City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Administrative Services
Meeting Date: September 8, 2025
Report #:2506-4818
TITLE
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.
RECOMMENDATION
The Finance Committee and staff recommend the City Council review, discuss and approve amendments to the Fiscal Year 2026 Budget Appropriation for various funds and various capital projects, as identified in Attachment A, Exhibit 1 and 2.
EXECUTIVE SUMMARY
The City Council directed staff to recommend specific reductions across the General Fund, totaling $6 million, with at least $2 million in ongoing savings and $4 million one- time savings to plan for economic uncertainty and address longer term deficits, as part of the FY 2026 Budget Process. The Council direction allowed budget reductions to be a mix of General Fund operating budget reductions or capital project deferrals or reductions.
Staff’s recommendations are outlined in this report and summarized by department, and achieve $6.2 million in savings in FY 2026, of which $3.4 million are ongoing and $2.8 million are one-time. The total reflects about 2% of the City’s General Fund budget.
The recommendations prioritize core services while balancing impacts to the extent possible largely through reducing vacant positions, with only one currently filled at this time. Capital project savings are achieved by reducing the annual base General Fund transfer to the Capital Improvement Fund and supported by revisions to the 5-year Capital Improvement Plan (CIP), as proposed for specific projects. The revised Capital Improvement Fund ending balance is projected above the $3 million target annually, except in FY 2026 which is projected at $2.4 million.
This report includes the detail of the proposed $6.2 million savings, along with anticipated impacts, that was presented to the Finance Committee “Committee” on August 19 (Staff Report
2506-48171), with the exception of modifying CIP Bicycle and Pedestrian Plan Implementation (PL-04010) that is explained further. As actual financial results from staffing changes and/or CIP projects will differ from this plan, the FY 2026 Mid-Year Budget Review will further refine the budget accordingly.
In summary, the recommended reductions reflect impacts across all departments and limit service impacts largely by freezing vacant positions, while prioritizing continuity of services and changes already contained in the adopted budget. These recommendations advance Council Priorities, evolve services approaches such as reducing transportation consultant contracts while augmenting staffing resources and limiting contracts to annual appropriations with expense controls for information technology, planning and transportation consultants.
Additionally, capital project savings are captured while acknowledging ongoing expense and schedule variability associated with construction.
Table 1: Summary of $6.2 Million Savings
Funds
FY 2026
Total
FY 2026
On-going
FY 2026
One-time FY 2027 FY 2028
General Fund $3.0M $2.4M $0.6M $2.4M $2.4M
Capital Improvement Fund $3.2M $1.0M $2.2M $1.0M $1.0M
Total $6.2M $3.4M $2.8M $3.4M $3.4M
On August 19 the Finance Committee unanimously recommended Staff advance these FY 2026 budget amendments inclusive in this memorandum for Council approval with these additional considerations for the Council’s consideration:
- In the budget recommendations, indicate if the defunded position is currently vacant and if so, duration of vacancy (Table 2).
- Summarize historical positions and vacancies by department and asterisk changes such as new classifications, in-house/out-source, inter-departmental shifts (Attachment B). - For CIP Bayland Levee, modify the recommendation to retain $50,000 in FY26 budget for permitting efforts.
- JMZ Program Assistant (1 FTE) – review revenue recovery potential (i.e. range of assumptions) and potentially consider retaining this position. - Police Reserve Officer (0.12 FTE) – review impact to overtime and likelihood of a net zero result, and potentially consider retaining this part-time position. - Consultant savings will be discussed with Council on September 15 and include any available information within this budget report to Council, if possible. - CSD Enjoy Catalogue – review the revenue impact of going from 4 to 2 publications in FY26 and defer decision to transition to postcard only in FY27. 1 Finance Committee, August 19, 2025; Agenda Item #2; Staff report #2506-4817:
https://portal.laserfiche.com/Portal/DocView.aspx?id=216582&repo=r-704298fc
BACKGROUND
On June 16, the City Council adopted the $1.0 billion FY 2026 budget (Staff Report #2503-42502) including the General Fund Budget of $313.0 million and capital budget of $312.9 million across all funds. The five-year 2026-2030 Capital Improvement Plan (CIP) is $1.1 billion. These adopted budgets included $6.0 million of anticipated savings, comprised of $2.8 million in operating savings and $3.2 million to reduce the transfer from General Fund to the Capital Improvement Fund, with direction to return to the Finance Committee with specific recommendations in August 2025 and City Council in September 2025.
