU’s participation to facilitate Palo Alto customer access to GoGreen Home would be the first credit enhancement funded by a municipal utility.

Current participating financing companies operating in Santa Clara County are Matadors Community Credit Union, California Coast Credit Union, Travis Credit Union, and Self-Help Federal Credit Union 7. The loans fund the following Eligible Energy Efficiency Measures:
appliances (including electrified appliances such as heat pumps), building envelope, demand response, HVAC, lighting, pool products, water heating. The Program also funds Solar PV, Battery Energy Storage and EV charger installation projects8.

The benefits to residential homeowners participating in the Program include:
• No lien on property (unsecured consumer loan)
• Available to borrowers with a wide range of credit scores and incomes • Loans of up to $50,000 per unit receiving upgrades, up to $75,000 for solar + battery projects
• A term of up to 15 years, up to 20 years for solar + battery projects • Finance 100% of the project cost, including required related upgrades (e.g. electrical upgrades)
7 Financing Companies Serving Santa Clara County: https://www.gogreenfinancing.com/energy-efficiency-home- loans-california/finance-options/?_counties_filter=santa-clara%2Call&zip_code=94301 8 Energy Efficiency Measures: https://www.gogreenfinancing.com/wp- content/uploads/2025/04/reel_eeemsList.pdf
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• Up to 30% of loan amount can be used toward non-energy improvements (e.g. home remodels, drought tolerant landscaping)
• No prepayment penalties
• Currently no closing costs or origination fees (may change in the future) • No contractor fees (lenders often charge contractors thousands of dollars to finance projects)
• Below-market interest rates and extended payback periods (due to credit enhancement provided to lender)

ANALYSIS
Staff recommend that the City continues enabling the GoGreen Program for Palo Alto residents to finance higher-cost electrification projects. The program requires little staff time to implement, and the administrative cost is low. The City’s electrification program in 2023-24 period was focused on heat pump water heaters, a lower cost (thousands of dollars) compared to the high cost (tens of thousands of dollars) of whole home electrification projects the City started promoting in 2025. Staff anticipate the financing needs for these higher cost projects will increase in the coming years.

Cost of Participating in the Program and Funding Needs
The MOA in place is funded for up to $300,000 ($140,000 for administrative cost and $160,000 for LLR funding). During the past two years, the Palo Alto program incurred an administrative expense of $4,757 to start the program. The City is responsible for variable administrative costs for each loan processed. No ongoing administrative expense is incurred in the absence of a loan.

Additionally, $50,000 is being held by CAEATFA to fund the Loan Loss Reserve (LLR), which enables Palo Alto residents to receive lower interest rates. The contract provides for a monthly fee to cover administrative expenses, but such a fee has not been charged to date. Staff recommends continuing funding program costs from revenues gained from the auction of allowances allocated the City as part of its participation in the State’s Cap and Trade program.

As part of the program, City has to contribute ~8% (based on the statewide program experience) of the underlying loan amounts to the loan loss reserve (LLR)11. A large part of this LLR would be returned to the City if the loan portfolio does not suffer large delinquencies. Statewide, the loss rate since program inception in 2016 is 1.42%, or 153 loans out of 10,755 loans enrolled have defaulted. Statewide, the $168 million loan portfolio has lossed incurred to date of $1.42 million.

Statewide the LLR currently has a balance of $16 million, most of it funded by the IOUs12, but will also be funded by the City as Palo Altans continue to enroll in the program. Currently approved 11 A loan loss reserve is a fund that lenders set aside to cover potential losses from borrowers who default on their loans. The LLR for this program is funded at 5% of the underlying loan (for borrowers with a credit score > 700) and at 15% (for borrowers with credit score <700). The $25,000 loan processed required a 5% LLR funding, or $1,250. 12 GoGreen Program Performance Report: https://www.treasurer.ca.gov/caeatfa/cheef/monthlyreel/2025/01.pdf Item 6
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$160,000 in LLR funding will support $2 million in loans by Palo Altans. This amount is expected to support around 100 loans, assuming loan sizes in Palo Alto match the statewide average (about $19,900 per loan).

Demand for Financing Energy Efficiency and Electrification Projects in Palo Alto The level of demand for the GoGreen Home financing products in Palo Alto is difficult to gauge.

As a relatively affluent community City residents have a wide array of options to finance projects.

Staff anticipate the GoGreen Home financing product (unsecured consumer loan) will be a unique and useful product for residents as they embark on larger investments to electrify their homes, for residents with lower credit scores, or for residents who do not want to tap into the equity in their home or who have limited equity available to tap into.

In the current climate of economic uncertainty and high interest rates, GoGreen Home’s relatively low interest rates may be compelling for interested Palo Altans.

Process to Select Contractor, Apply for Loan & Pay for the Home Improvement Project The process for implementing a project is illustrated below. It is designed to be simple and efficient, with minimal need for intervention (and thus, few delays) by Palo Alto Program staff.

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FISCAL/RESOURCE IMPACT
$300,000 was previously approved for this Agreement in September 2023, no additional funding is needed at this time. Extending the Agreement by three years does not result in increased resource requirements. Administrative costs of $4,757 have been paid to date, and $1,250 in LLR funding has been provided.

If the loans approved exceed $2 million, meaning that the budgeted $160,000 for LLR is depleted, staff will seek Council approval for additional funding.

The loan loss reserve (LLR) is maintained in an escrow account between the state and lender. The State will track the LLR status and report to the City on a quarterly basis. The City will stop budgeting additional funding for the LLR if the State ends the GoGreen program, and any remaining LLR funding will be returned to the City after each loan is repaid and fully returned (less any default loan funding paid to lender).

STAKEHOLDER ENGAGEMENT
Staff have sought approval from the Utilities Advisory Commission (UAC) to recommend Council approval of the Amendment #1 of the MOA at their September 3 rd meeting. Staff will be providing the Council a Supplemental Memo on UAC’s action and discussion before September 8th when Council will be voting on this recommendation.

Through the Sustainability and Climate Action Plan (S/CAP) community engagement process and via the promotion of City’s electrification and energy efficiency programs, Palo Alto residents are aware of CPAU’s participation in the GoGreen Home Financing program and the availability of this financing option for the residents.

ENVIRONMENTAL REVIEW
Approval of the attached agreement described in this staff report does not meet the definition of a project under the California Environmental Quality Act (CEQA), pursuant to the California Public Resources Code Section 21065, because it is not an activity that will cause a direct physical change in the environment.

POLICY IMPLICATIONS
The MOA to facilitate energy efficiency and electrification project loans for Palo Alto residents supports the community’s climate goals as embodied in the S/CAP, the Council-approved Utilities Ten-Year Energy Efficiency Goals, and Comprehensive Plan Goals N4.2.1 (educate customers on efficient water use), N7.4.2 (implement cost effective energy efficiency programs for all customers) and N7.7.2 (explore the transition of existing buildings from gas to electric or solar water and space heating).

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ATTACHMENTS
Attachment A: Amendment #1 of the Memorandum of Agreement (MOA) between CAEATFA and Palo Alto
APPROVED BY:

Alan Kurotori, Director Utilities
Staff: Jonathan Abendschein, Assistant Director, Climate Action, Public Works Staff: Shiva Swaminathan, Senior Resource Planner
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CAEATFA R08-23 Amendment 1
AMENDMENT NO. 1
This Amendment No. 1 (“Amendment”), dated as of [Insert Current Date], (“Effective Date”) amends the Memorandum of Agreement (“MOA” or “Agreement”) dated September 11, 2023 by and between the California Alternative Energy and Advanced Transportation Financing Authority, a public instrumentality of the State of California created pursuant to Division 16 (commencing with Section 26000) of the California Public Resources Code ("CAEATFA"), and the City of Palo Alto (“City of Palo Alto”). CAEATFA and City of Palo Alto are sometimes referred to in this Agreement individually as a “Party” and together as the “Parties.”
Recitals
A. In Decision D.21-08-006, the California Public Utilities Commission upholds CAEATFA’s broad implementation authority over the California Hub for Energy Efficiency Financing (CHEEF) pilots and programs and conditionally allows for the incorporation of non IOU ratepayer funds to expand the reach of the CHEEF programs.

B. In accordance with Decision D.21-08-006 and Title 4, Business Regulations Division 13, Article 5, Section 10091.17 of the California Code of Regulations (“GoGreen Home Energy Financing Program Regulations” or “Program Regulations”), City of Palto Alto and CAEATFA desires to amend the Agreement to extend the duration of the MOA for three years as stipulated in the Term of the MOA (Section 5, page 7).

IT IS AGREED as follows:

1.AMENDMENTS TO THE AGREEMENT
a. In accordance with Section 5 of this Agreement which provides for, among other things, an extension pursuant to mutual agreement, the Parties hereto agree to extend the term of this Agreement through September 10, 2028.
b.City’s funding of administrative and credit enhancement cost under the MOA would remain unchanged at an amount not to exceed $300,000, according to Section 3 of the Agreement.

2.GENERAL PROVISIONS
a. Further Assurances: The Parties shall work together in good faith to revise all applicable documentation and alert all relevant lenders and contractors as to the project and measure eligibility revisions contemplated by this Agreement. b. Miscellaneous. Other than as specifically modified above, the Agreement shall remain in full force and effect and is hereby ratified, approved, and confirmed. This Amendment is subject to all of the terms and conditions of the Agreement as if it were a part thereof, including, without limitation, any provision with respect to choice of law, venue, and/or jurisdiction.

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Attachment A - Amendment
#1 of the Memorandum of
Agreement (MOA) between
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CAEATFA R08-23 Amendment 1

AUTHORIZED REPRESENTATIVE SIGNATURES
City of Palo Alto
By: ____________________________________________
Printed Name: Ed Shikada
Title: City Manager
By: ____________________________________________
Printed Name: Madeleine Salah
Title: City Attorney or Designee
California Alternative Energy and Advanced Transportation Financing Authority

By: ____________________________________________
Printed Name: Christina Sarron
Title: Executive Director
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Attachment A - Amendment
#1 of the Memorandum of
Agreement (MOA) between
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City Council
Staff Report
From: City Attorney
Report Type: CONSENT CALENDAR
Lead Department: City Attorney
Meeting Date: September 8, 2025
Report #:2508-5041
TITLE
Authorization to Execute Amendment to Legal Services Contract S26195198 with Colantuono Highsmith & Whatley PC to Increase Amount by $205,000 for Total Not-to-Exceed Amount of $255,000; CEQA Status – Not a Project.

RECOMMENDATION
Authorize the City Attorney or designee to amend the contract for litigation defense services with the law firm of Colantuono Highsmith & Whatley PC (Contract S26195198) to increase the contract amount by $205,000 for a total not-to-exceed amount of $255,000.

BACKGROUND
In May 2025, the City entered into a three-year agreement (S26195198) in the amount of $50,000 with Colantuono Highsmith & Whatley PC for litigation defense services in the case of Downtown Vibrancy v. City of Palo Alto, et al., Santa Clara County Case No. 25CV464012. Staff now seeks authority to increase the contract amount by $205,000 which will bring the new not to exceed amount to $255,000. Litigation defense is continuing in this matter.

FISCAL/RESOURCE IMPACT
Funding for this amendment does not require additional budgetary authority as it can be accommodated within existing funding allocated to the City Attorney’s Office as part of the FY 2026 Adopted Operating Budget.

STAKEHOLDER ENGAGEMENT
The City Attorney’s Office works closely with the City Manager and department personnel on litigation matters.

ENVIRONMENTAL REVIEW
Amendment of a legal services contract is not a project requiring environmental review under the California Environmental Quality Act (CEQA) (See CEQA Guidelines 15378(b)(5), administrative activities that will not result in direct or indirect physical changes in the environment).

APPROVED BY: Molly Stump, City Attorney
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: September 8, 2025
Report #:2508-5048
TITLE
Adoption of an Emergency Ordinance Amending Palo Alto Municipal Code Chapters 16.04 (California Building Code, California Code of Regulations, Title 24, Part 2, Volumes 1 & 2), 16.05 (California Mechanical Code, California Code of Regulations, Title 24, Part 4), and 16.14 (California Green Building Standards Code, California Code of Regulations, Title 24, Part 11) to Make Non-Substantive Changes Addressing Comments from the California Building Standards Commission. CEQA Status: Exempt Pursuant to CEQA Guidelines Sections 15061(b)(3) and 15308.

RECOMMENDATION
Staff recommends that the City Council:

1. Adopt, by a four-fifths majority, the attached emergency ordinance amending Palo Alto Municipal Code (PAMC) Chapters 16.04, 16.05, and 16.14, which implement the 2022 California Building Code, California Mechanical Code and California Green Building Standards Code and local amendments, and updating associated findings.

BACKGROUND
Every three years, a new version of the California Building Standards Code (CBSC, or Title 24) is published. Local jurisdictions may enforce the model code as published or, subject to certain requirements, adopt local amendments. State law requires that ordinances amending the statewide codes be filed with and approved by the California Building Standards Commission (BSC), which reviews the amendments for compliance with state law. During the 2022 building code adoption cycle, the City Council adopted Ordinances 5564, 5565, and 5626, adopting the California Building Code, California Mechanical Code, and California Green Building Standards Code, respectively, including local amendments.

