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proposed ordinance will amend the FY 2026 Municipal Fee Schedule by reducing certain fee amounts and removing certain outdated fees.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
not included in the prior two studies3, corrections of assumptions and updated language4, additional staff recommended technical adjustments5, and final adoption via ordinance6.
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
3 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
4 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
5 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
6 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
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