The FY 2026 Adopted Budget resulted in a projected General Fund Budget Stabilization Reserve of $54.3 million or 17.7%, slightly below the Council’s target of 18.5% and within the recommended range of 15-20% of General Fund Expenditures. Furthermore, as part of a multi- year budget balancing strategy, Finance Committee recommended in FY 2027 to combine the Uncertainty Reserve with the BSR and increase the overall reserve. Moving $4.0 million of the Uncertainty Reserve into the BSR in FY 2027 would bring the BSR up to $58.3 million or 18.3% of the estimated FY 2027 expenses. This would leave $2.0 million in the Uncertainty Reserve to partially offset the projected $8.0 million deficit in FY 2027 projected at the time of budget adoption.
ANALYSIS
Staff reviewed general operations and capital projects to determine budget appropriation reductions while minimizing service impacts, capital project delays and exacerbating costs. The $6.2 million in recommended savings in FY 2026 includes $3.4 million ongoing and $2.8 million one-time. Capital project savings are achieved by reducing the General Fund transfer to the Capital Improvement Fund and supported by revisions to the 5-year Capital Improvement Plan (CIP), as proposed for specific projects. The revised Capital Improvement Fund ending balance is projected above the $3.0 million target annually, except in FY 2026 which is projected at $2.4 million.
Proposed Reductions - General Fund (by Department): Total General Fund reduction of $3.0M of which $2.4M is on-going and $0.6M is one-time. Attachment A summarizes budget amendments for all funds.
2 City Council, June 16, 2025; Agenda Item #23; SR#2503-4250:
https://portal.laserfiche.com/Portal/DocView.aspx?id=188956&repo=r- 704298fc&searchid=092ededd-4e71-43cc- a77a-f77504f0d7e5
Table 2: Summary of Department Reductions
Department
% of FY
26 General
Fund
Budget
Proposed
Reduction On-Going
One-
time Description
Defund
Positions -
Vacant/Filled
(Vacancy date)
Administrative
Services
1.4% $161,663 $161,663 Division Manager (1 FTE) (60%
General Fund sourced)
Vacant
(5/3/25)
City Attorney 0.5% $25,000 $25,000 General Expenses N/A City Auditor 2.5% $25,000 $25,000 General Expenses N/A
City Clerk 1.6% $25,000 $25,000 General Expenses N/A
City Manager 3.3% $176,081 $176,081 1 Senior Management Analyst Filled Community
Services
0.8% $332,328 $332,328 JMZ Program Asst I (1 FTE) & JMZ Access Coordinator (0.48 FTE),
Eliminate printing contracts, reduce
general expenses
Vacant (new)
Vacant
(4/22/25)
Fire 0.5% $324,609 $324,609 Fire Fighter Trainees (2 FTE) Vacant (new) Human
Resources
2.3% $133,640 $133,640 HR Technician (1 FTE) Vacant
(6/30/25)
General
Benefits Fund
$182,801 $182,801 Shifts HR positions (2 FTE) to
Employee Benefit Fund (ISF)
N/A
Information
Technology
1.2% $151,402 $151,402 IT Manager (1 FTE) (50% General Fund sourced)
Vacant
(5/3/25)
Library 1.4% $175,587 $175,587 Library Associate (operations) (1 FTE), reduce general expenses
Vacant
(4/22/23)
OES 1.4% $25,000 $25,000 General Expenses N/A
Office of
Transportation
1.7% $66,754 $66,754 Use Measure B funding for Planner (1 FTE) for SRTS program (40% General
Fund sourced)
N/A
Planning &
Development
Services
1.3% $325,428 $16736 $158,542 Planners (2 FTE) (1 ongoing, 1 one- time)
Vacant
(6/2/25)
(10/19/24)
Police 0.4% $254,654 $254,654 Reserve Officer (0.12 FTE), eliminate hire ahead, and reduce general
expenses
Vacant
(3/2/22)
Public Works 0.5% $138,110 $138,110 CIP Staff (1 FTE, 100% CIP Fund 471), and Tree Trimmer (1 FTE)
Vacant
(8/24/24)
(CIP 9/5/25)
Public Works
Vehicle Fund
$460,000 $460,000 FY 2026 fire engine diesel instead of hybrid
N/A
TOTAL $2,983,056 $2,364,514 $618,542
Brief Service Impact:
Administrative Services Department (ASD) – Division Manager (1 FTE): This action will freeze an ASD division manager position in the Revenue Collections Division, which impacts division oversight and management.
