City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: October 6, 2025
Report #:2506-4900
TITLE
Approval of FY 2025 Reappropriation Requests to FY 2026 Operating and Capital Improvement Budgets and Additional Technical Clean-Up Actions and Corresponding Amendments to the FY 2026 Budget Appropriation for Various Funds. CEQA Status: Not a Project
RECOMMENDATION
Staff recommends that the City Council amend the Fiscal Year 2026 Budget Appropriation for various funds as identified in Attachment A, and various capital projects as identified in Attachment B and Attachment C (requires 2/3 approval).
EXECUTIVE SUMMARY
As a part of the fiscal year-end process, staff reviews the City’s unencumbered and unspent appropriations of the fiscal year just ended (FY 2025), along with the City’s spending plans.
Encumbered amounts are contractual obligations (for example, commitments made through purchase orders), which are carried forward from one fiscal year to the next without the need for Council approval. Each year there are important projects that were unable to encumber funds in the year that just ended. The reappropriation process allows staff to bring forward funding recommendations to City Council to continue these projects into the next fiscal year (FY 2026) without impacting funding programmed for services in FY 2026.
In limited instances, staff also recommends appropriation actions unrelated to the reappropriation process. Most of the time, these are technical clean-up actions for capital projects. In FY 2026, staff recommends appropriating additional funding for the Roth Building Rehabilitation Phase I project (PF-23001) to adjust for centrally allocated salary and benefit costs in order to complete the final $500,000 Council directed payment for the project.
Additionally, there is a recommendation to add a new project in the Capital Improvement Fund to respond to resident concerns about emergency evacuations expressed during a recent Neighborhood Town Hall meeting.
BACKGROUND
Chapter 2.28, Section 2.28.090 of the Municipal Code allows for reappropriation of funding from the previous fiscal year to the current fiscal year if the Administrative Services Department (ASD) Director/Chief Financial Officer (CFO) certifies that sufficient unencumbered and unexpended funds are available in the Fiscal Year that just ended (FY 2025) to be carried forward to the subsequent Fiscal Year (FY 2026).
Additionally, since capital projects may be delayed or deferred for various reasons, there remains a need to reappropriate funds for capital projects in some instances. This reappropriation is completed through a review of the status of projects as part of the annual budget process and is built into the annual adopted budget. As FY 2025 has closed and staff has processed necessary accounting transactions, unexpended and unencumbered funds for each capital project have been reviewed for a final time. Based on this review, staff recommends capital dollars remaining for some projects in FY 2025 be reappropriated to FY 2026. Also, as part of this review, staff found that some reappropriations earlier in the year resulted in excessive funding for certain projects in FY 2026. Therefore, this staff report recommends reversing a portion of those previously authorized reappropriations to address these situations.
ANALYSIS
Attachment A identifies those operating budget requests that staff recommends for approval, while Attachment B lists recommended capital project requests. Attachment C includes technical clean-up actions to align project budgets with intended funding levels as well as recommending a new capital project, Emergency Gate at Foothill and Miranda (PE-26003), in the Capital Improvement Fund. With the submission of this report for City Council consideration, the ASD Director/CFO certifies sufficient unencumbered and unexpended funds are available from FY 2025 to be reappropriated to FY 2026. To support the continuity of business for these ongoing projects and initiatives, this report is being brought forward prior to the FY 2025 Annual Comprehensive Financial Report (ACFR), scheduled to be considered by the Finance Committee in December.
Operating Budget Reappropriations
The projects recommended for budget reappropriations are outlined in more detail in Attachment A and can generally be grouped into the following categories:
Funding for Citywide Council Priorities: Items in this category are related to citywide priority needs previously identified by the Council, as part of the FY 2025 priority setting in January 2025, that could not be completed in FY 2025 and funding is recommended to be reappropriated to FY 2026 to complete the work. Examples of projects in this category include: Gas Cap and Trade Support for Electrification Pilot Programs ($1.4 million), Advancing Racial Equity ($0.2 million), Labor Negotiations ($0.1 million), Sustainability and Climate Action Plan (S/CAP) Studies ($55,000), and Child Care Services ($20,000).
