City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: November 10, 2025
Report #:2510-5321
TITLE
Approval of a Budget Amendment in the General Fund for the Planning and Development Services Department’s Deposit-Based Fee Program for Private Development Studies for a Net Zero Impact. CEQA Status: Not a Project
RECOMMENDATION
Staff recommends that the City Council amend the Fiscal Year 2026 Budget Appropriation Ordinance (Requires 2/3 Vote) for the General Fund by:
1. Increasing Permits and Licenses revenue estimate in the Planning and Development Services Department by $350,000; and
2. Increasing Contract Services expense appropriation in the Planning and Development Services Department by $350,000.
BACKGROUND
The Planning and Development Services Department provides a service for private development projects using full cost recovery deposit-based contracts. The department utilizes the expertise of outside consultants to augment and expedite entitlement studies such as historic, environmental, and zoning compliance. Due to the highly specialized nature of these studies, City employees lack in-house expertise. Applicants pay upfront for contract services related to their project, and funding is held in a deposit account until services are performed.
The number of projects that use this program fluctuates annually, and associated revenue and expense are realized in the Planning and Development Services operating budget when incurred, which sometimes, necessitates a net-zero budget action to ensure continuity of service. No general fund monies are utilized for this program, and all expenditures are supported by offsetting revenue.
This action is required for the department to meet its contractual obligations and continue paying for cost-recovery services.
ANALYSIS
The planning review application form1 outlines the City’s deposit-based policies and procedures. This program provides the City with additional resources to meet the development needs of the community by utilizing outside consultant services related to historic, environmental, and compliance review studies for private development projects. Applicants submit funds to cover anticipated program costs, including a charge for the City’s administration of the program. Firms conducting these studies are selected based on their experience and expertise in the respective areas of study. Historically, the City has received approximately 50 to 75 projects annually, ranging in complexity from single-family dwellings to mixed-use projects.
Private development services related contracts are exempted from competitive solicitation per Municipal Code Section 2.30.3602 as they are funded wholly by private developers. Therefore, these deposit contracts do not come before the City Council. Staff conducts an informal solicitation to select the firms that are best qualified based on a variety of factors. The results of the consultant’s work are generally presented to Commissions or City Council through staff reports, such as environmental reports or specific studies.
This net-zero action is needed now as there was a technical system error during the Fiscal Year 2026 budget adoption process where the anticipated activity level for deposit-based contracts was not reflective of recent trends. This resulted in a lower annual allocation of both revenues and expenses for this work in FY 2026 that needs to be remedied. As of September 30, 2025, 84% of the approved budget of $207,000 has already been utilized. If additional revenue and corresponding expense increases are not approved, the City will not be able to meet its contractual obligations and the deposit-based recovery program will be suspended until additional budget appropriation is approved.
FISCAL/RESOURCE IMPACT
Staff is requesting City Council approval of a net zero budget amendment in the General Fund to increase both revenue and expenses by $350,000. Funds to cover all costs are received from applicants utilizing the program, resulting in no net impact to the General Fund. If lower levels of revenue are realized, the expenses would also be at correspondingly lower levels, resulting in no net impact to the General Fund. This amendment requires a 2/3 approval vote by the City Council.
1 Planning Application: https://www.paloalto.gov/files/assets/public/v/2/planning-amp-development- services/application-form-08-14-2025.pdf
2 Municipal Code: https://codelibrary.amlegal.com/codes/paloalto/latest/paloalto_ca/0-0-0-61990
STAKEHOLDER ENGAGEMENT
Given that this is an internal budgeting action, stakeholder involvement has primarily been limited to the Planning and Development Services and Administrative Services departments.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because this budget amendment 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).
APPROVED BY:
Jonathan Lait, Planning and Development Services Director