The Revenue Manager position is vacant and in FY 2026, division management and oversight will be supported through acting role assignment(s). ASD is reviewing organizational structure and service delivery models during this time, in order to maximize efficiencies while managing operational risks.
City Attorney - General Expense Reductions: This action will reduce general support expenses which could be absorbed with the current complement of staffing.
City Auditor – General Expense Reductions: This action will reduce the contract value by a manageable amount and may impact task-order assignments and/or scope of audits.
City Clerk – General Expense Reduction: This action will reduce general expense by a manageable amount and may impact existing contracts and/or general support expenses.
City Manager – Senior Management Analyst (1 FTE): This action affects a filled position and freezes a dedicated citywide resource for Wellness and Belonging. With the Wellness and Belonging Action Plan still being implemented, the remaining work will be integrated between the City Manager’s Office and Human Services, advancing actions that align with existing programs, services, and other priorities as resources allow. This will result in an overall reduction in capacity and centralized focus to advance priorities, including discontinuance of regular reporting on the Action Plan. Community Services Department (CSD) –
o Junior Museum & Zoo (JMZ) Program Assistant (1 FTE): This action will freeze a vacant Program Assistant I position at the JMZ, which was added during the FY 2025 Mid-Year Budget Review. The position was intended to support customer service, oversight of membership, reservation booking, event coordination, and admissions. To address these responsibilities, CSD will utilize a recently hired Program Assistant I from the Lucie Stern Community Center to assist with these tasks for up to 50% of their time. The amount of time that the Lucie Stern Program Assistant can devote to the JMZ is to be determined and may impact program revenues and/or support for visitor services and events at the JMZ, and reflects a reduction in customer service capacity for these functions. The potential range of annual revenue for 0.5 FTE and 1.0 FTE Program Assistant I is $80,000 to $115,000 and $160,000 to $195,000, respectively.
o JMZ Access Coordinator (0.48 FTE): This action removes a vacant JMZ Access Coordinator (Staff Specialist) position that was added during the FY 2024 Budget Process and funded through a grant for two years with an expected transition to the General Fund. With the grant period concluded, the position will be eliminated. Outreach capacity in underserved communities such as East Palo Alto, Menlo Park, and Redwood City will be reduced as the role previously supported building relationships with community partners, developing inclusion strategies, and raising awareness of JMZ programs. These efforts may continue at a smaller scale or be shared among existing staff.
o Contracts & General Expenses:
A review of the Pets-in-Need (PIN) contract terms and
corresponding budget determined that the original budget allocation exceeded the contract value. Alignment of this budget will not impact the current service levels.
In FY 2026, the frequency of printed and mailed catalogs will decrease from four times per fiscal year to twice. In FY 2027, the catalog will transition to an online-only format.
Funds remaining after this adjustment will be used to send postcards to residents multiple times throughout the year as reminders about sign-up periods and to direct them to the online catalog. Historically, from FY21 to FY24, over 90% (92% to 94%) of the class registrations occur online.
The plan would be to still print 800 hard copies and have them available in community centers, libraries and city hall, and do the post card mailers. Instead of mailing
40,000 printed copies to homes, we would continue the
full online virtual catalog. The Committee supported FY26 reduction to two printed and mailed catalogs but was
inclined towards deferring FY27 full implementation of
postcards to monitor revenue impacts.
Fire – Trainees (2 FTEs): The Fire Department reductions include freezing two of the three Firefighter Trainee positions. These positions were added in FY 2023 to create a hiring pipeline and allow for vacancies to be filled sooner, thereby reducing overtime costs and mandatory overtime for current firefighters. However, these trainee positions have been vacant except recently when several current staff were temporarily on limited assignment duties. This action will retain one of the three trainee positions for flexibility and enable the Department to maintain current service levels while continuing to hire and train firefighters as needed to fill vacancies in the absence of these positions.