Timing and Workload Delays: Projects in this category were delayed due to competing workload demands, appropriation of funds late in the fiscal year, or other unanticipated delays. Examples of projects in this category include: Development Impact and In-Lieu Fee Study ($0.3 million), Economic and Market Feasibility Study ($0.2 million), Information Technology Infrastructure Maintenance ($0.2 million), Biosolids Screw Conveyors Repair ($0.1 million), Foothill Fire Management Funds ($0.1 million), and Airplane Noise Reduction Study ($75,000).
Multi-year Funding Agreements: Projects in this category include approved donations, grants, loans, and other funding agreements that are anticipated to continue in the coming year. Examples in this category include: Information Technology Fees for Planning and Development Services Technology Replacement ($0.3 million), National Opioid Settlement ($0.3 million), Police Officer Wellness Grant ($46,500), and Direct Cost Recovery Projects in the Planning and Development Services Department ($33,400).
Teen Services Programs (formerly Bryant Street Garage Teen Program): In 2001, the City Council voted to lease commercial space at the Bryant Street garage located at 455 Bryant Street. Since this site was formerly the location of the Bryant Street Teen Center, a stipulation in the lease required that 75% of the rental revenues would be used to fund programs specifically for Palo Alto youth and teens. The unspent balance of $0.2 million is recommended to be reappropriated to ensure resources are available to continue providing quality teen services to the community and develop a long-term approach to maintain delivery of these services. As such, a portion of the reappropriated funds in FY 2026 will be used to furnish and create a dedicated teen space at the 445 Bryant Street space, further enhancing opportunities for youth engagement and connection.
Management Training Program: The Management Training Program provides $1,000 per eligible employee under the terms outlined in the MGMT and PAPMA labor agreements. The purpose of this program is to provide employees with resources to improve and supplement their job and professional skills. In total, $0.3 million in unused funding is requested to be reappropriated for various training programs, including:
ethics, civics and citizen engagement, leadership and management, budget, finance, procurement, interpersonal communication, presentation skills, business writing, time management, project management, change management, online-based education, and safety and security.
Operating Reappropriations Previously Approved in the FY 2026 Adopted Operating Budget As part of the FY 2026 Budget review process, early reappropriation of anticipated savings in the General Fund and in the Supplemental Law Enforcement Services Fund in FY 2025 was recommended and approved by the Council to fund actions in FY 2026. The total approved amount of $15.9 million already reappropriated to FY 2026 consisted of the $12.0 million Uncertainty Reserve, $3.7 million Police Organized Retail Theft (ORT) Grant, $82,400 for the Nonprofit Workplan, $80,000 for the City Employee Childcare program, and $40,000 for the Human Services Resource Allocation Process (HSRAP) Reserve.
The Uncertainty Reserve was established as part of the FY 2023 Mid-Year Review to proactively set aside funding for anticipated future deficits. The funding remaining in the Uncertainty Reserve in FY 2025 ($12.0 million) was reappropriated to FY 2026 as part of the budget process and $6.1 million was used to balance FY 2026. This leaves $6.1 million in the reserve for future budget planning needs.
In December 2023, the City received $5.2 million from the State of California Board of State and Community Corrections (BSCC) for the Organized Retail Theft (ORT) Grant Program. This grant provides funding to combat ORT and to increase the recovery of stolen vehicles. Through this grant, the Police Department utilizes overtime to patrol and investigate ORT crimes in shopping districts. The Department also equips patrol vehicles with technology to aid in the apprehension of stolen vehicles. This action reappropriates the remaining funds ($3.7 million) as well as the revenue reimbursement to FY 2026 to continue the program through the end of the three-year grant period in December 2026.