After staff filed ordinances 5564, 5565, and 5626 with the BSC, the BSC identified several minor deficiencies in those ordinances. Namely, the BSC requested that the City adopt additional findings to support several of the amendments and move some amendments to the Green Item 8
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Building Standards Code from the “definitions” section to the main text of the code. The attached ordinance would cure those deficiencies without making substantive changes to the City’s adopted requirements.

Recent state law, Assembly Bill (AB) 130, limits cities’ authority to adopt local amendments to the CBSC beginning October 1, 2025, and ending June 1, 2031. Adopting this as an emergency ordinance, effective before the AB 130 moratorium begins, will allow the City to continue enforcing its local amendments to the Building Code, Mechanical Code, and Green Building Standards Code during the moratorium.

ANALYSIS
State law imposes certain requirements when local jurisdictions adopt amendments to Building Code Standards, including that the jurisdiction make express findings that each amendment is reasonably necessary because of local climatic, geological, topographic or environmental conditions.

The City of Palo Alto previously adopted local amendments to the California Building Code (CBC), California Mechanical Code (CMC), and California Green Building Standards Code (CALGreen) as part of the 2022 code cycle. These amendments addressed specific local needs, including seismic safety improvements, enhanced energy efficiency, and additional environmental protections.

Under California Health & Safety Code §§ 17958.5, 17958.7, and 18941.5, all amendments to building standards must be supported by express findings demonstrating that each change is reasonably necessary due to local climatic, geological, topographic, or environmental conditions. Administrative provisions, which are not classified as “building standards” under Health & Safety Code § 18909, do not require such findings.

During its routine review, BSC identified deficiencies in the City’s findings for certain adopted amendments. The following items require correction as proposed below:

1. California Building Code – Section 105.2, Work Exempt from Permit (Building, Item #2:

Fences and Materials)
This provision exempts work affecting certain fences and walls from permit requirements based on height and materials. The City adopted an amendment that exempted a smaller subset of these walls from permit requirements than the base codes did. The City characterized this as an administrative amendment, but the BSC requested the City adopt a local climatic, geological, or topographical finding to justify the amendment. Due to local seismic risk and soil conditions, improperly designed masonry or concrete walls can cause significant hazards in earthquakes, including injury to pedestrians and property damage.

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Proposal: Leave the City’s local amendment in place and make the necessary finding that it is justified by local topographical and geological conditions.

2. California Mechanical Code – Appendix G (Sizing of Venting Systems and Outdoor Combustion and Ventilation Opening Design)
Appendix G provides example calculations for outdoor air ventilation rates in various applications. The City adopted this appendix as an administrative amendment, but the BSC requested the City adopt a local climatic, geological, or topographical finding to justify the amendment. Upon review, staff determined that adoption is unnecessary because the main body of the CMC already provides adequate requirements and calculation methods.

Proposal: Exclude Appendix G from adoption in the ordinance.

3. California Green Building Standards Code (CALGreen)
BSC requested that certain amended definitions be removed from the definitions section and codified within the substantive provisions of the code, justified by local climatic, geological, or topographical findings.

Proposal: Staff made the following revisions:
Removed definitions for “CALGreen Mandatory,” “Tier 1,” “Tier 2,” “Tier 1 & 2 Prerequisite Measures,” and “CALGreen Tier 1 & 2 Elective Measures” and replace them in a later section of the code, justified by climatic and environmental findings. Removed substantive code provisions from the definition of “Substantial Remodel” and replaced them later in the code, justified by climatic and environmental findings.

Together, these proposals will address the identified deficiencies in the prior findings and enable the City to continue to enforce these local amendments.

POLICY IMPLICATIONS
CALGreen local amendments specifically allow the City to advance its Sustainability and Climate Action Plan goals related to green building and energy efficiency. The California Building Code amendment specifically advances Safety Element goals related to natural hazard mitigation and the protection of human life and shared community assets and infrastructure. Finally, the amendment to the California Mechanical Code aligns with City efforts to simplify code language and improve overall policy accessibility and understanding among the public.

If these corrected findings are not adopted, BSC could reject the local amendments, requiring the City to revert to baseline state codes that do not reflect Palo Alto’s specific seismic, safety, and environmental needs. Adoption of this emergency ordinance before September 30, 2025, Item 8
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enables compliance with AB 130 and preserves the City’s ability to maintain these local amendments through the next code cycle.

FISCAL/RESOURCE IMPACT
There are not significant fiscal or resource impacts associated with the staff recommendation.

STAKEHOLDER ENGAGEMENT
These amendments clarify previously approved amendments; no additional public outreach was conducted. Notice of this item was posted at least 10 days in advance of the City Council meeting.

ENVIRONMENTAL REVIEW
This ordinance is exempt from the provisions of the California Environmental Quality Act (“CEQA”) pursuant to Section 15061(b)(3) of the CEQA Guidelines because it can be seen with certainty that there is no possibility that adopting this ordinance will have a significant effect on the environment, and Section 15308 because adopting these amendments is an action taken by the City to assure the maintenance, restoration, enhancement, or protection of the environment.

ATTACHMENTS
Attachment A: Ordinance making non-substantive changes to the California Building Code, California Mechanical Code and CALGreen
APPROVED BY:

Jonathan Lait, Planning and Development Services Director Item 8
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Ordinance No. ____
Emergency Ordinance of the Council of the City of Palo Alto Amending Chapter

16.04 (California Building Code, California Code of Regulations, Title 24, Part 2, Volumes 1 & 2), 16.05 (California Mechanical Code, California Code of Regulations, Title 24, Part 4), and 16.14 (California Green Building Standards Code, California Code of Regulations, Title 24, Part 11) of the Palo Alto Municipal Code to Make Non-Substantive Changes Addressing Comments from the California Building Standards Commission

The Council of the City of Palo Alto does ORDAIN as follows:

SECTION 1. Findings and Declarations.

A. Every three years, a new version of the California Building Standards Code (CBSC, or Title 24) is published. Local jurisdictions may enforce the model code as published or, subject to certain requirements, adopt local amendments. State law requires that ordinances amending the statewide codes be filed with and approved by the California Building Standards Commission (BSC).

B. During the 2022 building code adoption cycle, the City Council adopted Ordinances 5564, 5565, and 5626, adopting the California Building Code, California Mechanical Code, and California Green Building Standards Code, respectively, including local amendments.

C. After staff filed ordinances 5564, 5565, and 5626 with the BSC, the BSC identified minor deficiencies in those ordinances. Namely, the BSC requested that the City adopt additional findings to support several of the amendments and move some amendments to the Green Building Standards Code from the “definitions” section to the body text of the code.

D. The purpose of this ordinance is to cure the deficiencies identified by the BSC without changing what the City’s adopted codes require.

E. The City’s local amendments are more restrictive building standards than those provided in the California Building Standards Code.

F. The changes shown in this ordinance are relative to the existing provisions of the Palo Alto Municipal Code (PAMC) as adopted by Ordinances 5564, 5565, and 5626.

G. Recent legislation, Assembly Bill (AB) 130 (2025), limits local jurisdictions’ authority to amend the California Building Standards Code beginning October 1, 2025, and ending June 1, 2031. The Council desires to make these amendments effective before the AB 130 moratorium begins.

H. The Council declares that this emergency ordinance, which is effective immediately, is necessary as an emergency measure to preserve the public peace, health, or safety by ensuring that the City may enforce all of its local amendments Item 8
Attachment A - Ordinance
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changes to the California
Building Code, California
Mechanical Code and
CALGreen

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to the California Building Code, the California Mechanical Code, and the California Green Building Standards Code during the AB 130 moratorium.

I. California Health and Safety Code sections 17958.5 and 17958.7 requires that the City, in order to make changes or modifications in the requirements contained in the California Building Standards Code on the basis of local conditions, make express finding that such modifications or changes are reasonably necessary because of local climatic, geological, or topographical conditions.

J. The required findings are attached to this ordinance as Exhibit A.

SECTION 2. The City Council finds that the local amendments to California Building Code Section 105.2 codified at PAMC 16.04.110 by Ordinance No. 5564, to the extent they are not administrative amendments, are justified by local geological and topographical conditions.

The full findings related to local geological and topographical conditions are attached to this ordinance as Exhibit A.

SECTION 3. Section 16.05.050 Appendices of Chapter 16.05 (California Mechanical Code, California Code of Regulations, Title 24, Part 4) of Title 16 (Building Standards) of the Palo Alto Municipal Code is hereby amended to read as follows (deletion in strikethrough):

16.05.050 Section 102.8 Appendices.

The following Appendix Chapters of the California Mechanical Code, 2022 Edition, are adopted and hereby incorporated in this Chapter by reference and made a part hereof the same as if fully set forth herein:

A. Appendix B – Procedures to be followed to place gas equipment in operation B. Appendix C – Installation and testing of oil (liquid) fuel-fired equipment C. Appendix G – Sizing of venting systems and outdoor combustion and ventilation opening design

SECTION 4. Section 16.14.070 (Section 202 Definitions) of Chapter 16.14 (California Green Building Standards Code, California Code of Regulations, Title 24, Part 11) of the Palo Alto Municipal Code is hereby amended to read as follows (deletions struck-through):

16.14.070 Section 202 Definitions.

SECTION 202 of Chapter 2 of the California Green Building Standards Code is amended to include the following definitions:

ALL‐ELECTRIC BUILDING / SITE. A building or parcel of land whose sole source of energy is electricity and contains no combustion equipment or plumbing for combustion equipment.

CPAU. City of Palo Alto Utilities Department.

CALGREEN MANDATORY. Mandatory measures are triggered for projects outlined in Item 8
Attachment A - Ordinance
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changes to the California
Building Code, California
Mechanical Code and
CALGreen

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Section 301.1 Scope of this code, as amended.

Projects that only trigger Mandatory measures are not required to fulfill Tier 1 or Tier 2 measures in Appendix A4 and A5.

CALGREEN TIER 1. To achieve Tier 1 status, a project must comply with measures identified in Appendix A4, Section A4.601.4 for residential projects and Appendix A5, Section A5.601.2 for nonresidential projects.

Projects subject to Tier 1 must fulfill all mandatory measures, all Tier 1 prerequisite measures and a defined number of Tier 1 elective measures.

CALGREEN TIER 2. To achieve Tier 2 status, a project must comply with requirements identified in Appendix A4, Section A4.601.5 for residential projects and Appendix A5, Section A5.601.3 for nonresidential projects.

Projects subject to Tier 2 must fulfill all mandatory measures, all Tier 2 prerequisite measures and a defined number of Tier 2 elective measures.

CALGREEN TIER 1 AND TIER 2 PREREQUISITE MEASURES. Projects subject to Tier 1 or Tier 2 must fulfill all prerequisites as described within Appendix A4, Division A4.6 for residential projects and Appendix A5, Division A5.6 for nonresidential projects.

CALGREEN TIER 1 AND TIER 2 ELECTIVE MEASURES. Projects subject to Tier 1 or Tier 2 must fulfill a defined number of electives as described within Appendix A4, Division A4.6 for residential projects and Appendix A5, Division A5.6 for nonresidential projects.

CALGREEN INSPECTOR is a person certified as a CALGreen Inspector/Plans Examiner through the International Code Council (ICC), demonstrating knowledge and application of Green Building concepts during plan review and inspection. For projects that require a CALGreen Inspector/Plans Examiner verification, the Inspector must be contracted directly with the owner and may not be a contractor or employee of the design or construction firm.

CERTIFIED ENERGY ANALYST is a person registered as a Certified Energy Analyst with the California Association of Building Energy Consultants as of the date of submission of a Certificate of Compliance as required under section 10-103 of Building Energy Efficiency Standards for residential and nonresidential buildings.

MODEL WATER EFFICIENT LANDSCAPE ORDINANCE. The California Department of Water Resources Model Water Efficient Landscape Ordinance.

SALVAGE. Salvage means the controlled removal of items and material from a building, construction, or demolition site for the purpose of on- or off-site reuse, or storage for later reuse. Examples include air conditioning and heating systems, columns, balustrades, fountains, gazebos, molding, mantels, pavers, planters, quoins, stair treads, trim, wall caps, bath tubs, bricks, cabinetry, carpet, doors, ceiling fans, lighting fixtures, electrical panel boxes, fencing, fireplaces, flooring materials of wood, marble, stone or tile, furnaces, plate glass, wall mirrors, door knobs, door brackets, door hinges, marble, iron work, metal balconies, structural steel, plumbing fixtures, refrigerators, rock, roofing materials, siding materials, sinks, stairs, stone, stoves, toilets, windows, wood fencing, Item 8
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Building Code, California
Mechanical Code and
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lumber and plywood.

SUBSTANTIAL REMODEL (or “50‐50‐50” RULE).

