CITY COUNCIL
Regular Meeting
Monday, February 09, 2026
Council Chambers & Hybrid
5:30 PM
Amended Agenda
Amended agenda items appear below in RED (Time Estimates Updated)
Palo
Alto
City
Council
meetings
will
be
held
as
“hybrid”
meetings
with
the
option
to
attend
by
teleconference
or
in
person.
Information
on
how
the
public
may
observe
and
participate
in
the
meeting
is
located
at
the
end
of
the
agenda.
The
meeting
will
be
broadcast
on
Cable
TV
Channel
26,
live
on
YouTube
https://www.youtube.com/c/cityofpaloalto
,
and
streamed
to
Midpen
Media
Center
https://midpenmedia.org
.
VIRTUAL PARTICIPATION
CLICK HERE TO JOIN
(
https://cityofpaloalto.zoom.us/j/362027238
)
Meeting ID: 362 027 238 Phone:1(669)900-6833
PUBLIC COMMENTS
General
Public
Comment
for
items
not
on
the
agenda
will
be
accepted
in
person
for
up
to
three
minutes
or
an
amount
of
time
determined
by
the
Chair.
General
public
comment
will
be
heard
for
30 minutes.
Additional
public
comments,
if
any,
will
be
heard
at
the
end
of
the
agenda.
Public
comments
for
agendized
items
will
be
accepted
both
in
person
and
via
Zoom
for
up
to
three
minutes
or
an
amount
of
time
determined
by
the
Chair.
Requests
to
speak
will
be
taken
until
5 minutes
after
the
staff’s
presentation
or
as
determined
by
the
Chair.
Written
public
comments
can
be
submitted
in
advance
to
and
will
be
provided
to
the
Council
and
available
for
inspection
on
the
City’s
website.
Please
clearly
indicate
which
agenda
item
you
are
referencing
in
your
subject
line.
Multiple
individuals
who
wish
to
speak
on
the
same
item
may
designate
a
spokesperson.
Spokespersons
must
be
representing
five
or
more
verified
individuals
who
are
present
either
in
person
or
via
zoom.
Spokespeople
will
be
allowed
up
to
10 minutes,
at
the
discretion
of
the
presiding
officer.
Speaking
time
may
be
reduced
if
the
presiding officer reduces the speaking time for individual speakers.
PowerPoints,
videos,
or
other
media
to
be
presented
during
public
comment
are
accepted
only
by
to
at
least
24 hours
prior
to
the
meeting.
Once
received,
the
Clerk
will
have
them
shared
at
public
comment
for
the
specified
item.
To
uphold
strong
cybersecurity
management
practices,
USB’s
or
other
physical
electronic
storage
devices
are
not
accepted.
Signs
and
symbolic
materials
less
than
2 feet
by
3 feet
are
permitted
provided
that:
(1)
sticks,
posts,
poles
or
similar/other
type
of
handle
objects
are
strictly
prohibited;
(2)
the
items
do
not
create
a
facility,
fire,
or
safety
hazard;
and
(3)
persons
with
such
items
remain
seated
when
displaying
them
and
must
not
raise
the
items
above
shoulder
level,
obstruct
the
view or passage of other attendees, or otherwise disturb the business of the meeting.
TIME ESTIMATES
Listed
times
are
estimates
only
and
are
subject
to
change
at
any
time,
including
while
the
meeting
is
in
progress.
The
Council
reserves
the
right
to
use
more
or
less
time
on
any
item,
to
change
the
order
of
items
and/or
to
continue
items
to
another
meeting.
Particular
items
may
be
heard
before
or
after
the
time
estimated
on
the
agenda.
This
may
occur
in
order
to
best
manage
the time at a meeting or to adapt to the participation of the public.
1 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
CALL TO ORDER
AGENDA CHANGES, ADDITIONS AND DELETIONS
PUBLIC COMMENT (5:35 - 6:05 PM)
Members of the public may speak in-person ONLY to any item NOT on the agenda. 1-3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.
COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:05 - 6:20 PM) Members of the public may not speak to the item(s).
CONSENT CALENDAR (6:20 - 6:25 PM)
Items will be voted in one motion unless removed from the calendar by three Council Members.
1. Approval of Minutes from January 20 and January 24, 2026 Meeting
2. Adoption of a Resolution Amending the El Camino Real Retail Node Map for Purposes of Palo Alto Municipal Code Section 18.40.180: Retail Preservation. CEQA Status:
Addendum to the Comprehensive Plan Environmental Impact Report (EIR), adopted November 17, 2023 (SCH #2014052101)
3. Adoption of Revisions to the Investment Policy as Recommended by the Finance Committee. CEQA Status – Not a Project
4. Adoption of a Resolution Authorizing the City Manager to Negotiate and Execute Purchase Orders with To-Be-Determined Vendor(s) to Procure Nine Vehicle/Equipment Purchases for a Total Not-to-Exceed Amount of $1,430,000; Approval of a Fourth Amended and Restated Purchase Order Number 4521000199 with Altec Industries, Inc., to Increase the Purchase Order Amount by $94,911 to a New Not-to Exceed Amount of $1,167,986 for Two Vehicle/Equipment Purchases; and Amend the FY 2026 Budget in the Vehicle Replacement and Maintenance Fund and Electric Funds; CEQA Status – Not a Project
5. Approval of an Increase of Construction Contingency for Contract No. C24189237 with SAK Construction, LLC in the Amount of $800,000 and Amend the FY 2026 Budget in the Wastewater Treatment Fund for the Joint Intercepting Sewer Rehabilitation (Phase 1) Project (WQ-24000); CEQA Status - Exempt under CEQA Guidelines Section 15301 (Repairs to Existing Facilities)
6. Approval of Amendment No. 1. of the Future Talent of Silicon Valley dba First Tee - Silicon Valley (Contract S25192927) Facility Use Agreement to Extend the Term for Three Years to February 2029; CEQA status – not a project.
2 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
7. Approval of Amendment No. 3 to Contract No. S23187281 with Urban Planning Partners, Inc. in the Amount of $52,409, Increasing the Not-to-Exceed Amount to $137,409 and Extending the Contract Term Through December 31, 2027 to Create Standalone Pre- Approved Parklet Plans as Part of the California Avenue Streetscape Update PL-23000; CEQA Status – Categorically Exempt under CEQA Guidelines Section 15301 and 15304(e)
8. Approval of Four Professional Services Contracts C26194180A-D, with Interwest Consulting Group, Inc, TRB and Associates, Inc., Atlas Environmental and West Coast Code Consultants, Inc. in the Aggregate Total Not-to-Exceed amount of $1,438,800 for On-Call Fire Code, and Hazardous Material Related Services, Inspection, Plan Review and Environmental Consultation over a three-year term; CEQA status: not a project.
CITY MANAGER COMMENTS (6:25 - 6:40 PM)
BREAK (15 MINUTES)
ACTION ITEMS (Item 9: 6:55 - 7:05 PM, Item 10: 7:05 - 7:20 PM; Item 11: 7:20 - 8:50 PM; Item 12: 8:50 - 10:00 PM)
Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished Business and Council Matters.
9. Approve a resolution for an exception to the CalPERS 180-day waiting period to appoint retired annuitant Aaron Miller; CEQA Status - Not a Project
10. PUBLIC HEARING: Objections to Weed Abatement at Affected Properties and Approval of Affected Property List for Commencing Weed Abatement in 2026; CEQA Status - exempt
11. Cubberley Project: Receive update on Third Round Polling Results, Approve a Letter of Intent with TheatreWorks Silicon Valley, and Direct Staff on Next Steps Late Packet
Report added
12. Review and Approval of Suggested Changes to the City Council Procedures and Protocols Handbook as Recommended by the Policy and Services Committee. CEQA Status – Not a project.
Supplemental Report added
CLOSED SESSION (10:00 - 10:30 PM)
3 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
AA1.
Conference with Labor Negotiators
Authority: Gov. Code section 54957.6;
Agency representative: Sandra Blanch and Nicholas Raisch, Teri Black, Teri Black & Co.
Unrepresented Employee: City Attorney
New Item added
ADJOURNMENT
INFORMATION REPORTS
Information reports are provided for informational purposes only to the Council and the public but are not listed for action or discussion during this meeting’s agenda.
A.
Rental Residential Vacancy Rate Determination for Properties Containing Three or More Dwelling Units for the Second Half of 2025. CEQA: Not a Project, Pursuant to CEQA Guidelines Section 15378(b).
OTHER INFORMATION
Standing Committee Meetings this week
Policy & Services Committee February 10, 2026
Public Comment Letters
Schedule of Meetings
AMENDED / SUPPLEMENTAL AGENDA ITEMS
11. Cubberley Project: Receive update on Third Round Polling Results, Approve a Letter of Intent with TheatreWorks Silicon Valley, and Direct Staff on Next Steps Late Packet
Report added
12. Review and Approval of Suggested Changes to the City Council Procedures and Protocols Handbook as Recommended by the Policy and Services Committee. CEQA Status – Not a project.
Supplemental Report added
4 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
AA1.
Conference with Labor Negotiators
Authority: Gov. Code section 54957.6;
Agency representative: Sandra Blanch and Nicholas Raisch, Teri Black, Teri Black & Co.
Unrepresented Employee: City Attorney
New Item added
PUBLIC COMMENT INSTRUCTIONS
Members
of
the
Public
may
provide
public
comments
to
teleconference
meetings
via
email,
teleconference, or by phone.
1. Written public comments
may be submitted by email to
[email protected]
.
2. For
in
person
public
comments
please
complete
a
speaker
request
card
located
on
the
table
at
the
entrance
to
the
Council
Chambers
and
deliver
it
to
the
Clerk
prior
to
discussion of the item.
3. Spoken
public
comments
for
agendized
items
using
a
computer
or
smart
phone
will
be
accepted
through
the
teleconference
meeting.
To
address
the
Council,
click
on
the
link
below to access a Zoom-based meeting. Please read the following instructions carefully. ◦
You
may
download
the
Zoom
client
or
connect
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in-
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If
using
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are
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current,
up-to-date
browser:
Chrome
30 ,
Firefox
27 ,
Microsoft
Edge
12 ,
Safari
7 .
Certain
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disabled
in
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browsers
including
Internet
Explorer.
Or
download
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Apple
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Store
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enter
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online
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◦
When
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wish
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on
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Agenda
Item,
click
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“raise
hand.”
