City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: City Manager
Meeting Date: December 15, 2025
Report #:2512-5661
TITLE
Approve Policy & Services Committee Recommendation to Continue the Nonprofit Partnership Workplan Phase I Funding Process in the FY 2027 Budget Cycle, with Additional Refinements to be Developed by the Policy & Services Committee in January 2026 and Returned to Council for Approval
RECOMMENDATION
The Policy & Services Committee recommends that the City Council approve continuing the Nonprofit Partnership Workplan Phase I funding process in the FY 2027 Budget Cycle and refer refinement of the process to the Policy & Services Committee, with a return to Council in early 2026.
BACKGROUND
On November 19, 2025, the Policy and Services Committee discussed and recommended the continuation of the Nonprofit Partnership Workplan Phase I pilot (Phase I) into FY 2027.1 The process is designed to support the City Council in decision-making on nonprofit funding requests that fall outside of an established program. In FY 2026, the Phase I process allocated $506,646 in grant funds to 17 nonprofit organizations that deliver services to the Palo Alto community. The effort resulted in four new public/private partnerships and support to 13 existing nonprofit partners.
As background to the Phase I process, on August 15, 2022, the City Council approved a report from the City Auditor2 which focused on identifying risks related to nonprofit agreements and 1 11/19/2025, Policy & Services Committee Meeting
https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=9499&meetingTemplateType=2&comp iledMeetingDocumentId=17629
2 8/15/2022 City Council Meeting:
https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=9028&compileOutputType= 1 provided corresponding recommendations for improvement.3 Key recommendations included defining clear service level expectations and performance management and evaluation on all nonprofit service and lease agreements, as well as quantifying non-monetary support to determine appropriate compensation for nonprofits’ use of City-owned properties.
The City of Palo Alto’s nonprofit partnerships play a vital role in delivering community services, yet existing policies and processes for managing these relationships would benefit from enhanced consistency, transparency, and accountability. The absence of consistent service level agreements, performance metrics, and predictable funding processes has resulted in unclear expectations for both the City and nonprofit partners. The nonprofit partnership workplan seeks to establish a clear framework that aligns nonprofit partnerships with Council priorities and stability for nonprofits, ensures fairness and inclusion in resource allocation, and strengthens financial and performance accountability while maintaining the agility to respond to evolving community needs.
On October 28, 2024, the Council held a study session to provide feedback on a framework for strengthening the City’s practices in nonprofit partnership engagement, funding, support, and evaluation.4 The framework laid out a set of foundational principles that reflect fundamental goals and values that guide the establishment and pursuit of partnerships, as well as the key recommendations from the 2022 Nonprofit Audit. The City Council provided feedback on the principles and delegated their refinement to the Policy & Services Committee.
A phased approach began as part of the Fiscal Year 2025 budget cycle.5 As part of this effort, a process was established for the City Council to consider nonprofit funding requests during the budget adoption period that fall outside established grant programs. This represented a first phase toward reconciling City budget decisions with recommendations of the 2022 audit.
Subsequent phases of the workplan will address coordination with other City funding programs (e.g. HSRAP and CDBG) as well as leases of City property.
This report seeks Council approval to continue and refine the Phase I process with the Policy and Services Committee, scheduled to continue at its January 14, 2026, meeting. Final recommendations from the Policy & Services Committee would return to Council for approval. 3 June 14, 2022, Policy & Services Committee Meeting
https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=6282&compileOutputType= 4 10/28/2024 City Council Meeting:
https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=6042&meetingTemplateType=2&comp iledMeetingDocumentId=12083
5 3/24/2025 City Council Meeting:
https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=7453&meetingTemplateType=2&comp iledMeetingDocumentId=13613
ANALYSIS
Throughout the six-month development and implementation of the Phase I process, staff gathered feedback from nonprofit partners, support staff, the City Council, and the Policy and Services Committee to identify opportunities for improving the program in future cycles.
Additionally, the Policy & Services Committee at its November 19, 2025 meeting expressed interest in clarifying and improving various aspects of the program, including:
Whether/how to include multi-year contracts in Phase I Whether nonprofits eligible for other City grant programs (i.e. Human Services Resource Allocation Process) may apply for phase I funding
Funding priorities (including relationship to Council Priorities) Improve application evaluation process by categorizing nonprofit services to clarify service alignment and reduce redundancy in funding
Role clarity between Finance and Policy & Services Committees, for example Finance to propose total amount of funding available each year in the annual budget process, and Policy & Services to review applications and propose awards
Early communication and engagement with nonprofits on application expectations Structure grant funding to complement, rather than fully cover nonprofit program costs Application timeframe adjustments to allow for nonprofit interviews If continuing a nonprofit funding process is approved by Council, staff will provide a set of recommendations regarding how to improve the process to the Policy & Services Committee at its January 14, 2026 meeting.
As directed by Council, in addition to Phase 1 the Policy & Services Committee will continue to flesh out the guiding principles through the Nonprofit Partnership Workplan framework, and focus on four major areas of work:
1. Nonprofit Partnership Workplan Phase I Funding Requests
2. Nonprofit Lease Agreements
3. Nonprofit Multi-year Service Agreements
4. Comprehensive review of all grant programs including Human Services Resource Allocation Process (HSRAP) and Community Development Block Grants (CDBG) Recommendations will be brought for Council approval throughout the process.
FISCAL/RESOURCE IMPACT
No resource impacts expected at this time. Council may delegate that the Finance Committee set the Fiscal Year 2027 Phase I total fund amount for consideration in advance of the FY 2027 Budget Adoption.
STAKEHOLDER ENGAGEMENT
Throughout the development of the Nonprofit Workplan Phase I process, staff held various engagement and informational meetings with nonprofits and gathered feedback on the process
along the way. Staff also noted nonprofit feedback during the various public meetings. Staff will also survey grant recipients to gather feedback on improving the program implementation process.
ENVIRONMENTAL REVIEW
This is not considered a project as defined by CEQA and no review is required.
ATTACHMENTS
None
APPROVED BY:
Ed Shikada, City Manager