As part of the Council deliberation in June 2025 to adopt the FY 2026 budget (Staff Report 2503-42501), an action was taken to increase funding for the Nonprofit Workplan Phase I awards by $82,400. The increase was funded by an early reappropriation of the Council Contingency Account balance from FY 2025.
The City Employee Childcare Program provides funding for a childcare subsidy program for qualified City of Palo Alto employees. Services provided in this program include, but are not limited to childcare or after school care using a Palo Alto childcare provider. This action reappropriates the remaining balance of $80,000 from the second year of this pilot program to continue for a third year to maintain employee engagement, long-term retention, and reduce turnover.
1 City Council, June 16, 2026; Agenda Item # 23, Staff Report # 2503-4250:
https://portal.laserfiche.com/Portal/DocView.aspx?id=188956&repo=r-704298fc&searchid=14fd96b7-f3d3-4236- a53b-f01e67a648d6
As part of the FY 2015 Adopted Budget, the City Council established a one-time reserve of $50,000 for HSRAP funding requests. In FY 2019, $10,000 was allocated to Heart and Home Collaborative, a non-profit organization that provides shelter and services to unhoused women in Palo Alto. No additional funds were allocated from this reserve in FY 2025, so the remaining balance of $40,000 was reappropriated to FY 2026.
Capital Budget Reappropriations
The FY 2026 Adopted Budget included $140.9 million in reappropriated expenditure funds, partially offset by $16.9 million in reappropriated revenue, across all City funds based on estimates of anticipated spending and revenue collections in FY 2025. Since the adoption of the capital budget, some adjustments and refinements to project reappropriations are required since FY 2025 year-end actuals and projects costs have been updated to reflect actual experience. These primarily reflect either increases or decreases to assumed reappropriations in the FY 2026 Adopted Budget:
Additional reappropriations are recommended when project expenditures originally anticipated to occur before the end of FY 2025 will now instead occur in FY 2026.
Similarly, revenue previously anticipated to be collected in FY 2025 will be reappropriated to FY 2026 to align with actual collections. Downward adjustments to reappropriations are recommended when expenses are no longer anticipated to occur in FY 2026 and funding was previously reappropriated in the budget document to FY 2026. If expenses were realized in FY 2025, an adjustment to reduce the budgeted reappropriation is needed as the activity no longer needs funding in FY 2026. The downward reappropriation of revenue is treated similarly; an adjustment to reduce the reappropriated revenue is needed to align collections in the appropriate fiscal year.
Table 1 summarizes the recommended capital project adjustments by fund as detailed in Attachment B. These Fiscal Year 2026 adjustment amounts represent the final step in the City Council-approved change to the reappropriation process. There are sufficient expenditure savings in Fiscal Year 2025 to support all recommended adjustments.
Table 1: Year-End Capital Project Reappropriation Summary – By Fund Fund
Number
of
Projects
Recommended
Expense
Reappropriation
Adjustment
Recommended
Revenue
Reappropriation
Adjustment
Capital Improvement Fund 66 $31,795,675 $20,159,217
Cubberley Infrastructure Fund 3 $101,175 -
Airport Fund 1 - $58,393
Electric Fund 10 ($825,326) $50,000,000
Fiber Optics Fund 1 ($23,690) -
Gas Fund 4 ($86,342) -
Stormwater Management
Fund 5 $910,016 $4,321
Wastewater Collection Fund 3 $804,402 -
Wastewater Treatment Fund 8 $12,469,107 $182,506,873
Water Fund 5 $2,519,270 -
Technology Fund 5 $668,739 -
Vehicle Replacement and
Maintenance Fund 3 ($744,182) -
Total All Funds 114 $47,588,845 $252,728,804
The active review of all project reappropriations results in a reduced level of reappropriated funding from one year to the next, compared to the process of automatically reappropriating unspent capital funding, and better reflects the needs of the various capital projects and of the overall program. In total, $188.5 million will be reappropriated for capital projects, offset by $269.6 million in revenue for the projects. It should be noted 72.2% of the total recommended revenue reappropriation adjustment amount of $252.7 million comes from the Wastewater Treatment Fund because there is substantial lag time in reimbursement of funds from the State Revolving Fund (SRF) loans that support Wastewater Treatment projects.