The
Clerk
will
activate
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turn.
Speakers
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◦
When
called,
please
limit
your
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to
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time
limit
allotted.
A
timer
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shown on the computer to help keep track of your comments.
4. Spoken
public
comments
for
agendized
items
using
a
phone
use
the
telephone
number
listed
below.
When
you
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speak
on
an
agenda
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hit
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Council.
You
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be
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When
called
please limit your remarks to the agenda item and time limit allotted.
CLICK HERE TO JOIN
Meeting ID: 362-027-238 Phone: 1-669-900-6833
Americans
with
Disability
Act
(ADA)
It
is
the
policy
of
the
City
of
Palo
Alto
to
offer
its
public
programs,
services
and
meetings
in
a
manner
that
is
readily
accessible
to
all.
Persons
with
disabilities
who
require
materials
in
an
appropriate
alternative
format
or
who
require
auxiliary
aids
to
access
City
meetings,
programs,
or
services
may
contact
the
City’s
ADA
Coordinator
at
(650)
329-2550
(voice)
or
by
emailing
Requests
for
assistance
or
accommodations
must
be
submitted
at
least
24 hours
in
advance
of
the
meeting,
program,
or
service.
5 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
California
Government
Code
§84308
,
commonly
referred
to
as
the
"Levine
Act,"
prohibits
an
elected
official
of
a
local
government
agency
from
participating
in
a
proceeding
involving
a
license,
permit,
or
other
entitlement
for
use
if
the
official
received
a
campaign
contribution
exceeding
$500
from
a
party
or
participant,
including
their
agents,
to
the
proceeding
within
the
last
12 months.
A
“license,
permit,
or
other
entitlement
for
use”
includes
most
land
use
and
planning
approvals
and
the
approval
of
contracts
that
are
not
subject
to
lowest
responsible
bid
procedures
and
have
a
value
over
$50,000.
A
“party”
is
a
person
who
files
an
application
for,
or
is
the
subject
of,
a
proceeding
involving
a
license,
permit,
or
other
entitlement
for
use.
A
“participant”
is
a
person
who
actively
supports
or
opposes
a
particular
decision
in
a
proceeding
involving
a
license,
permit,
or
other
entitlement
for
use,
and
has
a
financial
interest
in
the
decision.
The
Levine
Act
incorporates
the
definition
of
“financial
interest”
in
the
Political
Reform
Act,
which
encompasses
interests
in
business
entities,
real
property,
sources
of
income,
sources
of
gifts,
and
personal
finances
that
may
be
affected
by
the
Council’s
actions.
If
you
qualify
as
a
“party”
or
“participant”
to
a
proceeding,
and
you
have
made
a
campaign
contribution
to
a
Council
Member
exceeding
$500
made
within
the
last
12 months,
you
must
disclose
the
campaign contribution before making your comments.
6 February 09, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
City Council
Staff Report
Report Type: CONSENT CALENDAR
Lead Department: City Clerk
Meeting Date: February 9, 2026
Report #:2601-5864
TITLE
Approval of Minutes from January 20 and January 24, 2026 Meetings
RECOMMENDATION
Staff recommends that the City Council review and approve the minutes.
ATTACHMENTS
Attachment A: January 20, 2026 Draft Action Minutes
Attachment B: January 24, 2026 Draft Action Minutes
APPROVED BY:
Mahealani Ah Yun, City Clerk
Item 1
Item 1 Staff Report
Item 1: Staff Report
Pg.
1 Packet Pg. 7 of 341
CITY COUNCIL
DRAFT ACTION MINUTES
Special Meeting
January 20, 2026
The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual teleconference at 5:30 P.M.
Present In Person: Burt, Lauing, Lu, Lythcott-Haims, Reckdahl, Stone, Veenker Present Remotely:
Absent:
Special Orders of the Day
1. Proclamation honoring Aaron (Bunk) Miller for 34 Years of Service to the Palo Alto Regional Water Quality Control Plant and its partner agencies.
NO ACTION
Agenda Changes, Additions and Deletions
Public Comment
Council Member Questions, Comments and Announcements
Study Session
2. Presentation of the 2025 Annual Community Survey Results. CEQA Status -- Not a project.
NO ACTION
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report
Pg.
2 Packet Pg. 8 of 341
DRAFT ACTION MINUTES
Sp. City Council Meeting
Draft Action Minutes: 01/20/2026
Consent Calendar
Councilmember Lythcott-Haims registered a no vote on Agenda Item Number 10.
MOTION: Vice Mayor Stone moved, seconded by Councilmember Reckdahl to approve Agenda Item Numbers 3-10.
MOTION PASSED ITEMS 3-9: 7-0
MOTION PASSED ITEM 10: 6-1, Lythcott-Haims
3. Approval of Minutes from January 5, 2026 Meeting
4. Accept CalPERS Pension Annual Valuation Report as of June 30, 2024; CEQA Status – Not a project.
5. Approval of the Advisory Report: Contract Solicitation & Authority Levels and Subsequent Management Response as recommended by the Policy & Services Committee. CEQA Status – Not a Project.
6. Approval of the City of Palo Alto’s Updated 2026 Water, Gas, and Wastewater Utility Standards (Design and Construction); CEQA Status- Not a Project.
7. Adopt a Resolution to Allow Consumption of Alcohol under PAMC section 9.04.010 on Certain Days and Times through May 31, 2026, on California Avenue.
8. Approve Recommended Changes that will Align Increased General Liability Insurance Costs in the General Liability Fund to be Included in the Mid -Year Budget Report as Recommended by the Finance Committee. CEQA Status—Not a project.
9. Approval of Contract Amendment Number 3 to Contract C23183770 with Townsend Public Affairs, Inc. in the amount of $186,000 to Revise the Not -to-Exceed Total to $744,000 and to Extend the Term for an Additional Year of Service (the third of four one-year options to renew) for State and Federal Legislative Advocacy and Grant Consulting and Compliance Services; CEQA Status - Not a Project
10. SECOND READING: Ordinance of the Council of the City of Palo Alto Repealing and Replacing Section 18.40.250 (Lighting) of Chapter 18.40 (General Standards and Exceptions) and Amending Chapters 18.10, 18.12, 18.28 and Section 18.40.230 of Title 18 (Zoning) of the Palo Alto Municipal Code to Adopt New Outdoor Lighting Regulations (REINTRODUCED FIRST READING: December 8, 2025; PASSED:6-1, Lythcott-Haims, no)
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report
Pg.
3 Packet Pg. 9 of 341
DRAFT ACTION MINUTES
Sp. City Council Meeting
Draft Action Minutes: 01/20/2026
City Manager Comments
Ed Shikada, City Manager
Action Items
11. Policy and Services Committee Recommendation to Adopt the 2026 State and Federal State Legislative Guidelines and 2026 Utility Policy Guidelines, and Receive an Update on State and Federal Legislative Advocacy; CEQA Status – Not a Project MOTION: Mayor Veenker moved, seconded by Councilmember Reckdahl to:
1. Adopt the 2026 State and Federal Legislative Guidelines and 2026 Utility Policy Guidelines and receive an update on State and Federal Legislative Advocacy and add the following amendments to the Housing Section of Guidelines:
a. Clarify and streamline the process for developing affordable housing on city - owned land
b. Advocate for additional state and federal funding in support of affordable housing
c. Advocacy for reevaluations to the RHNA requirements for mid- cycle mandates on cities
d. Support changes to the legislative guidelines that align with Council’s recommended reforms to SB79, if any.
2. Direct staff to next year review and revise, as appropriate, the Utilities Legislative Guidelines and the Climate and Environment Section Guidelines to be consistent with each other and mutually supportive.
MOTION PASSED: 7-0
PORTION OF MOTION REMOVED WITH THE CONSENT OF THE MAKER AND SECONDER
MOTION SPLIT FOR THE PURPOSE OF VOTING
MOTION: Mayor Veenker moved, seconded by Councilmember Reckdahl to:
3. Adopt a support position for SB63 advocacy (Connect Bay Area Transit Committee) and follow up accordingly.
MOTION PASSED/FAILED: X-X
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report
Pg.
4 Packet Pg. 10 of 341
DRAFT ACTION MINUTES
Sp. City Council Meeting
Draft Action Minutes: 01/20/2026
12. Review the FY 2027 -FY 2036 Long Range Financial Forecast (LRFF) and FY 2027 Budget Development Guidelines using the LRFF as the Baseline for Developing the FY 2027 Budget as Recommended by the Finance Committee, CEQA Status – Not a Project MOTION: Councilmember Lauing moved, seconded by Council member Reckdahl to accept the Long Range Financial Forecast (LRFF) for Fiscal Year 2027 -2036 (Attachment A) and the FY 2027 annual Budget Development Guidelines (Attachment B) and direct staff to use this forecast as the baseline for developing the FY 2027 budget.
MOTION PASSED: 7-0
Adjournment: The meeting was adjourned at 10:42 P.M.
ATTEST: APPROVED:
____________________ ____________________
City Clerk Mayor NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC)
2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section
2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council found action minutes and the video/audio recordings of Council proceedings to be the official records of both Council and committee proceedings. These recordings are available on the City’s website.
Item 1
Attachment A - January 20,
2026 Draft Action Minutes
Item 1: Staff Report
Pg.
5 Packet Pg. 11 of 341
CITY COUNCIL RETREAT
DRAFT ACTION MINUTES
Special Meeting
January 24, 2026
The City Council of the City of Palo Alto met on this date at Mitchell Park Community Center (El Palo Alto Room) and by virtual teleconference at 9:00 A.M.
Present In Person: Burt, Lauing, Lu, Reckdahl, Stone, Veenker Present Remotely: Lythcott-Haims (Just Cause Alternative Teleconference)
Absent:
Call to Order
2026 Annual Council Retreat Program
1. Overview and orientation to retreat focus
City Council Retreat: Discussion and Selection of the 2026 City Council Priorities and Ad Hoc Committees. CEQA Status -- Not a Project.
A. Public Comment
B. Discussion and selection of Priorities and methods to prioritize and ensure progress
• Key inputs, including Council values, 2025 priorities, and staff draft 2026 objectives
• Discussion of terminology and process for selecting priorities • Selection of 2026 priorities
C. Discussion of Council ad hoc committees and other strategies to achieve goals D. Next Steps
MOTION: Councilmember Reckdahl moved, seconded by Council member Burt to set the following as the 2026 Council Priorities:
Item 1
Attachment B January 24,
2026 Draft Action Minutes
Item 1: Staff Report
Pg.