Any project that affects the removal or replacement of 50% or more linear length of the existing exterior walls of the building, 50% or more linear length of the existing exterior wall where the plate height is raised, or 50% or more of the existing roof framing area is removed or replaced, over a 3-year period is considered a substantial remodel. (Refer to Section 301.1.2)

Any permit(s) applied for will trigger a review of a 3-year history of the project. This review will result in determining if a substantial remodel has occurred.

The Chief Building Official or designee shall make the final determination regarding the application if a conflict occurs.

SQUARE FOOTAGE. For application of green building requirements, “square footage” refers to all new or altered square footage, including basement areas (7 feet or greater in height), as calculated based on outer boundary of proposed construction area, including exterior walls.

SECTION 5. Section 16.14.080 (SECTION 301 - Voluntary Tiers Added) of Chapter

16.14 (California Green Building Standards, California Code of Regulations, Title 24, Part 11) of the Palo Alto Municipal Code is hereby amended to read as follows (additions underlined):

16.14.080 SECTION 301 ‐ Voluntary Tiers Added.

SECTION 301 of Chapter 3 of the California Green Building Standards Code is amended to read:

SECTION 301 GENERAL
301.1 Scope. Buildings shall be designed to include the green building measures specified as mandatory in the application checklists contained in this code and any applicable local amendments. In addition, the City requires the use of Voluntary Tiers, as provided in Appendices A4 and A5, for certain residential and nonresidential new construction, additions, and alterations.

Projects that only trigger Mandatory measures are not required to fulfill Tier 1 or Tier 2 measures in Appendix A4 and A5.

To achieve Tier 1 status, a project must comply with measures identified in Appendix A4, Division A4.6, Section A4.601.4 for residential projects and Appendix A5, Division A5.6, Section A5.601.2 for nonresidential projects. Projects subject to Tier 1 must fulfill all mandatory measures, all Tier 1 prerequisite measures and a defined number of Tier 1 elective measures.

To achieve Tier 2 status, a project must comply with requirements identified in Item 8
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changes to the California
Building Code, California
Mechanical Code and
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Appendix A4, Division A4.6, Section A4.601.5 for residential projects and Appendix A5, Division A5.6, Section A5.601.3 for nonresidential projects. Projects subject to Tier 2 must fulfill all mandatory measures, all Tier 2 prerequisite measures and a defined number of Tier 2 elective measures.

301.1.1 Residential additions and alterations. [HCD] The Mandatory provisions of Chapter 4 shall be applied to additions and/or alterations of existing residential buildings where the addition and/or alteration increases the building's conditioned area, volume, or size. The requirements shall apply only to and/or within the specific area of the addition or alteration.

Tier 1 adopted (Residential). All residential building additions and/or alterations exceeding 1000 square feet must meet CALGreen Mandatory plus the Tier 1 measures, as amended by this Chapter and as applicable to the scope of work.

For Tier 1 projects, the area of alterations will include any construction or renovation to an existing structure other than repair or addition. Alterations include raising the plate height, historic restoration, changes or rearrangements of the structural parts or elements, and changes or rearrangement of bearing walls and full height partitions.

Normal maintenance, reroofing, painting or wall papering, floor finishes, replacement- in-kind of mechanical, plumbing and electrical systems, or replacing or adding new kitchen counter and similar furniture, plumbing fixture to the building are excluded for the purposes of establishing scope of Tier 1 projects.

The area of alteration should be limited to the footprint of element(s) being altered.

This does not exclude mandatory CALGreen measures. The sum of the footprint of the elements being altered with respect to Tier 1, shall be calculated using the following methodology:

1. Raising the plate height: The calculation with respect to raising of the plate height will be based on the area of the footprint in which the plate height is being increased. Plate height means the vertical distance measured from the top of the finished floor to the top of the plates.

2. Historic restoration: The calculation with respect to historic restoration will be based on the area of work covered in the California Historical Building Code (Title 24, Part 8).

3. Structural parts or elements: The calculation with respect to changes or rearrangements of the structural parts or elements will be based on the sum of the individual footprints of each structural change or rearrangement. The footprint shall be calculated based on the proposed design and inclusive of any demolished structural parts or elements.

4. Bearing walls and full height partition: The calculation with respect to changes or rearrangement of walls and full height partitions will be based on the footprint of any demolished wall or full height partition and any new Item 8
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wall or new full height partition.

Exception: Attached and detached Accessory Dwelling Units, ADU conversions of existing structures shall meet the California Green Building Standards Code Mandatory measures only.
301.1.2 Substantial Remodel (50‐50‐50 rule). Any project that affects the removal or replacement of 50% or more linear length of the existing exterior walls of the building, 50% or more linear length of the existing exterior wall where the plate height is raised, or 50% or more of the existing roof framing area is removed or replaced, over a 3-year period is considered a substantial remodel.

Any permit(s) applied for will trigger a review of a 3-year history of the project. This review will result in determining if a substantial remodel has occurred.

The Chief Building Official or designee shall make the final determination regarding the application if a conflict occurs.
[…]

SECTION 6. The Council adopts the findings for local amendments to the 2022 editions of the California Building Code, the California Mechanical Code, and the California Green Building Standards Code, attached hereto as Exhibit “A” and incorporated herein by reference.

SECTION 7. If any section, subsection, clause or phrase of this Ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portion or sections of the Ordinance. The Council hereby declares that it should have adopted the Ordinance and each section, subsection, sentence, clause or phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid.

SECTION 8. The Council finds that this project is exempt from the provisions of the California Environmental Quality Act (“CEQA”), pursuant to Section 15061(b)(3) of the CEQA Guidelines, because it can be seen with certainty that there is no possibility that the amendments herein adopted will have a significant effect on the environment and Section 15308, because the amendments herein adopted is an action taken by the City to assure the maintenance, restoration, enhancement, or protection of the environment.

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SECTION 9. Pursuant to Palo Alto Municipal Code Section 2.04.270, this ordinance shall be effective immediately upon adoption if passed by a vote of four-fifths of the council members present.

INTRODUCED AND PASSED:

AYES:

NOES:

ABSENT:

ABSTENTIONS:

ATTEST:

City Clerk Mayor
APPROVED AS TO FORM: APPROVED:

City Attorney or Designee City Manager

Director of Planning and
Development Services

Director of Administrative Services
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Exhibit A
FINDINGS FOR LOCAL AMENDMENTS TO CALIFORNIA BUILDING CODE, TITLE 24, PART 2, VOLUMES 1 AND 2; CALIFORNIA MECHANICAL CODE, TITLE 24, PART 4; AND CALIFORNIA GREEN BUILDING STANDARDS CODE, TITLE 24, PART 11

Section 17958 of the California Health and Safety Code provides that the City may make changes to the provisions of the California Building Standards Code. Sections 17958.5 and 17958.7 of the Health and Safety Code require that for each proposed local change to those provisions of the California Building Standards Code which regulate buildings used for human habitation, the City Council must make findings supporting its determination that each such local change is reasonably necessary because of local climatic, geological, or topographical conditions.

Local building regulations having the effect of amending the uniform codes, which were adopted by the City prior to November 23, 1970, were unaffected by the regulations of Sections 17958, 17958.5 and 17958.7 of the Health and Safety Code. Therefore, amendments to the uniform codes which were adopted by the City Council prior to November 23, 1970 and have been carried through from year to year without significant change, need no required findings. Also, amendments to provisions not regulating buildings used for human habitation do not require findings.

Code: California Building Code, Title 24, Part 2, Volumes 1 and 2 Chapter(s),
Section(s),
Table(s),
Appendices
Title Added Amended Deleted Justification
(See key below)
Ch 1, Div. II,
Part 2, Section
105.2
Work Exempt from Permit   A, G, T
Ch 1, Div. II,
Part 2, Section
105.2,Building
Item 2
Wood fences not over 7 feet (2134 mm)
high or concrete or masonry wall not over
4 feet (1219 mm) …
  A, G, T
Ch 1, Div. II,
Part 2, Section
105.2, Building
Item 3
Retaining walls that are not over 4 feet
(1219 mm) …
  A, G, T

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Code: California Mechanical Code, Title 24, Part 4
Chapter(s),
Sections(s),
Appendices
Title Added Amended Replaced Justification
(See key below)
Ch. 1, Div. II,
Section
102.8
Appendices  A
Appx. B Procedures to be followed to place gas
equipment in operation
 A
Appx. C Installation and testing of oil (liquid) fuel-
fired equipment
 A

Code: California Green Building Standard Code, Title 24, Part 11 Chapter(s),
Sections(s),
Appendices
Title Add Deleted Amended Justification
(See key below)
202 Definitions   A
301.1 Scope  C, E
301.1.1 Residential additions and alterations  C, E 301.1.2 Substantial Remodel   C, E

Key to Justification for Amendments to Title 24 of the California Code of Regulations

A This is an administrative amendment to clarify and establish civil and administrative procedures, regulations, or rules to enforce and administer the activities by the Palo Alto Building Inspection Department. These administrative amendments do not need to meet HSC 18941.5/17958/13869 per HSC 18909(c).

C This amendment is justified on the basis of a local climatic condition. The seasonal climatic conditions during the late summer and fall create severe fire hazards to the public health and welfare in the City. The hot, dry weather frequently results in wild land fires on the brush covered slopes west of Interstate 280. The aforementioned conditions combined with the geological characteristics of the hills within the City create hazardous conditions for which departure from California Building Standards Code is required. Natural gas combustion and gas appliances emit a wide range of air pollutants, such as carbon monoxide (CO), nitrogen oxides (NOx, including nitrogen dioxide (NO2)), particulate matter (PM), and formaldehyde, which according to a UCLA Study, have been linked to various acute and chronic health effects, and additionally exceed levels set by national and California-based ambient air quality standards. The burning of fossil fuels used in the generation of electric power and heating of buildings contributes to climate change, which could result in rises in sea level, including in San Francisco Bay, that could put at risk Palo Alto homes and businesses, public facilities, and Highway 101 (Bayshore Item 8
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Freeway), particularly the mapped Flood Hazard areas of the City. Energy efficiency is a key component in reducing GHG emissions, and construction of more energy efficient buildings can help Palo Alto reduce its share of the GHG emissions that contribute to climate change. All-electric new buildings benefit the health, safety, and welfare, of Palo Alto and its residents. Requiring all-electric construction, without gas infrastructure will reduce the amount of greenhouse gas produced in Palo Alto and will contribute to reducing the impact of climate change and the associated risks. Due to decrease in annual rain fall, Palo Alto experiences the effect of drought and water saving more than some other communities in California. Embodied carbon of concrete is a significant contributor to greenhouse gas emissions and climate change, and this amendment includes a requirement to use low-carbon concrete. Providing additional capacity for electric vehicle use reduces use of gasoline which is a major contributor to climate change.

E Green building enhances the public health and welfare by promoting the environmental and economic health of the City through the design, construction, maintenance, operation and deconstruction of buildings and sites by incorporating green practices into all development. The green provisions in this Chapter are designed to achieve the following goals:
(a) Increase energy efficiency in buildings;
(b) Reduce the use of natural gas in buildings which improves indoor environmental quality and health;
(c) Reduce the use of natural gas which will reduce the natural gas infrastructure and fire risk over time;
(d) Reduce the embodied carbon of concrete which reduces greenhouse gas emissions;
(e) Increase water and resource conservation;
(f) Reduce waste generated by construction and demolition projects; (g) Provide durable buildings that are efficient and economical to own and operate; (h) Promote the health and productivity of residents, workers, and visitors to the city; (i) Recognize and conserve the energy embodied in existing buildings; (j) Increase capacity for use of electric vehicles which reduces greenhouse gas emissions and improves air quality;
(k) Encourage alternative transportation; and
(l) Reduce disturbance of natural ecosystems.

G This amendment is justified on the basis of a local geological condition. The City of Palo Alto is subject to earthquake hazard caused by its proximity to San Andreas fault. This fault runs from Hollister, through the Santa Cruz Mountains, epicenter of the 1989 Loma Prieta earthquake, then on up the San Francisco Peninsula, then offshore at Daly City near Item 8
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Mussel Rock. This is the approximate location of the epicenter of the 1906 San Francisco earthquake. The other fault is Hayward Fault. This fault is about 74 mi long, situated mainly along the western base of the hills on the east side of San Francisco Bay. Both of these faults are considered major Northern California earthquake faults which may experience rupture at any time. Thus, because the City is within a seismic area which includes these earthquake faults, the modifications and changes cited herein are designed to better limit property damage as a result of seismic activity and to establish criteria for repair of damaged properties following a local emergency. Reduction or eliminating of natural gas infrastructure over time will reduce maintenance costs and fire risk in difficult geological conditions.

T The City of Palo Alto topography includes hillsides with narrow and winding access, which makes timely response by fire suppression vehicles difficult. Palo Alto is contiguous with the San Francisco Bay, resulting in a natural receptor for storm and waste water run-off.