The recommended expenditure reappropriation adjustment amount of $47,577 for the Golf Reconfiguration & Baylands Athletic Center Improvements project (PG-13003) detailed in Attachment B includes $16,497 and $23,503 reappropriated from FY 2025 savings in the Baylands Nature Preserve Entrance Gate (OS-24000) and Park and Open Space Emergency Repairs (PG-09002) projects, respectively. These amounts are needed to fund the Wetland Remedial Plan for PG-13003 that was approved by the City Council on September 8, 2025 (Staff Report #2507-50132).
Technical Clean-up Actions
As detailed in Attachment C, in FY 2026, staff recommends appropriating additional funding for the Roth Building Rehabilitation Phase I project (PF-23001) to adjust for centrally allocated salary and benefit costs in order to complete the final $500,000 Council directed payment for the project. This action will increase appropriation by $0.1 million in FY 2026 to restore the full amount of funding required to maintain the overall project scope.
Staff also recommends the addition of a new capital project in the Capital Improvement Fund, Emergency Gate at Foothill and Miranda (PE-26003), with initial funding of $50,000 to evaluate, in coordination with Santa Clara County permitting staff, the feasibility of installing an emergency gate near the end of Miranda Avenue to Foothill Expressway. Factors to be evaluated include property ownership, right-of-way issues, utility and tree conflicts, and access restrictions. This project is recommended in response to concerns about emergency evacuations expressed by residents during the June 11, 2025 Neighborhood Town Hall meeting.
FISCAL/RESOURCE IMPACT
Most projects, programs, and corresponding funding contained within this report were previously approved by the City Council for FY 2025. This report primarily realigns funding between fiscal years to align with the status of projects and programs. The ASD Director/CFO certified that sufficient funds exist in FY 2025 for the recommended Fiscal Year 2026 Operating Budget adjustments (Attachment A), and Capital Budget adjustments (Attachments B and C).
For Operating reappropriations, staff recommends expense reappropriations of $1.5 million in the General Fund, $1.5 million in Enterprise Funds, $0.5 million in Internal Service Funds, and $0.3 million in Special Revenue Funds. Staff also recommends revenue reappropriations of $33,400 in the General Fund.
Capital project reappropriations and technical adjustments were summarized in the Analysis section. The only item in this report that was not previously approved by City Council, and which does not represent a realignment between fiscal years, is the recommendation to respond to resident concerns by creating the Emergency Gate at Foothill and Miranda capital 2 City Council, September 8, 2025, Agenda Item #11, Staff Report # 2507-5013:
https://portal.laserfiche.com/Portal/DocView.aspx?id=221250&repo=r-704298fc&searchid=05f606b6-2691-47c3- a249-2fa79c6cd975
project (PE-26003) which would result in a drawdown of $50,000 from Infrastructure Reserve in the Capital Improvement Fund in FY 2026.
STAKEHOLDER ENGAGEMENT
Review and reconciliation of the funding available for both the Operating reappropriations and the reappropriations for individual Capital projects were coordinated between ASD divisions of the Office of Management and Budget and Accounting, as well as with the departments requesting the reappropriated funds.
ENVIRONMENTAL REVIEW
Council action on this item is not a project under the California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because budget reappropriations are 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: FY 2025 to FY 2026 Operating Reappropriation Requests Attachment B: FY 2025 to FY 2026 Capital Reappropriation Requests Attachment C: Capital Improvement Plan FY 2026 Technical Clean-up Actions APPROVED BY:
Lauren Lai, Administrative Services Director