6 Packet Pg. 12 of 341
DRAFT ACTION MINUTES
Sp. City Council Meeting
Draft Action Minutes: 01/25/2025
1. Government Efficiency
2. Achieve Near-term Priority Housing Milestones
3. Cubberley Acquisition and Renovation Funding
MOTION PASSED: 7-0
MOTION: Mayor Veenker moved, seconded by Vice Mayor Stone to add a fourth 2026 Council priority of “Enhance Business Vibrancy”.
MOTION PASSED: 5-2, Lauing, Reckdahl no
2026 City Council Priorities:
1. Government Efficiency
2. Achieve Near-term Priority Housing Milestones
3. Cubberley Acquisition and Renovation Funding
4. Enhance Business Vibrancy
Adjournment: The meeting was adjourned at 3:05 P.M.
ATTEST: APPROVED:
____________________ ____________________
City Clerk Mayor
NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC)
2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section
2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council found action minutes and the video/audio recordings of Council proceedings to be the official records of both Council and committee proceedings. These recordings are available on the City’s website.
Item 1
Attachment B January 24,
2026 Draft Action Minutes
Item 1: Staff Report
Pg.
7 Packet Pg. 13 of 341
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: February 9, 2026
Report #:2506-4768
TITLE
Adoption of a Resolution Amending the El Camino Real Retail Node Map for Purposes of Palo Alto Municipal Code Section 18.40.180: Retail Preservation. CEQA Status: Addendum to the Comprehensive Plan Environmental Impact Report (EIR), adopted November 17, 2023 (SCH #2014052101)
RECOMMENDATION
Adopt the Resolution (Attachment A) amending the El Camino Real Retail Node Map for the purposes of Palo Alto Municipal Code Section 18.40.180: Retail Preservation unanimously recommended for adoption by the Planning and Transportation Commission.
EXECUTIVE SUMMARY
As directed by City Council on March 3, 2025, the Planning and Transportation Commission (PTC) discussed the El Camino Real Retail Node Map, including the temporary “interim node” adopted by City Council with the modifications to the Retail Preservation Ordinance. A revised map, as unanimously recommended by the PTC and the Retail Committee, is provided as Exhibit 1 to the Draft Resolution in Attachment A.
BACKGROUND
The 2023-2031 Housing Element identified the retail preservation ordinance as a potential constraint to housing development. Housing Element Program 3.4B calls for waivers from and modifications to these regulations to accommodate more housing density and affordability while focusing retail development in the most desirable locations in Palo Alto, including retail node locations along the southern portion of El Camino Real.
December 2024 Planning and Transportation Commission Hearing On December 17, 2024, the PTC held a public hearing and recommended that the City Council adopt an ordinance to modify the Housing Incentive Program, Affordable Housing Incentive Program, and Retail Preservation Ordinance. As part of the motion, the PTC asked for the map of retail nodes on El Camino Real to return to the PTC in the first quarter of 2025 to consider additional retail node locations.
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March 2025 City Council Hearing
On March 3, 2025, the City Council adopted, on first reading, an ordinance amending the zoning code to implement programs in the City’s adopted Housing Element that modify the Housing Incentive Program (HIP), Affordable Housing Incentive Program (AHIP), and Retail Preservation Ordinance. The City Council motion was as follows:
1. Modify the retail node to extend along El Camino Real from Page Mill Road to the southern city boundary, and refer to the Planning and Transportation Commission for further discussion and recommendation to City Council; and
2. Exclude auto dealerships (AD overlay) near El Camino Real and Charleston Road from the HIP Program.
This action had the effect of locating the entire El Camino Real corridor south of Page Mill to the City Boundary, within a node (the “interim node”) and therefore subject to the Retail Preservation Ordinance. This included continuing to require compliance with retail preservation regulations at the automobile dealerships near Charleston Road, should existing tenants vacate their buildings or the sites were to redevelop.
Planning and Transportation Commission Hearings
The PTC considered the map revisions at three meetings on March 26, 2025,1 April 30, 2025,2 and May 28, 2025.3, 4 PTC recommendations, summarized below have been incorporated into the subject attachment. Specifically, the Commission focused on the following refinements:
Reduce complexity of overlapping rules, especially for:
oParcels with little/no existing retail;
oHousing Element sites eligible for 100% housing, though some Housing Element sites were included for contiguity of the nodes;
oParcels zoned Planned Community (PC), where the RPO does not apply; and oAreas covered by other regulations (Retail Overlay) or recent plans (El Camino Real Focus Area, North Ventura CAP).
Assess impacts of retail-preservation requirements on future housing feasibility, particularly on narrow/shallow lots.
Address small-site parking constraints, especially along long segments of El Camino Real where on-street parking has been replaced by bike lanes. 1 March 26, 2025 PTC Meeting, Agenda Item 3:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16505 2 April 30, 2025 PTC Meeting Video:
https://www.youtube.com/watch?v=wae4iNkod0U
3 May 28, 2025 PTC Meeting, Agenda Item 3:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16533 4 May 28, 2025 PTC Meeting Video:
https://www.youtube.com/watch?v=2GhDZsjsKWI
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Consider including student-serving retail areas along the West Charleston/Arastradero corridor.
The unanimous PTC recommendation is for adoption of a revised El Camino Real Retail Node Map with three nodes (Attachment A):
1.Central Node: This node is located halfway between California Avenue and the City’s southern boundary, including properties on both sides of El Camino Real from Matadero Creek to Los Robles Avenue.
2.Triangle Node: This node includes the properties on the “triangle” between El Camino Real and El Camino Way, as well as the commercial properties on the other side of El Camino Way.
3.Bike to School Node: This node incorporates the “Auto Dealerships Node” with additional adjacent commercial properties, and those on two of the other three corners of the Charleston Road/Arastradero Road/El Camino Real intersection.
This process and ordinance change is separate and distinct from other retail ordinance work underway. Specifically, the City Council adopted a 2025 Council priority objective “consideration of an ordinance that expends retail opportunities and promotes retail resiliency” Work is underway to prepare recommendations on retail approaches and ordinance revision with PTC review is anticipated in calendar year 2025 followed by Council review in 2026.
Retail Committee
On January 22, 2026, the Retail Committee reviewed the map recommended by the PTC. After discussion of several questions, including the deliberation by the PTC, the names given to the proposed nodes, and the impact of the Housing Element opportunity sites in the area, the Retail Committee voted unanimously to recommend that Council approve the map as proposed.
ANALYSIS
The El Camino Real Retail Node Map adopted by City Council on March 2, 2025, included an “interim node” to temporarily preserve retail preservation protections for existing retail on properties on El Camino Real and El Camino Way between Page Mill Road and the southern City boundary, plus a small node at the intersection of El Camino Real and California Avenue. As provided in the Background Section above, the motion on March 2, 2025, to adopt the map also referred the map to the Planning and Transportation Commission for further discussion and recommendation to City Council.
Housing Element Program 3.4 specified changes to be made to the City’s Housing Incentive Program (HIP) and specified that this work should include modifications to the retail preservation ordinance to reduce the amount of retail replacement except in certain combining districts and “strategic locations generally depicted in the draft South El Camino Real Design Guidelines.”
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Figure 1: Draft South El Camino Real Design Guidelines Node Map The PTC recommendation aligns closely to this map, with more detail and specificity, along with an understanding that California Avenue retail is already protected by the existing Retail (R) and Pedestrian (P) overlays and therefore does not need a specific node.
As recommended by the Streetsense Economic Development Strategies Report, shared with City Council on August 14, 2023, the goal is to concentrate ground-floor retail in a few strategic areas (“nodes”) where foot traffic, transit, and anchor destinations already cluster, so that each storefront reinforces the next and creates a true “stroll” experience. Reducing and focusing the areas of stronger retail preservation requirements, allows those properties outside these nodes, more flexible uses (e.g., services, offices, housing) to right-size supply, reduce vacancies, and channel investment to the places with the best chance of thriving.
The revised map recommended by the PTC is based on a detailed discussion, as described above. PTC’s efforts focused on simplifying overlapping retail regulations, aligning retail- preservation requirements with housing feasibility (especially on narrow/shallow lots), addressing small-site parking constraints, including along El Camino Real where on-street spaces were replaced by bike lanes, and evaluating inclusion of student-serving retail corridors along West Charleston/Arastradero.
POLICY IMPLICATIONS
As part of the implementation of Program 3.2 (Monitor Constraints to Housing) of the Housing Element, the City committed to prepare an analysis in staff reports for initiatives proposing new regulations. This analysis details how the regulations may impact housing production, if at all, and recommend solutions to address any adverse impacts.
The recommended map is the final step in the HIP, AHIP, Retail Preservation update efforts to implement the following Housing Element programs:
• Housing Element Program 3.3A, B, and D to streamline, incentivize, and improve project feasibility of 100% affordable housing projects.
• Housing Element Program 3.4A-D to expand development incentives in the Housing Incentive Program (HIP) and extend the program to additional zoning districts to Item 2
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facilitate housing production. Based on quantified objectives in the Housing Element, this modification is anticipated to generate 550 housing units. • Housing Element Program 6.2A to incentivize larger units and create family-friendly housing.
As a result, the recommended map, that reduces the areas with strongest retail preservation protections, would help affirmatively affirm fair housing goals expressed in the Housing Element.
FISCAL/RESOURCE IMPACT
Changes to the nodes subject to the Retail Preservation Ordinance are consistent with Housing Element Program 3.4C, which committed to reductions in retail requirements in support of future housing development; as discussed with the City Council on March 3, 2025, and described above. Direct fiscal impacts are not anticipated from this action. However, the actions recommended in this report more effectively concentrate retail into three nodes along El Camino Real, thereby creating clusters of retail that can provide goods and services to the surrounding neighborhood. The previous ’interim’ retail node that extended from Page Mill south along El Camino Real to the City limits would have applied retail preservation requirements to that entire corridor, which was not consistent with Housing Element Program
3.4C and included areas that were less viable retail locations. This refined map confers greater flexibility and better balances the potential for residential development with the continued need for neighborhood-serving retail opportunities. This is anticipated to create a greater synergy between commercial and potential residential in this corridor, which may positively impact revenues in Sales Tax and Property Tax categories.
STAKEHOLDER ENGAGEMENT
Preparation of the Housing Element included a range of community outreach methods, including surveys, Working Group meetings, community workshops, and public hearings.