Also, the City of Palo Alto is located in an area that is potentially susceptible to liquefaction during a major earthquake. The surface condition consists mostly of stiff to dense sandy clay, which is highly plastic and expansive in nature. The aforementioned conditions within the City create hazardous conditions for which departure from California Building Standards Code is warranted. In addition, the reduction or elimination of natural gas infrastructure reduces the likelihood of fire or environmental damage should they become disrupted due to challenging topographic conditions during construction or repair.

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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: City Auditor
Meeting Date: September 8, 2025
Report #:2508-5095
TITLE
Approval of the Purchasing Card Audit and Extension Deadline for Two FY2024 Audit Project Task Orders and Amendment of the FY2024 and FY2025 Task Order Budgets to Realign the Authorized Budgets with a Net Zero Impact, as Recommended by the Policy & Services Committee; CEQA – Not a Project

RECOMMENDATION
The Policy & Services Committee recommends City Council approve the results of the Purchasing Card Audit Report and approve the extension of two task orders from the FY2024 Audit Plan that are in reporting, as well as, amending FY24 and FY25 task order budgets for three audits to better align budgets to the tasks with a net zero financial impact.

BACKGROUND
Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that evaluated a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan.

During the FY23 risk assessment, the OCA identified purchasing card processes as a potential area of risk and was originally included in the FY24 Audit Plan but was deferred to prioritize other audit projects. The audit was reintroduced and included as part the FY25 Audit Plan.

ANALYSIS
The Policy & Services Committee approved the results of the Purchasing Card Audit and a request to extend and amend task orders for FY24 and FY25 projects.

Purchasing Card Audit Report
The objective of the Purchasing Card (P-Card) Audit was to:
Determine whether P-Cards are used appropriately in compliance with the City’s policies and pertinent laws and regulations.

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Evaluate the administration of the P-Card Program for adequate internal controls to safeguard the City from fraud, waste, and abuse.

The City’s P-Card Program is intended to streamline and simplify the Purchasing and Accounts Payable (AP) functions by eliminating steps for low dollar purchases below $10,000. The Program is administered by the Administrative Services Department (ASD), but P-cards are used by all City departments. The P-Card is a tool that can reduce transaction costs, facilitate timely acquisition of materials and supplies, automate data flow for accounting purposes and offer flexible controls to help ensure proper usage.

OCA assessed P-Card transactions from FY2023 through the first 6 months of FY2025, interviewed key program administrative staff and users, analyzed policies, procedures and internal controls governing the program, and assessed the overall efficiency and effectiveness of the program’s oversight functions, as well as the program itself. Audit findings and recommendations focused on the following areas for improvement:
While the City’s P-Card Program demonstrates strong internal controls and sampled purchases are in line with procurement policies, user compliance with program policies and procedures could be improved.
Some P-Card Program oversight and administrative functions are not consistently completed and documented. Also, more efficient review processes could save staff time.
OCA made an additional observation that the City may be able to increase operational efficiencies and save staff time by increasing P-Card spending limits which have not been updated since 2016. As this observation is outside of ASD’s direct control it is not a finding since it would most likely require amending the municipal code to increase the maximum threshold at which designated employees are authorized to make purchases to $15,000 from $10,0001.

During the discussion at the Policy & Services Committee, it was noted that a section of the report regarding the amount of cost-splitting that occurred during a one-month testing period was unclear. A subsequent review of this section by the audit team found that some words had been mistakenly deleted during final report edits. This section, on page 16, has been revised to reflect that while approximately 4% of the sample transactions tested by ASD for the month of December 2024 showed cost-splitting, this represents less than 1% of the total transactions for that month. Since ASD’s testing methodology includes all of the transactions most likely to include cost-splitting, it is likely that for this month, less than 1% of the total transactions involved cost splitting. While this is a small percentage, cost splitting still represents a policy violation.
1 Municipal Code Section 2.30.230 Designated Employee Purchases of $10,000 or Less https://codelibrary.amlegal.com/codes/paloalto/latest/paloalto_ca/0-0-0-61903 Item 9
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The attached report (Attachment A) summarizes OCA’s analysis, audit findings, and recommendations.

Budget Extension and Amendment Request
Due to the complexity of the audit topics and management discussions they have generated, as well as, additional analysis required, reporting has been delayed. Requesting the deadline for these projects be extended from June 30, 2025 through October 31, 2025:
FY2024 Task 4.25: Emergency Preparedness (Wildfire)
FY2024 Task 4.28: Dispatch Center Assessment
Amendment of the FY2024 and FY2025 task order budgets is recommended to realign budgets with a net zero impact as well:
FY 2025 Task 4.34: Follow-Up Audit Activities - decrease budget by $14,500 FY 2024 Task 4.25: Emergency Preparedness (Wildfire) - increase by $1,500 FY 2024 Task 4.28: Dispatch Center Assessment - increase by $13,000

FISCAL/RESOURCE IMPACT
The timeline and resource needs for implementation of management’s corrective action plans are identified by management within the attached report. The task order extensions and amendments have a net zero impact on the FY24 and FY25 task order budgets.

STAKEHOLDER ENGAGEMENT
The OCA worked with and would like to thank the Administrative Services Department for their assistance in conducting this audit. In particular, we would like to thank the Purchasing Card Program and Accounts Payable staff for their thorough review and collaboration on this audit.

ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because contracting for auditing services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).

ATTACHMENTS
Attachment A: Purchasing Card Program Audit
Attachment B: Budget Extension and Amendment for FY24 and FY25 Task Orders APPROVED BY:

Kate Murdock, City Auditor
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July 29, 2025
City of Palo Alto
Office of the City Auditor
Purchasing Card Program Audit
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Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms.

Contents
Executive Summary ............................................................................................................................ 1 Purpose of the Audit ........................................................................................................................... 1 Report Highlights ................................................................................................................................ 1 Introduction ........................................................................................................................................ 4 Detailed Analysis ................................................................................................................................. 6 Audit Results ....................................................................................................................................... 9 Appendix A: ....................................................................................................................................... 22

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1 Executive Summary
Purpose of the Audit
Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted a Purchasing Card (P-Card) Program Audit based on approved Task Order 4.29 as part of the City’s FY25 Audit Plan. The objective of this audit was to:

• Determine whether P-Cards are used appropriately in compliance with the City’s policies and pertinent laws and regulations.
• Evaluate the administration of the P-Card Program for adequate internal controls to safeguard the City from fraud, waste, and abuse.

Report Highlights
Finding 1:
(Page 9)
Overall, the City's P-Card program demonstrates strong internal controls and adherence to procurement policies, however, user compliance with policy requirements could be improved.

The OCA confirmed that all P-Card expenses analyzed complied with the "General Guidance for Use" section of the P-Card Guidebook (Guidebook), ensuring purchases were not personal and directly supported City operations. However, OCA noted that some P-Card purchases were not documented as required by City policy and could not confirm timeliness of approver review in the system due to system reporting limitations.

The OCA noted that while the City does have a Guidebook and training videos, the City does not have an established, ongoing training program for P-Card users.

However, prior to 2020 and staffing reductions due to the COVID pandemic, staff stated that in-person trainings were held month
ly. Administrative staff and
department leaders agree that regular, recurring formal training is important and will help improve compliance with program requirements and are currently working to formalize training.

Key Recommendations

To further strengthen compliance with P-Card program guidelines, we recommend that management enhance cardholder and approver training on specific documentation requirements.

We also recommend exploring system enhancements for approval timestamps by collaborating with the City’s P-Card system vendor, to explore adding timestamp functionality to the system for approver actions and automating system notifications of non-compliance to users.

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2 EXECUTIVE SUMMARY
Management should consider the merits of implementing clearly defined, tiered consequences for P-Card policy non-adherence vs. the cost of implementing such measures.

Finding 2:
(Page 14)

Some P-Card Program oversight and administrative functions are not consistently completed and documented; more efficient review processes could save staff time.

The OCA noted three areas for improvement in program oversight and administration: the post-audit process, tracking and documenting P-Card misuse, and documenting approved exceptions to P-Card spending limits.

The OCA noted that the post-audit process is not always completed due to staffing shortages, and the process can be overly time-consuming. In addition, Accounts Payable's (AP) post-audit of P-Card transactions focuses on all software/hardware purchases and transactions over $1,000. Approximately 88% of transactions are not reviewed which may limit the effectiveness of the post-audit activity to identify areas of concern. A statistically significant sampling process, encompassing all transaction sizes, may provide a more accurate and complete picture of compliance while also taking less staff time.

AP notifies relevant departments and P-Card administrators of discrepancies like missing documentation or policy violations, with common infractions including purchase splitting and unauthorized acquisitions. However, the current manual tracking system for P-Card misuse is inconsistent and incomplete, lacking specific dates, categorized infraction types, and documented resolutions, which hinders effective policy enforcement and the identification of misuse trends.

Finally, the City's process for documenting P-Card spending limit increases, which relies on a "P-Card Credit Limit Request Form," lacks formal documentation for different types of exceptions to purchase limits and the OCA found some instances where evidence of approvals could not be located.

Key Recommendations

To strengthen the P-Card internal control environment
and potentially realize cost
savings through a more efficient post-audit process, we recommend that AP consider adopting a multi-faceted strategy centered on consistent operations and statistically valid sampling. This means shifting from the current review methods to a statistically random sampling methodology, with the precise sample size calculated monthly to ensure findings accurately represent all transactions.

We recommend that the P-Card Administrator ensure all instances of misuse are formally and comprehensively tracked including the type of infraction, infraction date, and resulting resolution.

We recommend formalizing and standardizing the P-Card limit exception process.

The "P-Card Program Credit Limit Request Form" should be revised to include Item 9
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3 EXECUTIVE SUMMARY

fields for all types of card limit exceptions, ensuring consistent documentation of the rationale and approver concurrence.

Additional
Observation:
(Page 18)
As part of our assessment, we also looked at the overall objectives of the P-Card Program to assess its effectiveness and efficiency in aiding departmental staff to procure items. We identified potential cost savings the City could achieve by raising the P-Card transaction limits versus continuing to use purchase orders to procure items with certain dollar thresholds.

The City's current procurement procedures, particularly for lower-value transactions exceeding the micro-purchase threshold, create significant administrative burdens and consume substantial staff time due to council approval and solicitation requirements. This inefficiency is exacerbated by an unchanged P-Card limit since 2016, despite inflation. Raising the P-Card limit, potentially aligning with the anticipated federal micro-purchase threshold increase to $15,000, could save hundreds of staff hours currently spent processing purchase orders within the $10,000 to $15,000 range. Such a change could potentially streamline operations, reduce incentives for purchase splitting, and prevent delays in acquiring essential goods and services, reallocating resources to more strategic initiatives.

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4 Introduction
Objective Determine whether P-Cards are used appropriately in compliance with the City’s policies, pertinent laws, regulations and evaluate the administration of the P- Card Program for adequate internal controls to safeguard the City from fraud, waste, and abuse.

Background The City’s P-Card Program is intended to streamline and simplify the Purchasing and AP functions by
eliminating steps for low dollar purchases below $10,000. The P-Card is a tool that reduces transaction costs, facilitates timely acquisition of materials and supplies, automates data flow for accounting purposes and offers flexible controls to help ensure proper usage. Managed by a designated Agency Program Administrator in the Purchasing Department, the program provides designated employees with City-issued credit cards to facilitate timely and cost- effective purchases, reducing the administrative burden associated with traditional purchase orders.

Each cardholder is assigned a monthly credit limit of $15,000 and is required to follow established purchasing policies and procedures, including documentation, reconciliation, and supervisory approval of transactions. The program aims to improve operational efficiency while maintaining strong internal controls to ensure responsible spending of public funds.

The P-Card program is governed by the City’s Procurement Card Guidebook.

This document outlines roles and responsibilities, allowable and restricted purchases, and monitoring requirements. Regular oversight and audits are key to ensuring the program’s integrity and alignment with the City’s financial and ethical standards.

Scope The OCA obtained purchase card transactions from FY 2023 to FY 2024 and assessed P-Card transaction approvals and internal controls for managing the P- Card Program across all applicable departments.

Methodology To achieve the audit objectives, the OCA performed the following procedures:

• Interviewed the appropriate individuals to gain an understanding of the organizational structure, processes, and controls related to the P-Card Program.
• Analyzed policies and procedures as well as legislative and regulatory requirements to identify criteria to evaluate control design and effectiveness.
• Judgmentally selected a sample of P-Card users, transactions, and misuse log from FY2023, FY2024, and the first half of FY2025 to determine if P-Card use is in compliance with pertinent laws and regulations, City policies, and procedures, if the P-Card Program is Item 9
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5 INTRODUCTION

1 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract with Baker Tilly U.S, LLP for internal audit services for October 2020 through June 2022 with an extension through June 2025. City Council appointed Kate Murdock, Audit Manager in Baker Tilly’s Risk Advisory practice, as City Auditor in May 2024. As a result of transitions in the Audit Office and peer review delays due to the COVID pandemic, an external peer review is targeted for 2025. It should be noted that Baker Tilly’s most recent firmwide peer review was completed in November 2024 with a rating of “Pass”. The scope of that peer review includes projects completed under government auditing standards.

effectively administered to users, and if P-Card activity is adequately audited and reviewed by the Administrative Services Department (ASD). • Completed audit report of findings, conclusions, and recommendations based on the supporting evidence gathered.