Human Resources – HR Technician (1 FTE): Freezing this position will impact vacancy management, including the capacity to manage recruitments, and will delay start of recruitments for vacated positions. Support for the HR Liaison Program may decrease, lowering the quality and consistency of HR support across the organization. Longer-term risks to recruitment operations may include the City’s ability to maintain responsive and strategic workforce planning process. Careful monitoring, adaptive planning, and continued evaluation of staffing needs will be essential to minimize disruption and maintain core recruitment services. Employee Benefit and Worker’s Compensation Funds– This action would shift the funding of two human resources positions (Benefits Manager and Senior HR Administrator) to the Employee Benefit Internal Service Funds (ISFs). This would offset approximately 50% of those costs to the centralized ISF and better align the roles, duties and cost allocations. Information Technology – Information Technology Manager (1 FTE): This action freezes one vacant Information Technology Manager. The recently filled Assistant Director will mitigate some of the impacts of this position which has been vacant since May 2025 due to staff retirement. This IT Manager is responsible for IT Governance and project assignments. Thewill reduce overall capacity to manage and execute identified projects. Library – Library Associate (1 FTE) and General Expenses: Freezing one vacant Library Associate will reduce staffing flexibility at smaller branches (e.g., Downtown, College Terrace, and Children’s), particularly on weekends and during public programs. Core functions like customer service, technology support, and facility oversight will be absorbed by flexing responsibilities among existing staff. This will stretch capacity and limit the Library’s ability to maintain programming or respond quickly to community needs. Library staff will continually assess staffing allocations to minimize visible service impacts. Additionally, the general expenses reduction in collections will result in fewer new materials and longer wait times for patrons to obtain popular print titles. Digital collections — especially on high-use platforms like Kanopy, Hoopla, and OverDrive — will also see delayed expansion. This follows recent funding losses from state and regional library partners, which the Library has already absorbed by cutting lower-use resources.
Office of Emergency Services (OES) - General expense reduction: The Office of Emergency Services is in the midst of moving to the new Public Safety Building (PSB), and it is anticipated that there will be a few expenses that are still needed for the full functionality of the new space. These anticipated expenses in FY 2026 will be difficult to absorb with the limited budget flexibility. To mitigate this, the Department will defer certain expenditures during the budget reduction period, while working around any deficiencies. Office of Transportation – Planner (1 FTE): On June 16, 2025, Santa Clara Valley Transportation Authority (VTA) approved the use of Measure B Local Streets and Roads (LSR) funding for a Planner position working the elementary school Safe Routes to School (SRTS) program. Using LSR funding for SRTS has no direct service impact beyond the City having less funding available for street maintenance. The City’s average pavement condition index (PCI) is above 80, which allows LSR funds to be used for other transportation related programs. Planning and Development Services –
o Planner (1 FTE): The Current Planning program has operated with staff vacancies in the last four years and the remaining six planners will continue to focus on application processing and meeting statutory deadlines. Code development and updates – such as the upcoming SB9 ordinance and recently directed telecom work - that was previously supported by this program will transition to the Long- Range Planning function.
o Planner (1 FTE, One -Time): The Long-Range Planning program will delay current and uninitiated Council priorities. The remaining six planners will prioritize Housing Element implementation and state mandated requirements to meet timeframes for compliance. As a result of both staffing and consultant services impacts, workload reassignments will occur noting impacts to the following projects:
Matadero Creek Affordable Housing Options, Innovative Housing Typologies, and ordinance updates for seismic safety and retail. Police –
o Hire Ahead Program: This is a new program in FY 2026; eliminating this program has no anticipated immediate impacts to current service level. Currently, there are seven (7) sworn position vacancies to focus on filling.
o Reserve Officer (0.12 FTE): Retired full-time police officers can serve as part-time reserve officers, benefiting the community with their experience. These positions often handle tasks such as transporting prisoners to and from the jail in San Jose, which allows full-time officers to remain available for service in the city. Additionally, they may work traffic roles during Stanford events. Freezing one vacant reserve position is unlikely to significantly affect service levels or the quality of police services.