Hundreds of community members have participated in the Housing Element update over the course of the project. Community members have an opportunity to provide feedback on the draft standards at PTC, Architectural Review Board (ARB), and City Council study sessions and public hearings.
ENVIRONMENTAL REVIEW
On April 15, 2024, the City Council adopted Resolution No. 10155, approving an Addendum to the Comprehensive Plan Environmental Impact Report (EIR). The addendum analyzed potential environmental impacts of the 6th Cycle Draft Housing Element. This includes implementation of Housing Element Programs 3.4, including changes to the Retail Preservation Ordinance.
ATTACHMENTS
Attachment A: Draft Resolution (including Exhibit 1 - El Camino Real Retail Nodes Map) APPROVED BY: Jonathan Lait, Planning and Development Services Director Item 2
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*NOT YET APPROVED*
1 0160176_20250820_ay16
Resolution No. ____
Resolution of the Council of the City of Palo Alto Updating the El Camino Real Retail Node Map
R E C I T A L S
WHEREAS, on April 7, 2025, the City Council adopted Ordinance No. 5650, amending Title 18 of the Palo Alto Municipal Code to implement Programs 3.3 and 3.4 of the 2023-2031 Housing Element.
WHEREAS, Ordinance No. 5650 revised the City’s retail preservation regulations for housing projects, and adopted an El Camino Real Retail Node map to define areas where more specific retail preservation requirements may apply.
WHEREAS, the El Camino Real Retail Node map approved by the City Council on April 7, 2025 included an “interim” node encompassing most of El Camino Real, allowing the Planning and Transportation Commission to further review and recommend refinements for a final retail node map; and
WHEREAS, the Planning and Transportation Commission considered map revisions on March 26, 2025, April 30, 2025, and May 28, 2025 before arriving at a recommendation to the City Council; and
WHEREAS, the City Council now wishes to update the El Camino Real Retail Node map;
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows:
SECTION 1. The El Camino Real Retail Node map shall be updated to reflect the boundaries shown in Exhibit 1, attached hereto and incorporated herein.
SECTION 2. Upon adoption of this resolution, the City Clerk shall direct that Figure 5 in Section 18.40.140 of the Palo Alto Municipal Code shall be updated to reflect the new El Camino Real Retail Node map.
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SECTION 3. In accordance with the California Environmental Quality Act (CEQA), the City prepared an Addendum to the 2017 Comprehensive Plan Environmental Impact Report (EIR), analyzing the potential environmental impacts of the 2023-2031 Housing Element. On May 8, 2023, the City Council adopted Resolution No. 10107, and on December 18, 2023, the City Council approved a Revised Addendum, finding that the Addendum, as revised, and the 2017 EIR adequately analyzed the environmental impacts of the Housing Element, including the Programs implemented by this resolution.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
____________________________ ____________________________ City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
____________________________ ____________________________ Assistant City Attorney City Manager
____________________________
Director of Planning and
Development Services
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X
X
X
X
Triangle Node
Bike to School Node
Stanford
University
Mountain View
Los Altos
Page M
ill Road
Charleston Road
Yale Street
Jacaranda
Lane
MackayDrive
Ash Street
El Camino Real
Orme Street
Ramos Way
(Private)
Hanover Street
Nevada
Avenue
Columbia Street
Deodar
Street
Redwood Circle
M
argarita Avenue
Hansen W
ay
Portage
Avenue
Lambert Avenue
Paradise W
ay
Fernando Avenue
Olive Avenue
Cam
bridge
Avenue Ventura Avenue
Grant
Avenue
M
atadero Avenue
M
aybell Avenue
Curtner Avenue
W
ilton
Avenue
Barron Avenue
Second
Street
High Street
Oregon Avenue
RickeysWay(Private)
Oregon Expressway
W
hitclem Drive
Alger Drive
M
arion Avenue
M
ilitary
W
ay
Cowper Street
Villa
Vera
(Private)
Lom
a Verde Avenue
Bowdoin Street
La Donna Street
Whitsell Street
Glenbrook Drive
Ferne
Court
McGregorWay
Lane 66
Laguna Avenue
Stanford Avenue
La Jennifer
W
ay
Amaranta Avenue
Julie
Court
Saint
Claire
Drive
Terman Drive
Gary
Court
Arastradero Road
Wright
Place
Peral
Lane
Ramona Street
Miller Avenue
El Centro
Street
La Calle
Creekside Drive
Suzanne Drive
M
onroe Drive
Pena
Court
El Cerrito
Road
Duluth
Circle
South Court
Irven
Court
El Capitan
Place
Silva Avenue
Rincon
Circle
Waverley Street
Nelson
Court
Encina
Grande
Drive
Tim
lott
Lane
Ynigo
Way
Laguna
Oaks
Place
Florales Drive
Anton
Court
Ely Place
Dartmouth
Street
Los
Palos
Place
Adobe
Place
Scripps
Avenue
Wellesley
Street
Amherst
W
ay
Park Boulevard
Cesano
Court
Nelson Drive
Josina Avenue
Cypress Lane
(Private)
McKellarLane
CarlsonCourt
Ferne Avenue
Campana Drive
Arbol
Drive
Mumford
Place
Solana
Drive
Santa Rita Avenue
W
ashington
Avenue
North California Avenue
Dake
Avenue
Bryant Street
El Dorado Avenue
Mackall
Way
Alma Street
Wilkie Way
Jacobs
Court
(Private)
Georgia Avenue
Carolina
Lane
Acacia
Avenue
Keats
Court
Cass
Way
Colorado Avenue
Lundy
Lane
El Verano Avenue
Cam
pesino Avenue
College
Avenue
Drake
W
ay
Los Robles Avenue
W
est
Charleston
Road
California Avenue
East M
eadow Drive
Magnolia
Drive
Oberlin
Street
La Selva
Drive
Dixon
Place
Thain
W
ay
Cornell Street
Princeton Street
Harvard Street
Williams Street
Kipling Street
Verdosa Drive
El Carm
elo Avenue
Scripps
Court
Pomona Avenue
Orinda
Street
Shauna
Lane
Emerson Street
Los PalosAvenue
Birch Street
Maybell
Way
La Mata
Way
Staunton
Court
Tennessee
Lane
Ashton
Avenue
M
aclane
Duncan Place
Cherry
Oaks
Place
Sheridan
Avenue
Amherst Street
Chestnut
Avenue
El Camino
Way
Tioga
Court
Lindero
Drive
Shasta
Drive
Diablo
Court
Cerrito
W
ay
Greenmeadow
W
ay
Carlson
Circle
M
aureen
Avenue
Starr King
Circle
W
est M
eadow Drive
Dinah's
Court
M
agnolia
Drive
South
Ilim
a
Court
Cowper
Court
Juniper Lane(Private)
KingArthur'sCourt
Baker
Avenue
Silva
Court
Oxford Avenue
Abel
Avenue
San Jude
Avenue
Edlee Avenue
M
iller
Court
Rinconada Avenue
Pepper
Avenue
Clemo Avenue
James
Road
Coulombe
Drive
Manzana Lane
Rambow Drive
Parkside Drive
Fairm
ede
Avenue
Ilim
a W
ay
Kendall Avenue
Saint
Michael
Drive
Chimalus Drive
Laguna Way
Hubbartt Drive
Donald Drive
Paul Avenue
Cereza Drive
Roosevelt Circle
La Para Avenue
Roble Ridge (Private)
Willmar Drive
Ben
Lom
ond
Drive
PC-4637
PF
RM-30
CS CS
R-1
R-1 (10000)
CS (H)
RM-40
PF
RE
PC-2930
RM-15
PC-3023
CS
RM-30
CC
(2)(R)
R-2
RM-30
RM-30RM-15
R-2
NV-R4
RM-30
GM
R-2
PF
RM-15
NV-MXH
NV-R3
RE
PF (AS3)
CN
RP (L)
CN
CS (AS1)
RP (L)
R-2
CS
RP (AS2)
RMD
CC (2)(R)(P)
R-2
R-2
R-2
RM-30
RM-30
RM-30
CC (2)(R)
CC (2)(R)
CC (2)(R)
PF (R)
PF (R)
PF
(R)
PC-4127
RM-30
R-1 PF
RM-15 R-2
RM-15
RM-15
RM-30
PF
PF
R-1 (10000)
R-2
RM-15
PF
PC-4268
PC-2224
PC-3028
PC-4354
PC-2293
CC
RM-15
NV-MXL
NV-R2
CS
PC-4463
PF
RM-40
R-1
RM-15
RM-30
CN
R-1
(S)
R-2
R-1 PF
RM-15
RM-30
PF
PF
PC-2666
PC-2666
RM-30
R-1 (10000)
R-1
R-2
R-1
CNRM-15
CC
(2)CC
(2)
PF
PF
PF
PFPF
PF
RMD (NP)
R-1
RP
PF
PF
PF
RM-15
CS (H)
RM-30
PC-4190
PC-3041
PF
RM-30
R-1
RM-30
PC-2218
PC-2656
RM-15
PC-5116
RM-30
RM-15
PC-3133
PC-4511
RM-15
RM-30
R-1 (7000)
PF
RM-30RM-40
R-1 (S)
CS
(L)
PC-4448
CS
CS (L)
RM-40
RM-15
PC-2744
R-1 (8000)
RM-30
PC-5034
R-1
CC (2)(P)
NV-MXM
CS
CS
CS
(AD)
PC-4831
CN
PC-4956
RM-30RM-30
PC-2236
R-1 (7000)
R-2
R-1 (8000)
R-1
(8000)
CN (GF/P)
PF
PF (D)
R-2
R-1 (10000)
R-1 (8000)
R-1 (7000)(S)
R-1
R-1 (8000)(S)
R-1 (8000) RM-15
RM-15
PC-3036
CS
CS
CS
CS (H)
RM-15
PF
RM-15
CN RM-30
R-2
PF
CN
PC-5069
RM-15
CS (L)(D)
PTODRM-40
RM-40CC
(2)(R)
CC (2)(R)
CC (2)
CC (2)
CC (2)
PF
R-1
R-1
PC-4753
NV-R1
NV-MXM
CS
NV-MXH
GM
NV-MXL
NV-PF
Central Node
This map is a product of
City of Palo Alto GIS
[
0 480 960240
Feet
South El Camino Real Retail Nodes and Zoning
South El Camino Real Retail Nodes
Housing Element Sites
City Limit
Zone Districts
X Transportation Stations
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: February 9, 2026
Report #:2512-5767
TITLE
Adoption of Revisions to the Investment Policy as Recommended by the Finance Committee.