Compliance
Statement
This audit activity was conducted from January 2025 to June 2025 in accordance with generally accepted government auditing standards, except for the requirement of an external peer review

1. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, observations, and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, observations, and conclusions based on our audit objectives.

Organizational
Strengths
During this audit activity, we observed a strong spirit of collaboration and a clear dedication to continuous improvement among the ASD leadership – particularly within the P-Card Program and AP teams. Their efforts reflect a shared commitment to providing the City with accurate, reliable information to support informed decision-making.

The OCA appreciates the support of the ASD in conducting this audit activity.

Thank you!

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6 Detailed Analysis
P-Card
Program
Management
Criteria and
City Code

Procurement Card Guidebook

The City’s Procurement Card Guidebook, version 15, updated November 2024, governs the Program and serves as a comprehensive resource for the City's P-Card users. The P-Card itself is a MasterCard issued by JPMorgan/Chase, designed to streamline purchasing and AP by eliminating steps and reducing transaction costs for purchases $10,000 and under. The program operates under guiding principles of transparency, accountability, integrity, consistency, efficiency, and manageability, and is intended to complement existing procurement processes rather than bypass them.

The Guidebook outlines processes for using P-Cards, details permissible and prohibited purchases, and specifies the record-keeping and reconciliation requirements for each billing cycle. It emphasizes that cardholders are committing City funds and are responsible for all charges made to their card, with misuse potentially leading to disciplinary action.

The Guidebook also defines the responsibilities of various participants in the P-Card Program, including Cardholders, Account Group Managers, Approvers/Level Managers, AP staff, the Agency Program Administrator (APA), and the system vendor. It details card limits, such as a $10,000 maximum for a single purchase, no more than 10 daily transactions, and a $15,000 maximum in a 30-day cycle, which can be temporarily increased via departmental request and approval from the APA.

Palo Alto Municipal Code

The current P-Card purchasing authority and maximum for single purchases is based on established purchasing limits detailed in Palo Alto’s Municipal Code. “Chapter 2.30 Contracts and Purchasing Procedures” of the Palo Alto Municipal Code states the following:

2.30.230 Designated employee purchases of $10,000.00 or less.

Employees authorized, in writing, by their department heads may award and sign contracts for the purchase of goods and the procurement of general services, where the contract price does not exceed $10,000.00 and the contract term does not exceed one year. All purchases and procurements shall be made in accordance with the contracting procedures and requirements contained in this chapter and in the purchasing manual. The written authorizations of department heads shall be kept on file by the Procurement Officer.

2.30.240 Designated employees’ use of petty cash, P-card or other credit card.

Employees designated in writing by their department heads, including by completed P-card authorization request form, may make purchases by using petty cash or make payments by using a city P-card or other credit card. All purchases shall be made in accordance with the contracting procedures and requirements contained in this chapter and in the purchasing manual. The written authorizations of department heads shall be kept on file by the Procurement Officer.

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7 Program Environment

The OCA conducted a comprehensive analysis of P-Card transaction data spanning from July 1, 2022, to December 31, 2024, alongside cardholder data from July 1, 2023, to January 29, 2025. Our analysis identified a total of 42 unique departmental divisions participating in the P-Card Program. The transaction amount totaled $9,033,155.92 in FY2023, $9,515,758.87 in FY2024, and $ 4,604,414.13 in the first half of FY2025 revealing a total transaction amount of $23,153,328.92 across 44,705 purchase line items. Over the two-and-a-half-year period the OCA examined, the departments with the highest P-Card usage in terms of transaction amount were PWD Public Services – FAC, which led with $3,927,234.77, followed by PWD Env.

Services - WQCP ($2,201,246.41) and IT ($1,636,975.63).

Table 1: Top 10 Departments by Transaction Amount

Department Total Amount
PWD Public Services - FAC $3,927,234.77
PWD Env. Services - WQCP $2,201,246.41
IT $1,636,975.63
CSD Open Space, Parks, & Golf $1,323,946.17
Utilities Electric Operations $1,295,651.97
Police Department $1,190,825.79
Utilities WGW $1,134,320.06
PWD Public Services $1,061,659.67
Fire Administration $979,260.20
CSD JMZ & Interpretive $797,260.14
Note: Dataset 07/01/2022 - 12/31/24

Regarding the number of transactions, PWD Public Services - FAC was the most active with 5,659 purchase line items, with Utilities WGW closely behind at 5,022.

CSD JMZ & Interpretive (3,350 line items), Police Department (2,764 purchase line items), and CSD Recreation (2,299 line items) also demonstrated high transaction volumes.

Table 2: Top 10 Departments by Number of Transactions

Department Number of Purchase Line Items
PWD Public Services - FAC 5,658
Utilities WGW 5,022
CSD JMZ & Interpretive 3,350
Police Department 2,764
CSD Recreation 2,299
PWD Env. Services - WQCP 2,275
Utilities Electric Operations 1,969
CSD Open Space, Parks, & Golf 1,898
CSD Children's & Community Theatre 1592
IT 1559
Note: Dataset 07/01/2022 - 12/31/24
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8 The OCA’s analysis of cardholders’ data revealed there were 254 current active cardholders across 42 unique departmental divisions as of the end of January 2025.

The Police Department had the most cardholders (34), followed by Fire Administration (20) and PWD Env. Services - WQCP (16).

Table 3: Top 10 Departments by Current Active Cardholders

Department Number of Active Cardholders
Police Department 34
Fire Administration 20
PWD Env. Services - WQCP 16
PWD Public Services - FAC 15
CSD Open Space, Parks, & Golf 12
CSD JMZ & Interpretive 10
CSD Recreation 10
PWD Env. Services - WP 10
Utilities Electric Operations 10
Utilities WGW 10
Note: Data as of 1/29/25

Currently, AP conducts comprehensive post-audits of P-Card transactions to ensure adherence to established P-Card guidelines, focusing on those valued at $1,000 or more. To better understand the coverage of post-audit review, the OCA performed a distribution analysis across all transactions in the scope period. After removing all $0.00 and negative dollar amount transactions from the data set which represented returns or voided transactions, the purchase line item population for the distribution analysis went from 44,705 line items to 43,588. The distribution analysis shows that

77.66% (33,852 line items) were less than $500.00 and 9.92% (4,325 line items) were between $500.00 and $999.99, indicating that most transactions from the scope period would not be subject to comprehensive post-audits.

Table 4: Purchase Line Item Distribution by Dollar Amount

Distribution Subgroup Number of Purchase Line Items Percentage of Purchase Line Items $0-499.99 33,851 77.66%
$500-999.99 4,325 9.92%
$1,000-4,999.99 4,520 10.37%
$5,000-9,999.99 881 2.02%
$10,000+ 10 0.02%
Note: Dataset 07/01/2022 - 12/31/24

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9 Audit Results
Finding 1:

Overall, the City's P-
Card Program
demonstrates strong
internal controls and
adherence to
procurement
policies, however,
user compliance
with policy
requirements could
be improved.

The City’s P-Card program, utilizing a MasterCard credit card issued by JPMorgan/Chase, serves as a streamlined procurement and payment tool. The purpose of the program is to reduce transaction costs, facilitate the timely acquisition of materials and supplies, and automate data flow for enhanced accounting efficiency, all while providing flexible controls to ensure proper usage. Designed as an alternative to traditional methods such as petty cash, check requests, and low-dollar purchase orders, the P-Card Program is intended to complement, not bypass, established procurement and payment procedures.

Program requirements include adherence to spending limits and policy guidelines, diligent record-keeping and reconciliation, thorough review and approval, and consistent program administration and oversight.

There are several key roles involved in the P-Card process:
• Cardholder
• Approver
• AP
• Agency Program Administrator (APA)
• JPMorgan/Chase

The City has a Procurement Card Guidebook that establishes the
purpose, policies, procedures, and responsibilities for cardholders and approvers. This policy requires that:
• Cardholders upload receipts to SmartData daily and/or weekly. • Cardholders assign their purchases, on a daily or weekly basis, to the correct cost centers/GL accounts,
• Approvers review and authorize cardholder purchases,
ensuring compliance and correct accounting by the 5th of every month.

The OCA tested a sample of 39 transactions made between July 7, 2022, and December 31, 2024, for adherence to the City’s Guidebook.

The OCA selected a representative sample of transactions.

Cardholder purchases consistently align with the Guidebook, demonstrating that expenditures are directly supportive of City operations and are not personal in nature.

The OCA examined expense descriptions and receipts to ensure purchases were not personal in nature and directly support City operations, in compliance with allowable card uses cited in the "General Guidance for Use" section of the Guidebook, and there were Item 9
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10 2 City of Palo Alto, Procurement Card Guidebook: Travel upgrades and business travel meals are not allowed.

The card cannot be used for certain event-related food (e.g., retirement parties, holiday events), alcoholic beverages, or consultant meals. Prohibited items also extend to bottled drinking water, pesticides (with limited exceptions), foam foodware, and specific antibacterial soaps. Furthermore, using the P-Card for purchases with existing City contracts, gift cards for employees, safety shoes for certain staff, or Amazon Prime memberships is not permitted. Small appliances for employee-only spaces are generally restricted without an Assistant City Manager's approval. IT software and hardware purchases are allowed but require approval before purchase. no exceptions. This section explicitly prohibits personal purchases, cash advances, and unauthorized travel/entertainment expenses.

Specific restrictions include the purchase of safety products (i.e. glasses, hard-hats, earplugs, insect repellent), personal items, fuel for personal vehicles, and payments to the City itself.2

It is important to note that the ultimate determination of whether purchases are authorized, appropriate, and correctly allocated rests with cardholders and designated approvers, and department leadership.

Some P-Card purchases were not documented as required by City policy.

Based on our P-Card transaction testing, we found strong internal controls and compliance with P-Card policies with respect to documenting purchases.

For all transactions tested, the OCA noted that receipts were uploaded documenting transactions and GL cost centers were assigned for each purchase. However, some required documentation was missing.

Out of 39 transactions reviewed, 35 were fully compliant, demonstrating that most purchases were properly documented, assigned to general ledger cost centers, and reviewed by designated approvers. This reflects positively on the overall management of the P-Card Program.

However, there were three transactions (10%) that did not have the Guidebook-specified documentation required.

The Guidebook states food purchases must have a separate sheet of paper uploaded, along with the receipt, which specifies the business purpose of the meal and a list of participants. OCA found two instances where a separate sheet of paper detailing the business purpose and list of participants was not provided, however, most of this information was provided in the vendor p-card system.

The Guidebook states when making IT software or hardware purchases,
an email must be sent to the City’s Help Desk
stating the specific request to purchase the IT related item. If IT Management approves (via email) the purchase, the P-card user is required to attach a copy of the approving email along with the purchase receipt when submitting supporting documentation for Item 9
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11 processing. OCA found two instances of IT purchases that where the email documenting IT Management approval was not provided.

However, AP staff noted that approvals documented in the JP Morgan Chase were performed by IT Management.

The City may want to revisit the Guidebook and determine if the existing requirements are still relevant or if less labor-intensive documentation is sufficient, such as leaving comments in JP Morgan Chase as opposed to submitting separate paperwork. These exceptions, while few, pose a risk of non-compliance with policies and make it difficult for reviewers to timely confirm purchases. Such policies are in place to prevent any potential fraud, waste and abuse, which was not found. These exceptions also highlight the need for continued training to ensure users understand the importance of documentation and adherence to policy.

All tested P-Card transactions showed system-generated
evidence of approver review, however, the timeliness of review could not be verified.

Per the Guidebook, in addition to reviewing a cardholder’s transactions, ensuring the cardholder has uploaded sales receipts and any supporting documentation for each purchase, and that each transaction has a cost center account assignment, approvers must also ensure all cardholder transactions are approved in the system by the 5th of the month.

For all transactions tested, the OCA noted that every transaction had system-generated evidence of review by an approver confirming required review. However, the system does not provide timestamps, making it impossible to verify whether approvals occurred within the required timeframe.

Program administration staff stated that they have to routinely send reminders to p-card approvers when approvals have not been submitted timely. This, in turn, creates process delays with monthly review responsibilities potentially resulting in lost time and may limit staff time for other Accounts Payable activities.

The City does not have an established, ongoing training program for P-Card Program users.

The Guidebook states that the APA is responsible for facilitating training for the P-Card Program. When a department submits an application for a new cardholder, the potential cardholder is required to complete mandatory training. Once training is completed, the cardholder can self-register for a system login. As part of the new account process, the City also requires each user to sign the P-Card Cardholder User Agreement via the system.

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12 Program administration stated that while users are provided with the Guidebook and have to sign a user agreement via the vendor system website in order to initiate use of their card, they frequently have to explain the program parameters to users suggesting that actual review of the Guidebook may be limited. While the City has training materials and user agreements in place, evidence that activities were completed could not be provided by the APA or the system vendor.