However, there may be a modest impact on overtime costs for events like Stanford Athletics, which are subject to a cost-sharing agreement with the university. The Committee was inclined towards removing this recommendation as the overtime may offset the savings.
o General Expenses: This category of services consists of several small programs that collectively represent a modest expense. The most significant program is the regular maintenance of a backup analog radio system, which the Department recommends pausing indefinitely. The primary digital system already includes built-in redundancy and is highly reliable. Notably, most cities in the county do not utilize an analog backup system. Other affected programs include a scouting explorer program, citizens academy, and various community service initiatives that were offered pre-pandemic, when the department had more authorized police officers, but have not been offered since. Given that the Department does not expect to be able to restore authorized officer positions to pre-pandemic levels in the coming years, these programs would be expected to remain unavailable. As a result, the community is not expected to experience any immediate changes in service levels. Public Works –
o Tree Trimmer (1 FTE): The Public Services Urban Forestry Division has seven tree trimmer positions and one lead position with two tree trimmer positions currently vacant. Freezing one of the positions while continuing to leverage the City’s tree trimming contract, currently through West Coast Arborist, should have only a modest impact on the annual maintenance of the City’s trees. The contract term is through October 17, 2026. The tree trimming program has a goal of maintaining trees on a 7-year cycle. While the position reduction can be expected to reduce the number of trees maintained annually, Urban Forestry staff will track the tree trimming cycle to ensure there are no significant negative effects. The reduction is also expected to have some impact on Palo Alto 311 tree-related response times, staff availability for after-hours emergency response, and tree planting.
o Capital Program Staffing, Engineer (1 FTE): The position proposed to be frozen in the Engineering Services Division is one of six positions involved in construction of streets, sidewalks, and transportation capital projects. As part of the overall $6 million reduction in FY 2026, $3.2 million of capital projects are recommended to be deferred from FY 2026 to future years of the 5-year CIP, and the proposed FY 2026 capital budget included a one-year reduction in the sidewalks project.
Workload needs should not be impacted in FY 2026; however, impacts to projects in future years of the 5-year CIP may happen due to reduced staff capacity to manage projects. Fiscal impact for this position is 100% in CIP fund 471.
Vehicle Fund
o This recommends the purchase of one (1) diesel fire engine instead of an electric hybrid engine in the FY2026 vehicle replacement CIP project. In the FY 2025 project, the City’s first hybrid fire engine purchase is planned, although costs and equipment lead times remain under consideration before finalizing the decision. The shift from hybrid to diesel in FY 2026 for the second apparatus would yield one-time cost savings. Staff and Committee discussed current fire engine fleet (frontline and reserves) need while balancing fleet electrification and greater cost impacts. Alternatives include buying a used fire engine and/or deferring the purchase altogether for another year however, with current fleet inventory, Staff maintains this recommendation of a diesel engine in FY26 while also actively working with other public agencies for the potential of acquiring a used fire engine. Deferring the purchase for a year would have a minor overall budgetary impact because the funds that have already been collected over time through vehicle replacement allocated charges would still be needed the following year. While staff is hopeful that the effort to purchase a used engine may be successful, the timing of this potential acquisition is not within staff’s control, and given the current 54 month lead time for a diesel engine, staff recommends proceeding now with the purchase.
Proposed Reductions/Deferrals – Capital Improvement Fund (by Project):
As part of the FY 2026 Adopted Budget and the 2026-2030 CIP, the General Fund base transfer to the Capital Improvement Fund was reduced by $3.2 million in FY 2026, $1.0 million in FY 2027, and $1.0 million in FY 2028, along with placeholders for capital expenditure reductions in the same amounts. Those placeholders are now recommended to be removed and replaced with reductions/deferrals assigned to specific capital projects. The table below summarizes the recommended capital project modifications and revised ending CIP fund 471 balance. These modifications are based on current available information to continue work on other capital projects with higher priority needs. Staff manages risks in capital projects by adding contingency funding to project budgets; however, factors such as higher than anticipated bids, unforeseen site conditions, and weather can cause the need to augment project budgets by more than the original contingency funding and cause time delays. For this reason, staff recommends maintaining a minimum level of funding in the Infrastructure Reserve (IR) ($3.0 million goal) in order to augment capital projects when unforeseen outside factors occur. Increasing contingency amounts on individual projects is also an option, but this would further limit available funds and lower the number of projects that would be scheduled. Staff recommends maintaining the IR close to $3.0 million and keeping contingencies on individual projects at 10%.