CEQA Status – Not a Project
RECOMMENDATION
The Finance Committee and staff recommend the City Council approve the City’s Investment Policy (Attachment A).
BACKGROUND
The Investment Policy (Policy) requires that the Policy be reviewed annually, and that any changes be approved by the City Council. The Policy and revisions were reviewed by the Finance Committee on January 6, 20261. The Policy, and monthly and quarterly investment activity reports can be found on the City’s website2.
Earlier this year, the City’s investment management function transitioned from an in-house to a specialized asset portfolio management firm, Chandler Asset Management (Chandler). In addition to active investment management, this transition leverages the expertise of a professional firm in areas such as cash flow forecasting and investment advisory and strategy services.
On October 21, 2025, the Finance Committee received and discussed an overview of investment advisory services to be performed by Chander3. At this meeting, the Committee, staff, and Chandler discussed the City Auditor’s recommendations from the December 2023 Investment Management4; initial observations made by Chandler related to the City’s cash flow 1 Finance Committee, January 6, 2026, Item #1:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=18526 2 City Investment Reports and Policy: www.paloalto.gov/investmentreporting 3 Finance Committee, October 21, 2025, Item #2:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16276 4 Policy & Services Committee, December 12, 2023, Item #5:
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analysis, banking and custodial arrangements, active asset management strategy, and the Policy; and staff and Chandler’s workplan to transition investment management from in-house to Chandler. The Details of these items are outlined in staff’s report to the Committee.
There are several key observations in the City’s Policy that allow more flexibility and higher potential investment returns, while staying within the California Government Code (Code) and prioritizing asset safety were discussed. Review and updates to the Policy were included as part of the second phase of transitioning investment advisory services (by Spring 2026).
The Committee reviewed the revised policy in its January 6th meeting and unanimously approved the following motion:
MOTION: Councilmember Reckdahl moved, seconded by Councilmember Lythcott-Haims, to recommend the City Council approve revisions to the City’s Investment Policy (Attachment B) with the following changes:
•In #3 of the General Investment Guidelines section, define “liquid investments” •Edit #4 of the General Investment Guidelines section to read: “Should the ratio of the market value of the portfolio to the book value of the portfolio fall below 95 percent, the Administrative Services Department will report this fact to the City Council quarterly within a reasonable time frame and evaluate whether there is any risk of holding any of the securities to maturity.”
Edit the final sentence of #5 of the General Investment Guidelines section to read:
“As soon as reasonably possible, percentage limitations will be restored as investments mature in each category.”
•In #8 of the Authorized Investment section, reference the California Government Code limits and collateralization requirements
The attached Policy (Attachment A and B) incorporated the Committee’s revisions (highlighted in yellow).
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ANALYSIS
The primary recommended changes to the Policy are listed below:
The staff report from the Finance Committee’s January 6, 2025 meeting1 and Chandler’s memorandum9 provide a detailed discussion of these changes.
FISCAL/RESOURCE IMPACT
The transition to Chandler Asset Management is expected to increase the City’s return on investments. Revised forecasts assume average portfolio returns of 3.0 to 3.3% over the next several years as existing investments mature and are reinvested under the new investment strategy, compared to previous earnings of approximately 2.6% (as of August 2025 snapshot).
Additionally, the City implemented a new automated daily sweep into interest earning accounts, this streamlined process is also yielding additional interest income. Based on these improvements and assumptions, citywide investment returns are projected to be approximately $18.7 million in FY 2027, with the General Fund receiving approximately 20% of these receipts. Citywide, this reflects a $2.9 million or 18.4% increase over FY 2026 Adopted Budget levels. Changes in the Policy can be accommodated with existing staff and investment advisory resources.
STAKEHOLDER ENGAGEMENT
Staff worked internally, with its investment advisory, and the Finance Committee to review the Policy and consider the changes that align the policy with investment portfolio goals and objectives, industry best practices, and alignment with the California Government Code.
9 Finance Committee, January 6, 2026, Item #1:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=03d484c6-e481-427c-83ff-85e88651d701
POLICY PHILOSOPHY &
GOVERNANCE
•Removed “hold to maturity”
language to allow for tactical sales
before maturity
•Shift from transactional focus to
governance with management
directives; removed requirement
that each trade must be pre-
approved by ASD Director.
•Clarified general investment
guidelines to address minimum
liquidity and trade execution.
•Leverage use of external
investment advisors.
•Shift from reporting concentration
limits and other items from par
value to market value.
READABILITY
•Clarified and more strongly
defined descriptions of prohibited
investments.
•Updated language governing trade
activity with broker/dealers.
•Augmented governance language
to include dealings with authorized
financial institutions, and
depositories.
TECHNICAL UPATES
•Revised concentration limits and
credit quality limits to be more
inline with Code.
•Updated language to allow for use
for all major credit rating agencies.
•Added additional investment types
permitted under Code to enhance
diversification and return
potential.
•Revised issuer concentration limits
and added more robust sector
concentration limits.
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ENVIRONMENTAL REVIEW
This activity is not a project under the California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because adoption of the investment policy is a government 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: Proposed Investment Policy (Redline)
Attachment B: Proposed Investment Policy (Clean)
APPROVED BY:
Lauren Lai, Administrative Services Director
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Investment Policy
(Proposed February 9, 2026)
INTRODUCTION
The City of Palo Alto invests its pooled idle cash according to State of California law and the charter of the City of Palo Alto. In particular, the City follows “The Prudent Investor Standard” cited in the State Government Code (Section 53600.3). Under this standard, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
INVESTMENT PHILOSOPHY
The basic principles underlying Palo Alto's investment philosophy is to ensure the safety of public funds, provide that sufficient money is always available to meet current expenditures, and achieve a reasonable rate of return on its investments.
The City's preferred and chief practice is to buy securities and to hold them to their date of maturity rather than to trade or sell securities prior to maturity. The City may, however, elect to sell a security prior to its maturity should there be a significant financial need. If securities are purchased and held to their maturity date, then any changes in the market value of those securities during their life will have no effect on their principal value. Under a buy and hold philosophy, the City is able to protect its invested principal. The economy, the money markets, and various financial institutions (such as the Federal Reserve System) are monitored carefully to make prudent investments and to assess the condition of the City’s portfolio.
INVESTMENT OBJECTIVES
The primary objectives, in priority order, of investment activities shall be safety, liquidity, and yieldreturn:
1. Safety: Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.
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a) Credit risk is the risk that an obligation will not be paid and a loss will result. The City will seek to minimize this risk by:
Limiting investment to the safest types of securities or minimum credit quality rating as listed in the “Authorized Investment” section Diversifying its investments among the types of securities that are authorized under this investment policy
b) Interest rate risk is the risk that changes in interest rates will adversely affect the value of an investor’s portfolio. For example, an investor with large holdings in long‐term bonds has assumed significant interest rate risk because the value of the bonds will fall if interest rates rise. The City can minimize this risk by:
Buying and holding its securities until maturity
Structuring the investment portfolio so that securities mature to meet cash flow requirements
To further achieve the objective of safety, the amount that can be invested in all investment categories, excluding obligations of the U.S. Government and its agencies, is limited either as a percentage of the portfolio or by a specific dollar amount. These limits are defined under the “Authorized Investments” section.
2. Liquidity: Liquidity is the second most important objective of the investment program. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by maintaining a portion of the portfolio in liquid money market mutual funds or local government investment poolsshort‐term investments. In addition, the City will maintain one month’s net cash needs in short term and/or liquid investments and at least $50 million shall be maintained in securities maturing in less than two years.
Although the City’s practice is to buy and hold securities to maturity, since all possible cash demands cannot be anticipated, theThe investment portfolio will consist of securities with active secondary or resale markets should the need to sell a security prior to maturity arises.
3. YieldReturn: Yield Return on the City’s portfolio is last in priority among investment objectives. The investment portfolio shall be designed to obtain a market rate of return throughout budgetary and economic cycles that reflects the authorized investments, risk constraints, and liquidity needs outlined in the City’s investment policy. Compared to similar sized cities, the City of Palo Alto should be able to take advantage of its relatively large reserve balances to achieve higher yields through long‐term investments. In addition, the City will strive to maintain the level of investment of idle funds as close to 100 percent as possible.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) RESPONSIBILITIES In addition to and subordinate to the Safety, Liquidity, and Yield Return investment objectives, investments that support sound environmental, social and governance (ESG) objectives are also considered. While the City’s portfolio is not classified as an ESG portfolio, investments in entities Item 3
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that support community well‐being through practices that emphasize safe and environmentally sound objectives; fair labor practices; and equality of rights regardless of sex, race, age, disability, or sexual orientation, is encouraged. Direct investments in entities that manufacture tobacco products, firearms, and engage in direct production or drilling of fossil fuels is discouraged.
This section applies to new investments (after November 5, 2018) only and does not require divestment of existing investments. Investments in Certificates of Deposit (CDs) and Negotiable Certificates of Deposit are exempt from the ESG investing objective.
SCOPE
A. This investment policy shall apply to all financial assets of the City of Palo Alto as accounted for in the Annual Comprehensive Financial Report (ACFR), including but not limited to the following funds:
1. General Fund
2. Special Revenue Funds
3. Debt Service Funds
4. Capital Project Fund
5. Enterprise Funds
6. Internal Service Funds
7. Trust and Agency Funds
B. The policy does not cover funds held by in the City’s Public Pension Retirement Fundsthe California Public Employees Retirement System (CalPERS), the Retiree Medical Funds (Other Post‐Employment Benefits Trust or OPEB) California Employers’ Retiree Benefit Trust (CERBT), the Pension Trust Fund (Section 115 Trust), Deferred Compensation programs (e.g. ICMA, Hartford), and sthe elf‐insurance funds held by City’s Risk PollPool Joint Powers AuthorityAuthority for California Cities Excess Liability (ACCEL), and the Public Agency Retirement Services (PARS) Section 115 Irrevocable Trust.
C. Investments of bond proceeds shall be governed by the provisions of the related bond indentures.
GENERAL INVESTMENT GUIDELINES
1. The maximum stated final maturity of individual securities in the portfolio should be ten years.
2. A maximum ofNo more than 30 percent% of the par market value of the total portfolio shall be invested in securities with maturities beyond five years.