The Guidebook also notes that training may be required because of improper or flagrant violation of P-Card authorized use, loss of receipts, or failure to complete monthly transaction processing by designated deadlines. This mandatory refresher course would involve both the cardholder and the approving official. However, program administrators indicated this training does not typically happen.

While all program stakeholders, including cardholders, approvers, and AP, can access a step-by-step guide and training video on the Purchasing Resource Library to assist with uploading receipts, cost center coding, reviewing, and approving P-Card transactions, it is not clear how often this resource is accessed. Administrative staff stated the need for regular, recurring training to eliminate confusion and to reduce time spent responding to individual inquiries. P-Card Program leaders of departments with high P-Card utilization corroborated this need, expressing a desire to develop a formal, recurring training program. In addition, our analysis of AP’s monthly reconciliation process and the APA’s P-Card misuse tracker showed instances of non-compliance with the P-Card policy.

According to the APA, apart from the initial training provided when a card is issued, some ad hoc departmental training, and the recently created training videos, there is no structured training program for P- Card users. The APA stated that this lack of training has led to frequent policy-related questions and potential misuse of cards. The primary source of guidance for program stakeholders is the lengthy Guidebook, which administrators said does not appear to be read thoroughly. A lack of adequate P-Card training may result in incomplete receipt uploading, incorrect cost center coding, and hinder the effective review and approval of transactions. This can lead to operational inefficiencies, increased errors, and heightened financial and compliance risks for the City.

Departmental personnel also reported concerns regarding recurring instances of inadequate purchase review, budget overruns, and the use of P-Cards as a matter of convenience rather than adhering to established procurement channels. While staff expressed a desire for a regular, formalized P-Card training program to mitigate these issues, staff also said that since there are no consequences for violating the policy, there is little to deter repeat offences. This absence of corrective measures could impact effective policy enforcement and compliance.

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13 The APA did note that in the past, some limited training sessions have been conducted for new employees, but a more comprehensive approach is needed. There are plans to develop computer-based training modules to educate employees on P-Card policies and procedures. Additionally, annual refresher courses are planned to ensure ongoing compliance and to keep users updated on any policy changes. These planned initiatives aim to improve user understanding and reduce instances of misuse, which are currently a concern due to the lack of formal repercussions for policy violations.

Recommendation Strengthen Compliance: To further strengthen compliance with P- Card program guidelines, we recommend that management enhance cardholder and approver training on specific documentation requirements which may include providing targeted training and quick reference guides or checklists.

In addition, management may want to consider a form(s) for documenting purchases such as food, fuel reimbursement, and IT purchases to simplify documentation procedures for users and approvers. However, management will need to determine if this will create efficiencies and enhance compliance or add unneeded steps.

We also recommend exploring system enhancements for approval timestamps by collaborating with City’s P-Card system vendor, to explore adding timestamp functionality to the system for approver actions and automating system notifications of non-compliance to users.

Finally, management should consider the merits of implementing clearly defined consequences for non-adherence against the time and resources necessary to do so. Such a system could range from written warnings and remedial training for minor first offenses to temporary suspension of cardholder or approval privileges for repeat issues, and potentially permanent expulsion from the P-Card Program. If the City were to adopt a system of disciplinary action for non-adherence, management would need to formalize this tiered policy in the Guidebook, communicate it clearly to all approvers, apply consequences consistently, and document all violations in collaboration with Human Resources.

Training: We recommend that the City continue working to establish and implement a formal, structured, and ongoing P-Card training program for all stakeholders, including cardholders, approvers, and AP personnel.

This program should continue to mandate initial training for all new P- Card applicants, requiring completion of the JP Morgan-administered training as outlined in the Guidebook, and ensure that all completed training is documented and tracked. A comprehensive curriculum should be developed, expanding beyond current guides to explicitly cover appropriate use, prohibited purchases, spending limits, limit Item 9
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14 increase procedures, consequences for misuse, and detailed documentation. Finally, regular, periodic refresher training for all active P-Card users and approving officials should be required to ensure ongoing compliance and policy awareness.

Management
Response
Responsible Department(s): Administrative Services Department Concurrence: Agree
Target Date: November 2025
Action Plan: ASD will resume in person and hybrid training while continuing to pursue technology-based training solutions such as automated classes, videos, and tests. This will include disseminating reference guides and checklists.

The in-perso
n training will focus on allowable transactions, non-
permissible transactions, approval process, required supporting documents for transactions, and due dates. The training will be required for all new P-Card holders and approvers. Technology solutions will be explored for refresher trainings.

ASD will evaluate adding a form for documenting purchases such as food, fuel reimbursement, and IT purchases. This evaluation will determine if the form creates efficiencies or adds unneeded steps. If the former, then a form will be added to the process.

Adding timestamp information will be explored with the P-Card system vendor along with notifications to users for non- compliance.

ASD will implement a system of consequences for non-
compliance. Such a system might include an escalation of consequences after a certain number of infractions. The ultimate consequence would be removing P-Cards from users. This will include mandatory training for repeat infractions. Additional resources will be provided to those with infractions to ensure their understanding of the rules.

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15 Finding 2:

Some P-Card
Program oversight
and administrative
functions are not
consistently
completed and
documented; more
efficient review
processes could
save staff time.

AP and the APA are tasked with the oversight and administration of the P-Card Program. AP staff is responsible for ensuring that cardholder activity is documented, supported, and authorized, and verifying that cardholders and approvers adhere to program policies.

To maintain compliance with P-Card policies and procedures, AP staff conducts post-audits and actively monitors P-Card activity.

The APA holds comprehensive authority and responsibility for the P- Card Program's operation, including closely monitoring it and acting as the primary liaison between the City and JPMorgan/Chase. The APA is also responsible for managing procurement card
administration, including card activation, issuance, assisting in developing citywide policies and procedures, overseeing program activity, and maintaining and tracking credit limits for cardholders’ authorized limits.

We found that AP's mandated monthly post-audits may be hampered by staffing shortages and high transaction volume, which undermines the effectiveness of these reviews. Additionally, current methods for tracking and documenting P-Card misuse are inconsistent, hindering management's ability to identify patterns and enforce policy effectively.

Furthermore, our analysis revealed a lack of adequate documentation for approved exceptions to P-Card spending limits. This indicates a need for more formal and transparent procedures in this area. Overall, these findings highlight opportunities to enhance the P-Card Program's controls and administrative efficiency.

The post audit process is not always completed due to staffing shortages and is overly time-consuming. More efficient review processes could save staff time.

AP is responsible for conducting comprehensive post-audits of P-Card transactions to ensure adherence to established P-Card guidelines.

Their current review protocol mandates a monthly examination of all P-Card transactions valued at $1,000 or more, as well as all software and hardware acquisitions. Additionally, AP performs ad-hoc spot checks on transactions that may indicate potential cost-splitting or appear unusual. Through interviews with AP and ASD leadership, the OCA learned that timely review is often a challenge for staff due to staffing capacity and the volume of transactions eligible for review.

The OCA selected three months from the scope period and requested the post audit reviews conducted to assess the process. AP was able to provide evidence for 2 of the 3 selected months, stating that review for the third month was not completed due to staffing shortages. This indicates that while the post-audit review process is established, it is not always completed which may compromise the purpose of the review.

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16 The OCA also performed a deeper analysis of the most recent month within the scope period, December 2024. During that post audit review, AP reviewed 203 of the 1,310 purchase line items made. This represented approximately 15% of the total number of purchases made that month and 73% of the total dollar amount. Of the 203 transactions, 164 (approximately 12% of the total number) exceeded the $1,000 threshold for required review. The post audit review documentation indicated that 61 transactions, approximately 30 percent of those reviewed, required additional follow-up with cardholders, approvers, or department leadership.

Of those 61, 10
transactions were identified as cost-splitting violations. While this represents approximately 4% of the testing sample, it is less than 1% of the total transactions for the time period. As ASD looked at all transactions over $1,000 and cost-splitting is most commonly used to get around the $10,000 purchase limit, it is likely that they captured the majority of (if not all) cost-splitting transactions for the time period.

While 1% may seem like a relatively small percentage, these transactions still represent a policy violation.

According to AP staff, post audit can take anywhere from 3 minutes to an hour per transaction, depending on the level of review needed.

This highlights the labor-intensive nature of the process. This time commitment, especially when coupled with staffing shortages, directly contributes to the inability to achieve comprehensive review coverage directly impacts control effectiveness and efficiency.

Further, the high follow-up rate, combined with the limited review coverage, could mean there are issues present within the unreviewed 88% of transactions and a new approach to post audit review may be needed. It is often assumed that only large-value transactions present a significant risk of misuse or error. However, this assumption may be misleading. In practice, individuals may be more inclined to commit smaller, seemingly insignificant infractions, under the perception that such transactions are less likely to be selected for review and therefore less likely to be detected. This is another instance where staff could incorporate the use of Excel data analytics tools to identify spending trends over time that may require further investigation. For instance, PivotTables and COUNTIF functions can be effectively utilized to quantify transaction volumes per employee or per vendor. A high frequency of small-value transactions by a single employee, or a notable volume of transactions consistently falling just below the $1,000 review threshold, could indicate a need for more in-depth scrutiny. (See Appendix A)

A statistically significant sampling, encompassing all transaction sizes, may provide a more accurate and complete picture of compliance.

While formal internal guidance for transaction sampling may not be established, our analysis suggests that a comprehensive approach to sampling would involve examining all transactions, rather than a select subset. This would promote a more complete and robust review. For example, if AP were to conduct a random sample and applied a 95% confidence level with a +/- 10% margin of error rate to Item 9
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17 the 1,310 purchase line item population, this confidence level would require a testing sample of 90. In addition, there are other data analytic procedures AP may be able to administer to identify trends and issues such as split transactions. There is potential for use of these analytics to further save staff time and increase the rigor or AP’s review. (See Appendix A)
The current process for tracking and documenting P-Card misuse is inadequate and lacks comprehensive and consistent record-keeping.

Upon identifying discrepancies such as missing documentation or policy violations, AP initiates communication with the relevant department and formally notifies Purchasing and the AP
Administrator, who are responsible for overseeing instances of P-Card misuse. Common infractions include purchase splitting and the acquisition of unauthorized appliances. The current tracking process for these issues is manual, relying on a log.

The OCA assessed the P-Card Misuse tracker to identify recurring themes and evaluate the resolution process. Our analysis revealed that instances of misuse are not consistently or comprehensively documented. While the tracker dates back to 2022, the tracking system frequently lacks specific dates for when misuse occurred and does not categorize the types of infractions, such as cost splitting or unauthorized purchases. Additionally, the types of program misuse (e.g., cost splitting, professional services, safety equipment) are not categorized, hindering clear tracking of infraction types. Furthermore, the outcomes of investigations and their resolutions are not formally documented within the tracker.

The existing P-Card misuse tracking process has several significant limitations. Since all instances of misuse are not formally and completely documented, management could be left with an incomplete understanding of policy violations. Without the outcomes of investigations and their resolutions being consistently recorded, it may hinder management’s ability to identify common themes in P- Card misuse, effectively analyze the resolution process, and pinpoint trends related to specific departments or staff. This may in turn undermine effective policy enforcement and the deterrence of repeat offenses.

There is a lack of adequate documentation to evidence approved exceptions to P-Card spending limitations.

Currently, the City utilizes the “P-Card Credit Limit Request Form” to document the request, review, and approval of card spending limitation increases. In order to gain an understanding of processes for approved exceptions to card spending limitations, the OCA examined three transactions that exceeded the $10,000 card limit.

The sample documentation provided for these transactions did not include evidence of a completed request form or an email from the Item 9
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18 cardholder’s approver to the P-Card administrator documenting the approver’s concurrence with the exception rationale and/or justification, as required by the Guidebook.

The APA provided support for one of these transactions showing that an exception to exceed the single purchase limit was granted, however the approval lacked formal documentation. No
documentation was readily available for the other two selected transactions.

It should also be noted that while the "P-Card Program Credit Limit Request Form" includes a comments section that could detail other types of card limit exceptions (single purchase transaction limits, number of daily transactions limits, daily spending limits), the language of the form only explicitly documents the request and approval of exceptions to the monthly spending limit of $15,000.

Recommendation Post Audit: To strengthen the P-Card internal control environment, enhance compliance assurance, and mitigate associated risks, we recommend that AP should implement a multi-faceted approach focusing on operational consistency and statistically valid sampling.

AP should transition from the current review approach and volume to a statistically random sampling methodology, implementing a sampling strategy designed to achieve a desired confidence level, thereby providing a high degree of assurance that the sample findings are representative of the entire population. The precise sample size should be dynamically calculated each month based on the actual transaction volume.

Misuse Tracking: The OCA recommends that the P-Card
Administrator ensure all instances of misuse are formally and comprehensively tracked including a categorization of infraction types, infraction dates, and the resolution of each instance of misuse. By maintaining a complete misuse tracker, the P-Card Administrator will be better equipped to identify repeat offenders and allow make informed decisions regarding appropriate repercussions, such as mandatory training or, if warranted, the suspension or revocation of P- Card user access. In cases where repeat offenses are observed within a specific department, management should consider implementing department-wide training to reinforce awareness of City policies and procedures.