Table 3: Summary of Capital Project Reductions/Deferrals Description FY 2026 FY 2027 FY 2028 FY 2029 FY 2030
Proposed Modifications:
PF-93009 ADA
Compliance – reduce appropriation
($150,000)
OS-09002 Baylands Levee Repair (defer to FY
2028)
($288,000) $288,000
PG-06001 Athletic Court Resurfacing ($50,000)
PG-06003 Benches, Signage...& Site Amenities ($50,000)
PE-26000 Foothills Nature Preserve Restroom ($300,000) ($900,000) $100,000 $600,000 OS-09001 Off-Road Pathway Repair ($75,000)
PE-21002 Johnson Park ($250,000) ($1,400,000) $1,700,000 PG-22000 Werry Park Playground ($350,000) $350,000
PE-13014 Streetlight Condition Assessment ($220,000) $220,000 PL-04010 Bicycle and Pedestrian Plan
Implementation(Measure B)
($2,400,000)
TOTAL ($3,833,000) ($1,700,000) $1,658,000 $100,000 $600,000 Revised Ending Capital Improvement
Fund Balance $2,428,380 $4,801,793 $6,742,188 $7,125,119 $11,925,871 Project Brief Discussions:
PF-93009 American Disability Act Compliance – reduce appropriation from $600k budgeted to $450k. While deferred funding would delay progress on accessibility upgrades, funding is reserved for time-critical needs such as code required improvements identified for active construction projects or urgent path-of-travel corrections. OS-09002 Baylands Levee Repair (defer from FY2026 to FY 2028) –While postponing could increase the risk of deterioration, this deferral allows concentration of resources on higher priority projects. In the interim, routine inspections and maintenance protocols will be maintained to mitigate risk until the project resumes in FY 2028. On August 19, 2025, the Finance Committee proposed retaining $50,000 of funding in FY 2026 in order to support work needed to obtain regulatory permits, which is not reflected in Table 3.
PG-06001 Athletic Court Resurfacing – reduce appropriation from $365k to $315k, while continuing repairs in FY 2027 through FY 2030 at about $240k annually. Although the reduction may delay or extend schedules for full court resurfacing enhancements, the phased repair strategy ensures that safety and usability improvements continue on an annual basis through FY 2030. This approach balances short-term fiscal limitations with the ongoing need to maintain athletic facilities. This work safeguards user safety and extends the lifespan while addressing time-sensitive maintenance needs. Maintenance treatments like applying an overcoat at the right time can add five to seven years of useful life to the pavement, delaying the need for full reconstruction and significantly reducing lifecycle costs. PG-06003 Benches, Signage, Walkways, Perimeter Landscaping, & Site Amenities – reduce appropriation from $262k to $212k. While reducing the scope and budget will limit the number of immediate upgrades to park aesthetics and user amenities, it preserves critical funds for essential maintenance and high priority projects across the parks. This ensures that while some enhancements might be scaled back or deferred, the continued investment in core operational and safety improvements is maintained, supporting overall user experience and facility functionality in the short term.
PE-26000 Foothills Nature Preserve Restroom – Defer replacement of three restrooms at Foothills Nature Preserve by one year (from FY 2027 to FY 2028) to focus on more time-sensitive projects. Staff will monitor conditions to ensure restrooms remain safe and functional in the interim. OS-09001 Off-Road Pathway Repair – reduce appropriation from $208k to $133k, while continuing repairs in FY 2027 and FY 2028 at $185k and $208k, respectively. The reduced budget will limit number of the off-roads paved trail segments addressed and will still enable repairs at the most degraded sections with safety concerns. Maintaining on-going funding addresses overall network usability and prevents further deterioration of Palo Alto’s nine miles of off-road paved trail system that are 35 years old. PE-21002 Johnson Park – Defer from FY 2026 and FY 2027 to FY 2028, renovation of existing park elements including asphalt concrete and pathways, furnishing and playground equipment and resurfacing, fencing and irrigation to focus on more time- sensitive projects. Staff will continue to monitor safety and accessibility needs in the interim and as a contingency plan use the ADA Compliance capital project to make any emergency repairs needed as a stop gap.