3. The City shall maintain a minimum of one month’s net cash needs in short term and/or liquid investments. Liquid investments are investment with a maturity of one year or less, cash deposit accounts, pooled investment fund (i.e. LAIF), or a money market mutual fund.
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4. At least $50 million shall be maintained in securities maturing in less than two (2) years.
5.4. Should the ratio of the market value of the portfolio to the book value of the portfolio fall below 95 percent%, the Administrative Services Department will report this fact to the City Council within a reasonable time framequarterly and evaluate whether there is any risk of holding any of the securities to maturity.
6. Commitments to purchase securities newly introduced on the market shall be made no more than three (3) working days before pricing.
7. Whenever possible, the City will obtain and record three or more quotations on the purchase or sale of comparable securities and take the higher yield on purchase or higher price on sale. This rule will not apply to new issues, which are purchased at market no more than three (3) working days before pricing, as well as to LAIF, City of Palo Alto bonds, money market accounts and mutual funds, all of which shall be evaluated separately.
8.5. Where the Investment Policy specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. A later increase or decrease in a percentage resulting from a change in the portfolio’s assets or values shall not constitute a violation of that restriction. As soon as reasonably possible, percentage limitations will be restored as investments mature in each category.
AUTHORIZED INVESTMENTS
The California Government Code (Sections 53600 et seq.) governs investment of City funds. Within the investments permitted by the Code, the City seeks to further restrict eligible investments to the guidelines listed below. In the event there is a difference between the Policy and the Code, the more restrictive parameters will take precedence. Percentage holding limits and minimum credit quality requirements listed in this section apply at the time the security is purchased.
Any investment currently held at the time the policy is adopted, which does not meet the new policy guidelines, can be held until maturity and shall be exempt from the current policy. At the time of the investment’s maturity or liquidation, such funds shall be reinvested only as provided in the current policy. The following investments are authorized:
1. U.S. Government SecuritiesTreasuries (e.g. Treasury notes, bonds and bills) Securities and other government obligations that are backed by the full faith and credit of the United Statesfor which the full faith and credit of the Unites States are pledged for the payment of principal and interest.
a) There is no limit on purchase of these securities.
b) Securities will not exceed 10 years maturity.
c) All purchased securities must have an explicit or a de facto backing of the Item 3
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full faith and credit of the U.S. Government.
2. U.S. Government Agency SecuritiesFederal Agencies or United States Government‐Sponsored Enterprise Obligations – Obligations issued by the Federal Government agencies including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government‐sponsored enterprises (GSE)(e.g. Federal National Mortgage Association, etc.). a. There is no limit on purchase of these securities except for:
No more than 30 percent% of the total portfolio may be invested in any single federal agency/GSE issuer.
Callable and Multi‐step‐up securities provided that:
‐ The potential call dates are known at the time of purchase ‐ The interest rates at which they “step‐up” are known at the time of purchase
‐ The entire face value of the security is redeemed at the call date ‐ No more than 25 20 percent% of the par market value of the total portfolio may be invested in federal agency callable and step‐up securities
b. Securities will not exceed 10 years maturity.
3. California State, California Local Government Agencies, and other United States State BondsMunicipal Securities
a) Municipal securities must be rated in a rating category of “A” or its equivalent or better by at least one nNationally rRecognized sStatistical rRating oOrganization (“NRSRO”) that is registered with the U.S.
Securities and Exchange Commission. Having at time of investment a minimum Double A (AA/Aa2) rating as
b)
c)a) provided by a nationally recognized rating service (e.g. Moody’s, Fitch, and/or Standard and Poor’s).
b) Municipal securities may not exceed 40 30 percent% of the par market value of the total portfolio.
c) No more than 5 percent% of the market value of the total portfolio may be invested in any single issuer.
d) Securities will not exceed 10 years maturity.
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e) Investments include:
i) Registered state warrants or treasury notes or bonds of the State of California and bonds, notes, warrants, or other evidences of indebtedness of any local agency within California, including bonds payable solely out of the revenues from a revenue producing property owned, controlled, or operated by the state or local agency or by a department, board, agency, or authority of the state or local agency.
ii) Registered treasury notes or bond of any of the 49 United States in addition to the State of California, including bonds payable solely out of the revenues from a revenue‐producing property owned, controlled, or operated by a state or by a department, board, agency or authority of any of the other 49 United States, in addition to the State of California.
4. Certificates of Deposit (CD) ‐ A debt instrument issued by a bank for a specified period of time at a specified rate of interest. Purchase of CD’s are limited to:
a) May not exceed 20 percent% of the par market value of the portfolio.
b) No more than 10 percent% of the par market value of the portfolio in collateralized CDs in any institution.
c) Purchase collateralized deposits only from federally insured large banks that are rated by a nationally recognized rating service (e.g. Moody’s, Fitch, and/or Standard and Poor’s).one NRSRO .
d) For non‐rated banks, deposit should be limited to amounts federally insured (FDIC). – See Appendix C
e) Rollovers are not permitted without specific instruction from authorized City staff.
5. Banker's Acceptance Notes (BA) – Bills of exchange or time drafts drawn on and accepted by commercial banks. Purchase of banker’s acceptances are limited to:
a) No more than 30 40 percent% of the par market value of the portfolio.
b) Not to exceed 180 days maturity.
c) No more than $5 million 5 percent% of the market value of the total portfolio with any one institution.
6. Commercial Paper ‐ Short‐term unsecured obligations issued by banks, corporations, and other borrowers. Purchases of commercial paper are limited to entities that Item 3
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meets all of the following conditions in either paragraph (a) or (b) and other requirements specified below:
a) Securities issued by corporations:
i) A corporation organized and operating in the United States with assets more than $500 million.
ii) The securities are rated “A‐1” or its equivalent or better by at least one NRSRO.
iii) If the issuer has other debt obligations, they must be rated in a rating category of “A” or its equivalent or better by at least one NRSRO.
b) Securities issued by other entities:
i) The issuer is organized within the United States as a special purpose corporation, trust, or limited liability company.
ii) The securities must have program‐wide credit enhancements including, but not limited to, overcollateralization, letters of credit, or a surety bond.
iii) The securities are rated “A‐1” or its equivalent or better by at least one NRSRO.
Moreover, no more than 10 percent% of the outstanding commercial paper of any single issuer is permitted, and under a provision sunsetting on January 1, 2031 (SB 998), no more than 40 percent% of the total portfolio market value may be invested in Commercial Paper. No more than 5 percent% of the total portfolio market value may be invested in any single issuer. The maximum maturity may not exceed 397 days. a) Having highest letter or numerical rating as provided for by a nationally recognized rating service (e.g. Moody’s, Fitch, and/or Standard and Poor’s).
b) No more than 15 percent of the par value of the portfolio.
c) Not to exceed 270 days maturity.
d) No more than $3 million or 10 percent of the outstanding commercial paper of any one institution, whichever is lesser.
7. Local Agency Investment Fund (LAIF) – A State of California managed investment pool may be used up to the maximum permitted by California State Law.
8. Short‐Term Repurchase Agreements (REPO) – A contractual agreement between a seller and a buyer, usually of U.S. government securities, whereby the seller agrees to repurchase the securities at an agreed upon price and, usually, at a stated time.
Purchases of REPO’s must:
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a) Not to exceed one (1) year.
b) Market value of securities that underlay a repurchase agreement shall be valued at 102 percent% or greater of the funds borrowed against those securities.
c) A Master Repurchase agreement must be signed with the bank or dealer.
Terms of the Master Purchase Agreement must be aligned with requirements outlined in California Government Code section 53601(j).
Money Market Deposit Accounts – Collateralized Bank Deposits – City’s deposits with financial institutions will be collateralized with pledged securities per California Government Code, Section 53651. There are no limits on the dollar amount or percentage that the City may invest in collateralized bank deposits.
8.9. Liquid bank accounts which seek to maintain a net asset value of $1.00.
10. Money Market Mutual Funds – Money Market Mutual Funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and issued by diversified management companies and meet either of the following criteria:
a) Have attained the highest ranking or the highest letter and numerical rating provided by not less than two (2) NRSROs; or
b) Have retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years’ experience managing money market mutual funds with assets under management in excess of $500 million.
a) No more than 20 percent% of the total portfolio market value may be invested in the shares of any one Money Market Mutual Fund.which seek to maintain a net asset value of $1.00 and which are limited essentially to the above investments and further defined in note 9 of Appendix A
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No more than 20 percent of the par value of the portfolio.
No more than 10 percent of the par value with any one institution.
11. Shares of Beneficial Interest Issued by a Joint Powers Authority (JPA) – provided that:
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Fiscal Year 2026 Investment Policy – Proposed Feb 2, 2026 Revised | Page 9 of 29 a) The JPA is organized pursuant to California Government Code Section 6509.7 and invests in the securities and obligations authorized in subdivisions (a) to (r), inclusive.
b) Each share shall represent an equal proportional interest in the underlying pool of securities owned by the JPA.
c) The JPA has retained an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years’ experience investing in instruments authorized by Section 53601, subdivisions (a) to (q). d) No more than 20 percent% of the total market value of the portfolio may be invested in shares of beneficial interest issued by a joint powers authority.
9.12. Negotiable Certificates of Deposit (NCD) issued by nationally or state‐chartered banks, a savings association or a federal association, a state or federal credit union, or by a federally licensed and or state or federal savings institutions and further defined in note 11 of Appendix Alicensed branch of a foreign bank. Purchases of negotiable certificates of deposit:
a) The amount of the NCD insured up to the FDIC limit does not require any credit ratings.
b) Any amount above the FDIC insured limit must be issued by institutions which have short‐term debt obligations rated “A‐1” or its equivalent or better by at least one NRSRO; or long‐term obligations rated in a rating category of “A” or its equivalent or better by at least one NRSRO. c) No more than 30 percent% of the total portfolio market value may be invested in NCDs.
d) No more than 5 percent% of the total portfolio market may be invested in any single issuer.
e) The maximum maturity may not exceed five (5) years.
a) May not exceed 20 percent of the par value of the portfolio. b) No more than $5 million in any one institution.
10.13. Medium‐Term Corporate Notes – Issued by corporation organized and operating within the United States or by depository institutions licensed by the United States or Item 3
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a) Not to exceed five (5) years maturity.