Oversight of Card Limit Exceptions: We recommend formalizing and standardizing the P-Card limit exception process. The existing "P- Card Program Credit Limit Request Form" should be revised to explicitly include fields for requesting and documenting approval for all types of card limit exceptions, not just monthly spending limits. The revised form, or an equally formal documented process, should be consistently used for all exceptions, clearly stating the rationale and Item 9
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19 evidence of the approver’s agreement. The APA and other relevant stakeholders must consistently follow this formalized process to document and retain all limit exception approvals.

Management
Response
Responsible Department(s):

Concurrence: Agree
Target Date: November 2025
Action Plan:

Post Audit
AP will implement a new, multi-faceted review criteria to capture a more statistically random sampling of P-card transactions.

Misuse Tracking
ASD will add to the current misuse tracker to include infraction types, infraction dates, and resolution. This information will be used to focus additional training where repeat offenses are identified.

Oversight of Card Limit Exceptions
ASD will standardize the P-Card limit exception process with a revised form that includes fields for requesting and documenting. The form will include a section for the rationale for the increase. It should be noted that P-Card exception increases are currently very limited and only 10 out of 254 cards are in place currently. These exceptions have been documented on the existing form. The existing form will be evaluated for use as a single form with all exceptions or possibly a separate form for single limit exceptions approvals will be created based on what incorporates best into workflow.

Additional
Observation:

The City may be able
to increase
operational
efficiencies and save
staff time by
increasing P-Card
spending limits

The City's current procurement procedures impose a significant administrative burden, especially for lower-value transactions exceeding the micro-purchase threshold. Requirements for council approval and solicitation for each purchase order consume considerable staff time, driving up processing costs and diverting resources from more strategic procurement initiatives. This highlights an opportunity to streamline these processes. By optimizing procedures for these transactions, the City can achieve substantial efficiency gains and reallocate valuable staff resources to essential responsibilities.

According to ASD management, the current procedure for obtaining approvals and completing solicitations for each purchase order (PO) requires, on average, approximately 10 hours of staff time. This represents a significant investment of staff and managements’ time.

The City’s P-Card limit has not been increased since 2016. Since that time, inflation has continued to increase the costs of goods. If Item 9
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20 the City were to raise the purchasing limit, there could be substantial time saved in preparing POs.

The OCA performed an analysis of recent fiscal years and found that in FY2023, the City processed 59 POs ranging from $10,000 to $12,000. At an estimated 10 hours per PO of staff time, raising the threshold to $12,000 and reducing the number of POs by 49 would save an estimated 490 hours of staff time. An additional 29 POs between $12,000 and $15,000 were processed which if eliminated could save an estimated 290 hours. FY 2024 projections showed 45 POs in the $10,000 to $12,000 range, equating to 450 hours, and 49 POs in the $12,000 to $15,000 range, totaling 490 hours. The overall increase in the number of POs at these dollar thresholds year over year is also an indicator that more goods that used to be procured through a simple P-Card transaction may be shifting to the PO process due to inflation.

These figures highlight a recurring and considerable investment of time in the procurement process for these specific PO value ranges.

By reviewing and potentially streamlining the approval and solicitation procedures for these categories of purchases, the City could realize substantial cumulative time savings, allowing staff to reallocate their efforts to other critical municipal functions.

Concurrently, a prevalent issue associated with lower limits is the incentive for cardholders to split legitimate purchases into multiple, smaller transactions to circumvent established single transaction limits. This behavior undermines internal controls and complicates effective monitoring and reconciliation.

Furthermore, essential goods and services exceeding the lower limits may experience procurement delays as employees await approvals through more formal channels, potentially impacting mission-critical activities or operational responsiveness.

The OCA reviewed a proposed amendment to the Federal
Acquisition Regulation (FAR) concerning the inflation adjustment of acquisition-related thresholds. This amendment indicates that the micro-purchase threshold, as defined in FAR 2.101, is projected to increase from $10,000 to $15,000. Given the anticipated increase of the federal micro-purchase limit to $15,000 in October 2025, the City should also evaluate its current P-Card purchase limit and consider adjusting it to align with this inflationary change.

Consideration: With consideration given to the official increase of the federal micro-purchase limit to $15,000 in October 2025, the City should consider increasing the single purchase card limit from $10,000 to $15,000 and the monthly purchase power from $15,000 to $20,000. Increasing these card limits may enable the City to realize significant time savings. Based on historical data, this change could save the City approximately 1,000 to 12,000 staff hours on average per fiscal year when processing transactions Item 9
Attachment A - Purchasing
Card Program Audit

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21 within the $10,000-$15,000 range. Further, increased card limits may also potentially discourage cost splitting and reduce administrative processing.

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Card Program Audit

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22 Appendix A:

Basic Excel Analytics for P-Card Transaction Review
The following basic analytics can be performed in Excel by the AP team to enhance oversight of P-Card transactions. These techniques rely on standard Excel functions and features such as Pivot Tables, Conditional Formatting, and built-in formulas:
• Transaction Volume and Spend by Cardholder
Use Pivot Tables to group transactions by cardholder and calculate the total number of transactions and total spend. This helps identify high-use individuals and potential misuse. • Vendor Spend Analysis
Group transactions by vendor using a Pivot Table to determine total spend per vendor. This can help evaluate vendor concentration and opportunities for negotiated pricing or consolidated purchasing. • Weekend and Holiday Transactions
Use the WEEKDAY() function to identify transactions occurring on weekends. Flag transactions that fall on known holidays for further review.
• Duplicate Transactions Check
Use COUNTIFS() or Conditional Formatting to flag potential duplicates based on identical transaction dates, amounts, vendors, and cardholders.
• Split Purchases
Sort by cardholder, vendor, and date to identify multiple transactions that may have been used to circumvent single-transaction thresholds.
• Threshold Breach Detection
Apply Conditional Formatting to highlight transactions exceeding predefined dollar thresholds (e.g., $2,500), which may require additional documentation or approval. • Inactive or Terminated Cardholder Usage
Use VLOOKUP() or XLOOKUP() to compare cardholder names against a current employee roster and identify activity associated with terminated employees. • High-Risk Keyword Search
Use the SEARCH() function to flag keywords in the transaction description that may indicate unallowable purchases (e.g., “gift card,” “alcohol,” “Amazon,” “electronics,” etc.). • Self-Approval Detection
Compare cardholder and approver names using an IF() statement to detect instances where cardholders may be approving their own transactions.
• Trend Analysis Over Time
Use Pivot Tables and line charts to analyze monthly or quarterly spend trends. This can help detect unusual spikes or seasonal patterns in card usage.

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PROFESSIONAL SERVICES TASK ORDER
TASK ORDER FY24-4.25 Emergency Preparedness
Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referencedFY24 in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below.

CONTRACT NO. C21179340A
OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE)
1A.
1B.

MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): C21179340A TASK O RDER NO.: FY23-4.25

2. CONSULTANT NAME: Baker Tilly Advisory Group, LP

3. PERIOD OF PERFORMANCE: START: March 1, 2024 COMPLETION: December 31, 2024 4 TOTAL TASK ORDER PRICE: $73,110 $75,110.00 Increased by $2,000.00

BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT TBD

5. BUDGET CODE_______________
COST CENTER________________
COST ELEMENT______________
WBS/CIP__________
PHASE__________

6. CITY PROJECT MANAGER’S NAME & DEPARTMENT:

Lydia Kou, Chair of the City Council’s Policy and Services Committee

7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A)
MUST INCLUDE:
 SERVICES AND DELIVERABLES TO BE PROVIDED
 SCHEDULE OF PERFORMANCE
 MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE ( as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount)

8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the
work described in this Task Order.

APPROVED:

CITY OF PALO ALTO
BY:____________________________________
Name __________________________________
Title_ ___________________
Date ___________________________________
I hereby acknowledge receipt and acceptance of
this Task Order and warrant that I have
authority to sign on behalf of Consultant.

APPROVED:

COMPANY NAME: ______________________
BY:____________________________________
Name __________________________________
Title___________________________________
Date ___________________________________
Docusign Envelope ID: E008AC75-7AE6-49DD-B29E-91EE8C83AC25 Baker Tilly Advisory Group, LP
12/23/2024
Manager/ City Auditor
Kate Murdock
12/25/2024
Council Member
Council Member Lydia Kou
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Extension and Amendment
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Orders

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Attachment A

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Step 2 – Control Review and Testing
This step involves executing the procedures in the audit program to gather information, interview individuals, and analyze the data and information to obtain sufficient evidence to address the audit objectives. The preliminary audit objective is to determine whether the City is working to prevent wildfire and adequately prepared to respond to wildfire as part of the City’s emergency management plan. Procedures include, but not limited to:
 Interview the appropriate individuals in all relevant departments to gain an understanding of the organizational structure, processes, and controls related to wildfire prevention and response as well as the City’s overall emergency preparedness.
 Review policies and procedures as well as the legislative and regulatory requirements to identify the criteria to be used for evaluation of control design and effectiveness.  Review the existing emergency management plan and other related documents such as prevention activities, training and exercises, equipment, and service contracts.  Compare the process and controls against the best practices.

Step 3 – Reporting
In Step 3, the project team will perform tasks necessary to finalize audit working papers, prepare and review a draft report with the stakeholders, and submit a final audit report. Tasks include:
 Develop findings, conclusions, and recommendations based on the supporting evidence gathered
 Validate findings with the appropriate individuals and discuss the root cause of the identified findings
 Complete supervisory review of working papers and a draft audit report  Distribute a draft audit report and conduct a closing meeting with key stakeholders o Discuss the audit results, finings, conclusions, and recommendations o Discuss management responses
 Obtain written management responses and finalize a report  Review report with members of City Council and/or the appropriate Council Committee
Deliverables:

The following deliverable will be prepared as part of this engagement:
 Audit Report
Schedule of Performance
Anticipated Start Date: March 1, 2024
Anticipated End Date: December 31, 2024
Docusign Envelope ID: E008AC75-7AE6-49DD-B29E-91EE8C83AC25 Item 9
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Extension and Amendment
for FY24 and FY25 Task
Orders

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Maximum Compensation Amount and Rate Schedule
The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $73,110. The not-to-exceed budget is based on an estimate of 385 total project hours, of which 25 are estimated to be completed by the City Auditor.

Reimbursable Expenses
We plan to complete all work remote including all interviews and documentation review.

However, during the planning and fieldwork phases of this audit, the City and Baker Tilly may mutually determine it will be beneficial to perform a portion of the work on-site. Given this possibility, Baker Tilly could incur reimbursable expenses for this Task.

The not-to-exceed maximum for reimbursable expenses for this Task is $6,500.

The following summarizes anticipated reimbursable expenses:
 Round-trip Airfare – $2,000 (1 round trip flights x 2 auditors)  Ground Transportation (car rental or Uber/taxi) - $800  Hotel accommodation - $3,000 (2 rooms x 4 nights)
 Food and incidentals – $700
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Extension and Amendment
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Orders

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PROFESSIONAL SERVICES TASK ORDER
TASK ORDER FY24-4.28 Dispatch Center Program
Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below.

CONTRACT NO. C21179340A
OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE)
1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): C21179340 1B. TASK O RDER NO.: FY24-4.28

2. CONSULTANT NAME: Baker Tilly Advisory Group, LP

3. PERIOD OF PERFORMANCE: START: August 15, 2024 COMPLETION: February 28, 2025

4. TOTAL TASK ORDER PRICE: $76,540 $79,040 Increased by $2,500.00

BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT TBD

5. BUDGET CODE_______________
COST CENTER________________
COST ELEMENT______________
WBS/CIP__________
PHASE__________

6. CITY DEPARTMENT PROJECT MANAGER’S NAME & Lydia Kou, Chair of the City Council’s Policy and Services Committee

8. ATTACHMENT REIMBURSABLE EXPENSES, if a Task Order Scope any of Service “not to exceed” (with amount) B (if any): N/A

9. I hereby authorize the performance of the work
described in this Task Order.

APPROVED:

CITY OF PALO ALTO
BY:____________________________________
Name __________________________________
Title_ _____________________
Date __________________________
I hereby acknowledge receipt and acceptance of this
Task Order and warrant that I have authority to sign
on behalf of Consultant.