PG-22000 Werry Park Playground – Defer by two years from FY 2026 to FY 2028, replacement and accessibility improvements of existing playground to focus on more time-sensitive projects. While the deferred funding would postpone the replacement and accessibility improvements of the Werry Park playground by two years, the existing play area remains serviceable and safe for use. The delay allows for advancement of higher-priority playgrounds and infrastructure with more critical needs, while maintaining Werry Park in the capital queue for future improvements. PE-13014 Streetlights Condition Assessment – Defer $220k funding for comprehensive assessment from FY 2026 to FY 2028 while retaining funding in the Street Light Improvements project (PO-05054) to replace street light poles, foundations, luminaries and wiring as needed. PL-04010 Bicycle and Pedestrian Plan Implementation – Funds the design and construction of bicycle boulevards, enhanced bikeways, shared-use paths, bicycle parking, and pedestrian improvements in accordance with the Palo Alto Bicycle and Pedestrian Transportation Plan, which was adopted by City Council in 2012. Staff expect that the funding will primarily be allocated to improvements along Embarcadero Road, between Alma Street and Emerson Street. These improvements will take a complete streets approach, addressing bicycle and pedestrian facilities as well as roadway upgrades, including pavement resurfacing within this segment. The City's average pavement condition index (PCI) is above 80, which allows Measure B LSR funds to be used for other transportation related programs. Staff propose to utilize Measure B, which VTA manager informally approved, noting formal application and written approval are required for VTA official determination.
Previously, on August 19, staff recommended and the Committee considered Measure B funding for PL-41000 Churchill Avenue which funds design and construction of enhanced bikeways, shared- use paths, bicycle parking and pedestrian improvements and a construction contract was awarded on December 9, 2024 (Report #2410-3613), with the contractor mobilizing in Summer 2025. Further discussion with VTA manager determined that PL- 04010 Churchill Avenue was less probable for Measure B funding given the construction and funding status. Staff updated the project recommendation to PL-04010 for Bicycle and Pedestrian Plan Implementation accordingly.
FISCAL/RESOURCE IMPACT
This report summarizes and seeks the Finance Committee’s recommendation to City Council for approval of the FY 2026 budget amendments outlined in this report, summarized by department, achieving $6.2 million in savings in FY 2026, of which $3.4 million are ongoing and $2.8 million are one-time. CIP project savings are achieved by reducing the General Fund transfer to the Capital Improvement Fund and supported by revisions to the 5-year Capital Improvement Plan (CIP), as proposed for specific projects. The revised Capital Improvement Fund ending balance is projected above the $3 million target, except in FY 2026 which is projected at $2.4 million.
The FY 2026 Adopted Budget resulted in a projected General Fund Budget Stabilization Reserve of $54.3 million or 17.7%, slightly below the Council’s target of 18.5% and within the recommended range of 15-20% of General Fund Expenditures. Furthermore, as part of a multi- year budget balancing strategy, Finance Committee recommended in FY 2027 to combine the Uncertainty Reserve with the BSR and increase the overall reserve. Moving $4.0 million of the Uncertainty Reserve into the BSR in FY 2027 would bring the BSR up to $58.3 million or 18.3% of the estimated FY 2027 expenses. This would leave $2.0 million in the Uncertainty Reserve to partially offset the projected $8.0 million deficit in FY 2027 projected at the time of budget adoption.
STAKEHOLDER ENGAGEMENT
Community members have been encouraged to participate in the FY 2026 budget process and provide input for the City Council to consider priorities and service needs as part of the public budget meetings held in May and June. City departments analyzed and discussed proposals related to service level, public safety impacts and City Council priorities.
ENVIRONMENTAL REVIEW
This activity is not a project under the California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because discussion and amendment of the budget is a government funding mechanism 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).
ATTACHMENTS
Attachment A - Exhibit 1: FY 2026 Recommended Operating Budget Adjustments Attachment A - Exhibit 2: FY 2026 Recommended Capital Budget Adjustments Attachment B - Historical Summary of Positions & Vacancy APPROVED BY:
Lauren Lai, Administrative Services Director