The securities shall be rated in a rating category of “A” or its equivalent or better by at least one NRSRO.
b) Securities eligible for investment shall have a minimum rating of AA or Aa2 from a nationally recognized rating service (e.g. Moody’s, Fitch, and/or Standard & Poor’s).
c) No more than 10 30 percent% of the par market value of the total portfolio may be invested in medium‐term corporate notes.
d) No more than $5 million5 percent% of the par market value of the total portfolio may be invested in securities of any single issuer., other than the U.S. Government, its agencies and instrumentality.
e) If securities owned by the City are downgraded by Moody’s, Fitch, or Standard & Poor’s to a level below the rating category of AAA or Aa2, it shall be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio.
14. Asset‐Backed, Mortgage‐Backed, Mortgage Pass‐Through Securities, and Collateralized Mortgage Obligations – from issuers not defined in subparagraphs 1 and 2 of the Authorized Investments section of this policy, provided that:
a. The securities are rated in a rating category of “AA” or its equivalent or better by a NRSRO.
b. No more than 20% of the total portfolio may be invested in these securities.
c. No more than 5% of the total portfolio may be invested in any single Asset‐Backed or Commercial Mortgage security issuer.
d. The maximum maturity does not exceed five (5) years.
11.15. Supranational Organizations Securities – Supranational organizations refer to Issues that are US dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by International Bank for Reconstruction and Item 3
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a. Securities will not exceed five (5) years maturity.
b. No more than 20 30 percent% of the par market value of the total portfolio.
c. No more than 10 percent% of the par market value of the total portfolio with any one institution.
d. Securities must be rated in a rating category of “AA” or its equivalent or better by a NRSRO.eligible for investment shall have a minimum rating of AA or Aa2 from a nationally recognized rating service (e.g. Moody’s, Fitch, e. .
Limited to United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by IBRD, IFC, and IADB.
Appendix A provides a more detailed description of each investment vehicle and its security and liquidity features. Most of the City's short‐term investments will be in securities which pay principal upon maturity, while long‐term investments may be in securities that periodically repay principal, as well as interest. Most of the City's investments will be at a fixed rate. However, some of the investments may be at a variable rate, so long as that rate changes on specified dates in pre‐ determined increments.
PROHIBITED INVESTMENTS:
Includes all investments not specified above, and in particular:
1. Reverse repurchase agreements
2. Derivatives, as defined in Appendix B
3. State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to futures and options.
4. In accordance with Government Code, Section 53601.6, investment in inverse floaters, range notes, or mortgage derived interest‐only strips is prohibited.
5. Investment in any security that could result in a zero interest accrual if held to maturity is prohibited. Under a provision sunsetting on January 1, 2031, securities backed by the U.S. Government that could result in a zero‐ or negative‐interest accrual if held to maturity are permitted.
6. Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited.
7. Purchasing or selling securities on margin is prohibited.
8. The use of reverse repurchase agreements, securities lending or any other form of borrowing or leverage is prohibited.
9. The purchase of foreign currency denominated securities is prohibited.
2.10. The purchase of a security with a forward settlement date exceeding 45 days from the time of the investment is prohibited.
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AUTHORIZED INVESTMENT PERSONNEL
Idle cash management and investment transactions are the responsibility of the Administrative Services Department. The Administrative Services Department is under the control of the Director of Administrative Services (Director), as treasurer, who is subject to the direction and supervision of the City Manager.
The Assistant Directors of Administrative Services (Assistant Director), who reports to the Director, are authorized to make all investment transactions allowed by the Statement of Investment Policy.
The Assistant Director may authorize the Manager of Treasury, Debt & Investments (Manager), Senior Management Analyst (Analyst), and/or designated investment firm (Firm) to enter into investments within clearly specified parameters. The City may engage the services of one or more external investment advisers, who are registered under the Investment Advisers Act of 1940, to assist in the management of the City’s investment portfolio in a manner consistent with the City’s objectives. External investment advisers may be granted discretion to purchase and sell investment securities in accordance with this investment policy.
The Investment function is under the supervision of the Assistant Director. The Assistant Director is charged with the responsibility to manage the investment program (portfolio), which includes developing and monitoring the City's cash flow model and developing long‐term revenue and financing strategies and forecasts.
The Manager, Analyst, and/or Firm
are subject to the direction and supervision of the Assistant Director. The Manager, Analyst, and/or Firm assist the Assistant Director, in the purchase and sale of securities. The Manager, Analyst, and/or Firm also prepare the quarterly report, and record daily all investment transactions as to the type of investment, amount, yield, and maturity. Cash flow projections are prepared as needed.
In all circumstances, approval from the Director of Administrative Services is required before selling securities from the City's portfolio. The Manager and/or Analyst may also transfer no more than a total of $10 million a day from the City's general account to any one financial institution, without the prior approval of the Assistant Director.
No other person has authority to make investment transactions without the written authority of the Director or Assistant Director of Administrative Services.
USE OF BROKERS AND DEALERS
The Administrative Services Department maintains a list of acceptable dealers. A dealer acts as a principal in security transactions, selling securities from and buying securities for their own position. A dealer must have:
a) At least three years’ experience operating with California municipalities; Item 3
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b) Maintain a record free of disclosure events, evidenced on the individual’s Financial Industry Regulatory Authority (FINRA) BrokerCheck report; c) Maintain an inventory of trading securities of at least $10 million; d) Meet net capital requirements as outlined in Security Exchange Commission Rule (SEC) 15c3‐1 (uniform net capital rule) for brokers or dealers;
e) Annually provide documentation showing their financial condition and relevant registration;
f) Annually certify in writing that they have reviewed the applicable California Government Code sections and the City’s Investment Policy; and
g) Be approved by the Assistant Director before being added to the City's list of approved dealers; including individual traders or agents representing a dealer:
A dealer will be removed from the list if any of these criteria not be met and/or should there develop a history of problems to include: failure to deliver securities as promised, failure to honor transactions as quoted, or failure to provide accurate information.
AUTHORIZED FINANCIAL INSTITUTIONS, DEPOSITORIES, AND BROKER/DEALERS A. The Director of Administrative Services or designee shall maintain procedures for establishing a list of authorized broker/dealers and financial institutions which are approved for investment purposes. Due inquiry shall determine whether such authorized broker/dealers, and the individuals covering the City are reputable and trustworthy, knowledgeable and experienced in public agency investing and able to meet all of their financial obligations. These institutions may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15c3‐1 (uniform net capital rule).
B. In accordance with Section 53601.5, institutions eligible to transact investment business with the AgencyCity include:
1. Institutions licensed by the state and proof of FINRA certification as a broker‐dealer, as defined in Section 25004 of the Corporations Code, with proof of FINRA certification.
2. Institutions that are members of a federally regulated securities exchange.
3. Primary government dealers as designated by the Federal Reserve Bank and non‐ primary government dealers.
4. Nationally or state‐chartered banks.
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5. Savings association or federal association (as defined in Section 5102 of the Financial Code).
6. The Federal Reserve Bank.
7. Direct issuers of securities eligible for purchase.
C. Selection of financial institutions and broker/dealers authorized to engage in transactions will be at the sole discretion of the City, except where the City utilizes an external investment adviser in which case the City may rely on the adviser for selection.
D. All financial institutions which desire to become qualified bidders for investment transactions (and which are not dealing only with the investment adviser) must supply the Director of Administrative Services or designee with audited financials and a statement certifying that the institution has reviewed the California Government Code, Section 53600 et seq. and the City’s investment policy. The Director of Administrative Services or designee will conduct an annual review of the financial condition and registrations of such qualified bidders.
E. To the extent practicable, the Director of Administrative Services or designee shall endeavor to complete investment transactions using a competitive bid process whenever possible. The City’s Director of Administrative Services will determine which financial institutions are authorized to provide investment services to the City. It shall be the City’s policy to purchase securities only from authorized institutions and firms.
F. Selection of broker/dealers used by an external investment adviser retained by the City will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers shall be selected on a competitive basis and their bid or offering prices shall be recorded. If there is no other readily available competitive offering, best efforts will be made to document quotations for comparable or alternative securities. When purchasing original issue instrumentality securities, no competitive offerings will be required as all dealers in the selling group offer those securities at the same original issue price.
G. Public deposits will be made only in qualified public depositories as established by State law.
Deposits will be insured by the Federal Deposit Insurance Corporation, or, to the extent the amount exceeds the insured maximum, will be collateralized in accordance with State law.
SAFEKEEPING AND CUSTODY
All securities shall be delivered to the City's safekeeping custodian and held in the name of the City of Palo Alto, with the exception of the following investments:
a) Certificates of deposit, which may be held by the City itself.
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b) City shares in pooled investment funds, under contract.
c) Mutual funds
d) Local Agency Investment Fund (LAIF)
POLICY REVIEW AND REPORTING ON INVESTMENTS
Monthly, the Administrative Services Department will review performance in relation to Council adopted Policy. Per California Government Code Section 53646, quarterly, the Department will report to Council (within 45 days after the end of the quarter) investment activity, including: the portfolio’s performance in comparison to policy, explain any variances from policy, provide any recommendations for policy changes, and discuss overall compliance with the City’s Investment Policy. In addition, the Department will provide Council with:
a) An asset listing showing par value, cost and independent third‐party fair market value of each security as of the date of the report, the source of the valuation, type of investment, issuer, maturity date and interest rate.
b) A description of the funds, investments and programs (including lending programs) managed by contracted parties (i.e. LAIF; LGIPS, outside money managers and securities lending agents)
c) A statement of compliance with investment policy, including a schedule of any transactions or holdings which do not comply with this policy or with the California Government Code, including a justification for their presence in the portfolio and a timetable for resolution, and
d) Report on the City’s ability to meet expenditure requirements over the next six months.
Per California Government Code Section 53607, the Department shall provide a monthly report of transactions (investments, reinvestment, sold, and exchanged securities) made during the month to the Council. This reporting requirement is separate and distinct from the quarterly investment report submitted under Code Section 53646.
Annually, the Administrative Services Department will present a Proposed Statement of Investment Policy, to include the delegation of investment authority, to the City Council for review during the annual budget process. All proposed changes in policy must be approved by the Council prior to implementation.
Adopted by City Council October 22, 1984 Amended by City Council June 17, 2003 Monthly reporting effective January 1985 Amended by City Council June 28, 2004 Amended and Adopted by City Council June 24,
1985
Amended by City Council June 20, 2005
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EXPLANATION OF PERMITTED INVESTMENTS
1. U.S. Government Securities: United States Treasury notes, bonds, bills, or certificates of indebtedness or those for which the faith and credit of the United States are pledged for the payment of principal and interest.