APPROVED:

COMPANY NAME: Baker Tilly Advisory Group, LP
BY:____________________________________
Name __________________________________
Title___________________________________
Date _ _________________________
Docusign Envelope ID: E008AC75-7AE6-49DD-B29E-91EE8C83AC25 Kate Murdock
Manager/ City Auditor
12/23/2024
Council Member
12/25/2024
Council Member Lydia Kou
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Extension and Amendment
for FY24 and FY25 Task
Orders

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Attachment A

DESCRIPTION OF SCOPE OF SERVICES
Introduction
Attachment A, the Description of Scope of Services, contains the following four (4) elements:
 Services and Deliverables To Be Provided
 Schedule of Performance
 Maximum Compensation Amount and Rate Schedule (As Applicable)  Reimbursable Expenses, if any (With “Not To Exceed” Amount) Services & Deliverables
Baker Tilly’s approach to conducting an assessment of the Dispatch Center Program involves three (3) primary steps:
 Step 1: Assessment Planning
 Step 2: Control Review and Testing
 Step 3: Reporting
Step 1 – Assessment Planning
This step consists of the tasks performed to adequately plan the work necessary to address the overall assessment objective and to solidify mutual understanding of the project scope, objectives, process, and timing between stakeholders and auditors. Tasks include:
 Gather information to understand the environment under assessment o Understand the organizational structure and objectives o Review the City code, regulations, and other standards and expectations o Review prior audit and/or assessment results, as applicable o Review additional documentation and conduct interviews as necessary  Write an assessment program
o Refine objectives and scope
o Identify the assessment procedures to be performed and the evidence to be obtained and examined  Announce initiation of the assessment and conduct kick-off meeting with key stakeholders o Discuss objectives, scope, assessment process, timing, resources, and expectations o Discuss documentation and interview requests for the assessment Step 2 – Control Review and Testing
This step involves executing the procedures in the assessment program to gather information, interview individuals, and analyze the data and information to obtain sufficient evidence to address the audit objectives. The preliminary assessment objective is to: (1) Determine whether the City’s Dispatch Center Program is operating efficiently and effectively to meet community needs. Procedures include, but are not limited to:
 Interview the appropriate individuals to gain an understanding of the organizational structure, processes, and controls related to the Dispatch Center Program.
 Review policies and procedures as well as the legislative and regulatory requirements to identify the criteria to be used for evaluation of control program effectiveness.  Review overall Dispatch Center Program performance, including selecting a sample of Dispatch Center Calls to test for efficiency and effectiveness of response and triage for services.  Compare the performance, process, and controls against the best practices.

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Extension and Amendment
for FY24 and FY25 Task
Orders

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22 PROFESSIONAL SERVICES TASK ORDER
TASK ORDER FY25-4.34 Follow-Up Audit Activities
Consultant shall perform the Services detailed below in accordance with all the terms and conditions of the Agreement referenced in Item 1A below. All exhibits referenced in Item 8 below are incorporated into this Task Order by this reference. The Consultant shall furnish the necessary facilities, professional, technical and supporting personnel required by this Task Order as described below.

CONTRACT NO. C21179340A
OR PURCHASE ORDER REQUISITION NO. (AS APPLICABLE)
1A. MASTER AGREEMENT NO. (MAY BE SAME AS CONTRACT / P.O. NO. ABOVE): C21179340A 1B. TASK ORDER NO.: FY25-4.34

2. CONSULTANT NAME: Baker Tilly Advisory Group, LP

3. PERIOD OF PERFORMANCE: START: January 1, 2025 COMPLETION: June 30, 2025

4. TOTAL TASK ORDER PRICE: $59,390

BALANCE REMAINING IN MASTER AGREEMENT/CONTRACT TBD

5. BUDGET CODE_______________ COST CENTER________________ COST ELEMENT______________ WBS/CIP__________ PHASE__________

6. CITY PROJECT MANAGER’S NAME & DEPARTMENT:

Lydia Kou, Chair of the City Council’s Policy and Services Committee

7. DESCRIPTION OF SCOPE OF SERVICES (Attachment A)
MUST INCLUDE:
 SERVICES AND DELIVERABLES TO BE PROVIDED
 SCHEDULE OF PERFORMANCE
 MAXIMUM COMPENSATION AMOUNT AND RATE SCHEDULE (as applicable)  REIMBURSABLE EXPENSES, if any (with “not to exceed” amount)

8. ATTACHMENTS: A: Task Order Scope of Services B (if any): N/A I hereby authorize the performance of the work
described in this Task Order.

APPROVED:

CITY OF PALO ALTO
BY:____________________________________
Name __________________________________
Title___________________________________
Date ___________________________________
I hereby acknowledge receipt and acceptance of
this Task Order and warrant that I have authority
to sign on behalf of Consultant.

APPROVED:

COMPANY NAME: Baker Tilly Advisory Group,
LP
BY:____________________________________
Name __________________________________
Title___________________________________
Date ___________________________________
Docusign Envelope ID: F60E09CC-400F-404E-8132-93318BE5ADE6 Kate Murdock
Manager/ City Auditor
12/23/2024
Council Member
12/25/2024
Council Member Lydia Kou
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Extension and Amendment
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Orders

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23 Attachment A

The following deliverables will be prepared as part of this engagement:
 Annual Status of Audit Recommendations Report
 Policy & Services Committee Report Presentation
Schedule of Performance
Anticipated Start Date: January 1, 2025
Anticipated End Date: June 30, 2025
Maximum Compensation Amount and Rate Schedule
The not-to-exceed maximum, inclusive of reimbursable expenses (as summarized below) for this Task is $59,390.

The not-to-exceed budget is based on an estimate of 500 total project hours, of which a minimum of 40 are estimated to be completed by the City Auditor.

Docusign Envelope ID: F60E09CC-400F-404E-8132-93318BE5ADE6 Item 9
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Extension and Amendment
for FY24 and FY25 Task
Orders

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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: IT Department
Meeting Date: September 8, 2025
Report #:2508-5073
TITLE
Approve Purchase Order S26195255 with Dasher Technologies, Utilizing a State of California Blanket Purchase Agreement, to Procure Rubrik Data Backup and Security Solution for a 3-Year Term for a Not-To-Exceed Amount of $106,933; CEQA Status - Not a Project.

RECOMMENDATION
Staff recommends that the City Council approve and authorize the City Manager or their designee to execute Purchase Order (PO) S26195255 with Dasher Technologies, under California DGS Participating Addendum 7-17-70-40-05 to Utah NASPO ValuePoint Master Agreement Number AR2472, to Procure a Rubrik data backup and security solution for a 3-Year Term, with a total not-to-exceed amount of $106,933 (Attachment A).

BACKGROUND
In 2008, the City Managers of Los Altos, Mountain View, and Palo Alto agreed to a broad initiative of sharing public safety technology to conserve resources, improve response times, increase resiliency and redundancy of critical systems, and enhance interoperable communications among first responders. This initiative introduced the “virtual consolidation” concept, creating a framework to share public safety technology and communication systems.

In 2012, the Tri-Cities Consortium was formally established1, and the cities collaborated to cost- share communications systems, jointly procuring a Computer Aided Dispatch (CAD) and Records Management System (RMS) through Intergraph Corporation, implemented in 2013. In 2020, the Consortium purchased Sun Ridge’s Police Records Management System (RMS)2, 1 City Council, February 21, 2012; Agenda Item #6, SR#1829 https://www.paloalto.gov/files/assets/public/v/1/from-archive/agendas-minutes-reports/reports/city-manager- reports-cmrs/2012/id-1829.pdf
2 City Council, November 30, 2020; Agenda Item #9, SR#11763 https://www.paloalto.gov/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2020-2/id-11763.pdf?t=62330.29
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which included a CAD license to enable collection of state-mandated Racial and Identity Profiling Act (RIPA) data under AB 953, using Sun Ridge’s call-for-service module.

In July 2023, the City of Los Altos, acting as the Contractual Agent for the Tri-Cities Consortium, issued a Request for Proposal (RFP) for a new CAD system. Sun Ridge Systems, Inc. was recommended as the preferred vendor based on service quality, staff expertise, and ability to provide future services.

ANALYSIS
On November 12, 2024, the City Council approved a new five-year CAD system contract with Sun Ridge Systems, Inc. as part of the Tri-Cities Consortium project5. The CAD system is a mission-critical platform for 9-1-1 call-taking, emergency response coordination, and daily public safety operations. To protect this critical system, the City is expanding its existing enterprise data protection standard, Rubrik, to the Police Department. Rubrik technology is already deployed at City Hall to safeguard servers and Microsoft 365 data; extending it to the CAD environment will enable seamless integration with the City’s disaster recovery infrastructure, allowing mutual replication and rapid restoration of CAD data between the two sites.

Staff recommends the City purchase a Rubrik r6404s appliance, a three-year subscription to Rubrik Security Cloud, professional installation, and premium support through Dasher Technologies under the State of California’s Addendum of the NASPO cooperative purchasing contract6. Palo Alto Municipal Code allows an exemption from competitive solicitation when purchasing cooperatively with other public agencies using substantially similar procurement methods. This configuration provides hybrid on-site and cloud-based backup capabilities, enabling the Police Department to recover CAD and other mission-critical data quickly and securely in the event of hardware failure, natural disaster, or cybersecurity incidents such as ransomware.

FISCAL/RESOURCE IMPACT
The FY 2026 Adopted Capital Budget included the full funding necessary for the implementation of this project under project TE-23000, Computer Aided Dispatch (CAD) Upgrade. No further funding is being requested.

As part of the Tri-Cities Consortium agreement (Memorandum of Understanding), the Rubrik hardware and software purchase supports the full CAD system shared by Palo Alto, Los Altos, and Mountain View. Hardware costs are evenly split among the three cities, consistent with the 5 City Council, November 12, 2024; Agenda Item #6, SR#2409-3524 https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=15608 6 NASPO ValuePoint California Participating Addendum:
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terms of the MOU. The total cost for Rubrik is $105,112, with each city responsible for $35,038.

Reimbursements will be processed per agency and are fully covered by the existing appropriations already included in the adopted Capital Budget.

STAKEHOLDER ENGAGEMENT
The Purchase Order was reviewed and coordinated with internal departments including legal, procurement, and financial functions to ensure alignment with City policies and procedures.

ENVIRONMENTAL REVIEW
The approval of this PO is exempt from review under the California Environmental Quality Act (CEQA) under CEQA Guidelines section 15061(c)(3).

ATTACHMENTS
Attachment A: Rubrik, PO # S26195255
APPROVED BY:

Darren Numoto, Chief Information Officer; Lisa Bolger, Assistant Director Information Technology/CTO
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QUOTE NO. QUO-DSH027856
Staff Report No. 2507-5019.

ATTN: Angela Armstrong
This City of Palo Alto (City) Purchase Order agreement (PO) is entered into by and between City and Dasher Technologies, Inc., an authorized reseller to Rubrik Inc., pursuant to State of California Participating Addendum No. 7-17-70-40-05 with Rubrik, Inc., for the purchase of bundled solution covering hardware, cloud software licensing, support and services associated products and services as detailed in this PO.

In entering into this PO, Dasher Technologies, Inc. represents and warrants that it is an authorized reseller for Rubrik Inc.

This PO by reference incorporates the following contract documents in full into this PO by reference as though fully set forth herein:

1. State of California Participating Addendum #7-17-70-40-05

2. State of California Participating Addendum
#7-17-70-40-05 -Amendment No.1 - Amendment No. 4.

3. City of Palo Alto Purchase Order Terms and Conditions. 0010 Rubrik r6404 Appliance 19,958 USD 1.00 19,957.81 City PM: [email protected]
Vendor Address

DASHER TECHNOLOGIES INC

A CONVERGE COMPANY
PO BOX 103090
PASADENA CA 91189-3090
Tel: 408-722-2875
Bill To:

City of Palo Alto
Account Payable
P.O.Box 10250
Palo Alto, CA 94303
Ship To:

Information Technology Services
City of Palo Alto
250 Hamilton Ave., 2nd Floor
Palo Alto CA 94301
Item Material/Description Quantity UM Net Price Net Amount ______________________________________
Chief Procurement Officer
THIS P.O. IS SUBJECT TO THE TERMS AND CONDITIONS STATED BELOW AND ON THE LAST PAGE SPECIFICATIONS - Any specification and /or drawings referred to and/or attached hereto are expressly made a part of this Purchase Order.

DELIVERY - Please notify the City promptly if delivery cannot be made on or before the date specified. If partial shipment is authorized, so indicate on all documents. Complete packing lists must accompany each shipment.

INVOICE - A separate invoice is required for each order. Send to address indicated above.

City of Palo Alto
Purchasing and Contract Administration
P.O.Box 10250
Palo Alto CA 94303
Tel:(650)329-2271 Fax:(650)329-2468
Service Order
P.O. NUMBER MUST APPEAR ON ALL INVOICES, PACKAGES, SHIPPING

PAPERS AND CORRESPONDENCE PERTAINING TO THIS ORDER
PO Number S26195255
Date 08/04/2025
Vendor No. 107224
Payment Terms Payable immediately
FOB Point Services Only
Ship via See Info Below
Term 09/08/2025 - 09/07/2028
Buyer/Phone Saira Cardoza / 650-329-2327
Email [email protected]
DELIVERIES ACCEPTED ONLY BETWEEN 7:00 AM & 3:00 PM UNLESS OTHER

ARRANGEMENTS ARE INDICATED HEREIN

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Palo Alto City CouncilSeptember 8, 2025

Palo Alto City Council
September 8, 2025