2. U.S. Government Agency Securities: U.S. Government Agency Obligations include the securities of the Federal National Mortgage Association (FNMA), Federal Land Banks (FLB), Federal Intermediate Credit Banks (FICB), banks for cooperatives, Federal Home Loan Banks (FHLB), Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Student Loan Marketing Association (SLMA), Small Business Administration (SBA), Federal Farm Credit (FFC), and Federal Agricultural Mortgage Corporation (FAMC or FMAC). Federal Agency securities are debt obligations that essentially result from lending programs of the Government. Federal agency securities differ from other types of securities, as well as among themselves. Their characteristics depend on the issuing agency. It is possible to distinguish three types of issues: (A) participation certificates (pooled securities), (B) Certificates of interest (pooled loans), (C) notes, bonds, and debentures. The securities of a few agencies are explicitly backed by the full faith and credit of the U.S.
Government. All other issues purchased by the City have the de facto implied but not guaranteed backing from the federal government, and it is highly unlikely that the government would let any agency default on its obligations.
3. Certificates of Deposit: A certificate of deposit (CDs) is a receipt for funds deposited in a bank, savings bank, or savings and loan association for a specified period of time at a specified rate of interest. Denominations are $250,000 and up. The first $250,000 of a certificate of deposit is guaranteed by the Federal Deposit Insurance Corporation (FDIC), if the deposit is with a bank or savings bank, or the Savings Association Insurance Fund (SAIF), if the deposit is with a savings and loan. CDs with a face value in excess of $250,000 can be collateralized by U.S. Government Agency and Treasury Department securities or first mortgage loans.
Government securities must be at least 110 percent% of the face value of the CD collateralized in excess of the first $250,000. The value of first mortgages must be at least 150 percent% of the face value of the CD balance insured in excess of the first $250,000. Generally, CDs are issued for more than 30 days and the maturity can be selected by the purchaser.
4. Bankers' Acceptance: A Banker's Acceptance (BA) is a negotiable time draft or bill of exchange drawn on and accepted by a commercial bank. Acceptance of the draft irrevocably obligates the bank to pay the bearer the face amount of the draft at maturity. BAs are usually created to finance the import and export of goods, the shipment of goods within the United States and storage of readily marketable staple commodities. In over 70 years of usage in the United States, there has been no known instance of principal loss to Item 3
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6.4. Revised: June 2025 any investor in BAs. In addition to the guarantee by the accepting bank, the transaction is identified with a specific commodity. Warehouse receipts verify that the pledged commodities exist, and, by definition, these commodities are readily marketable. The sale of the underlying goods generates the necessary funds to liquidate the indebtedness.
BAs enjoy marketability since the Federal Reserve Bank is authorized to buy and sell prime BAs with maturities of up to nine months. The Federal Reserve Bank enters into repurchase agreements in the normal course of open market operations with BA dealers.
As are sold at a discount from par. An acceptance is tied to a specific loan transaction; therefore, the amount and maturity of the acceptance is fixed.
7.5. Commercial Paper: Commercial paper notes are unsecured promissory notes of industrial corporations, utilities, and bank holding companies. Interest is discounted from par and calculated using actual number of days on a 360‐day year. The notes are in bearer form, with maturities up to 270 397 days selected by the purchaser, and denominations generally start at $100,000. There is a small secondary market for commercial paper notes and an investor may sell a note prior to maturity.
Commercial paper notes are backed by unused lines of credit from major banks. Some issuer's notes are insured, while some are backed by irrevocable letters of credit from major banks. State law limits a City to investments in United States corporations having assets in excess of five hundred million dollars with an "A" or higher rating by a nationally recognized rating service for the issuer's debentures. Cities may not invest more than 25 percent of idle cash in commercial paper.
8.6. Local Agency Investment Fund Demand Deposit: The Local Agency Investment Fund LAIF) was established by the State to enable treasurers to place funds in a pool for investments.
The City is limited to an investment of the amount allowed by LAIF (currently $75 million).
LAIF has been particularly beneficial to those jurisdictions with small portfolios. Palo Alto uses this fund for short‐term investment, liquidity, and yield.
9.7. Repurchase Agreements: A Repurchase Agreement (REPOS) is not a security, but a contractual arrangement between a financial institution or dealer and an investor. The agreement normally can run for one or more days. The investor puts up funds for a certain number of days at a stated yield. In return, the investor takes title to a given block of securities as collateral. At maturity, the securities are repurchased and the funds repaid, plus interest. Usually, amounts are $500,000 or more, but some REPOS can be smaller.
10. Money Market Deposit Accounts: Money Market Deposit Accounts are market‐sensitive bank accounts, which are available to depositors at any time, without penalty. The interest Item 3
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Insurance Corporation or the Savings Association Insurance Fund.
11.8. Mutual Funds: Mutual funds are shares of beneficial interest issued by diversified management companies, as defined by Section 23701 M of the Revenue and Taxation Code. To be eligible for investment, these funds must:
a) Attain the highest ranking in the highest letter and numerical rating provided by not less than two of the three largest nationally recognized rating services; or b) Have an investment advisor registered with the Securities and Exchange Commission with not less than five years’ experience investing in the securities and obligations, as authorized by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code, and with assets under management in excess of five hundred million dollars; and
c) Invest solely in those securities and obligations authorized by Sections 53601 and 53635 of the California Government Code. Where the Investment Policy of the City of Palo Alto may be more restrictive than the State Code, the Policy authorizes investments in mutual funds that shall have minimal investment in securities otherwise restricted by the City's Policy. Minimal investment is defined as less than 5 percent% of the mutual fund portfolio; and
d) The purchase price of shares of beneficial interest purchased shall not include any commission that these companies may charge.
e) Have a net asset value of $1.00.
12. Callable Securities and Multi‐Step‐ups: Callable securities are defined as fixed interest rate government agency securities that give the issuing agency the option of returning the invested funds at a specific point in time to the purchaser. Multi‐step‐ups are government agency securities in which the interest rate increases ("steps‐up") at preset intervals, and which also have a callable option that allows the issuing agency to return the invested funds at a preset interval. Callable and multi‐step‐ups are permitted, provided that:
13. 14. the potential call dates are known at the time of purchase;
15. the interest rates at which they “step‐up” are known at the time of purchase; and
16. the entire face value of the security is redeemed at the call date.
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18.9. Revised: June 2025
19.10. Negotiable Certificates of Deposit (NCD): NCDs are large‐dollar‐amount, short‐term certificate of deposit. Such certificates are issued by large banks and bought mainly by corporations and institutional investors. They are payable either to the bearer or to the order of the depositor, and, being negotiable, they enjoy an active secondary market, where they trade in round lots of $5 million. Although they can be issued in any denomination from $100,000 up, the typical amount is $1 million also called a Jumbo Certificate of Deposit.
State law prohibits the investment of local agency funds in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or any person with investment decision making authority in the administrative, manager’s, budget, auditor‐controller’s, or treasurer’s offices of the local agency also serves on the board of directors, other credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificate of deposit.
20.11. Medium‐Term Corporate Notes: All corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. According to California Government Code Section 53601, “Notes eligible for investment under this subdivision shall be rated in a rating category of “A” or its equivalent or better by a nationally recognized rating service. Purchase of medium‐term notes shall include other instruments authorized by this section and shall not exceed 30 percent% of the agency’s moneys that may be invested pursuant to this section.”
21.12. Supranational Securities: California Government Code Section 53601 defines allowable supranational securities as United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, the International Finance Corporation, and Inter‐ American Development Bank. Supranationals are well capitalized and in most cases have strong credit support from contingent capital calls from their member countries. Section 53601 was amended effective January 1, 2015 to allow local agencies to invest in the senior debt obligations of these three supranational issuers which are eligible for purchase and resale within the United States. These entities were established with the purpose of ending poverty and raising the standard of living around the world through sustainable economic growth.
a) The supranationals are international organization owned by member countries.
These are:
International Bank for Reconstruction and Development (IBRD or World Bank), a member of the World Bank Group, provides direct loans and guarantees to sovereigns and government‐backed projects Item 3
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Inter‐American Development Bank (IADB), a member of the Inter‐ American Development Bank Group, provides loans, grants, and guarantees to sovereigns in Latin America and the Caribbean
b) Additional characteristics shared by the IBRD, IFC, and IADB include:
Headquartered in Washington, D.C. with the United States as the largest shareholder of each organization
Rated AAA/Aaa by S&P and Moody’s
22.13. Asset‐Backed, Mortgage‐Backed, Mortgage Pass‐Through Securities, and Collateralized Mortgage Obligations are securities that represent pools of debt collateralized by an underlying pool of assets—usually ones that generate a cash flow from debt, such as mortgages, loans, leases, credit card balances, or receivables. It takes the form of a bond or note, paying income at a fixed rate for a set amount of time, until maturity.
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EXPLANATION OF PROHIBITED INVESTMENTS
1. Reverse Repurchase Agreements: A Reverse Repurchase Agreement (Reverse REPO) is a contractual agreement by the investor (e.g. local agency) to post a security it owns as collateral, and a bank or dealer temporarily exchanges cash for this collateral, for a specific period of time, at an agreed‐upon interest rate. During the period of the agreement, the local agency may use this cash for any purpose. At maturity, the securities are repurchased from the bank or dealer, plus interest.
California law contains a number of restrictions on the use of Reverse REPOS by local agencies.
2. Derivatives: A derivative is a financial instrument created from, or whose value depends on (is derived from), the value of one or more underlying assets or indices. The term "derivative" refers to instruments or features, such as collateralized mortgage obligations, forwards, futures, currency and interest rate swaps, options, caps and floors. Except for those callable and multi‐step‐up securities as described under Permitted Investments, derivatives are prohibited.
Certain derivative products have characteristics which could include high price volatility, liquid markets, products that are not market‐tested, products that are highly leveraged, products requiring a high degree of sophistication to manage, and products that are difficult to value.
According to California law, a local agency shall not invest any funds in inverse floaters, range notes, or interest‐only strips that are derived from a pool of mortgages.
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GLOSSARY OF INVESTMENT TERMS
AGENCIES: Federal agency and instrumentality securities.
ASKED: The price at which securities are offered.
BID: The price offered by a buyer of securities (when one sells securities, one asks for a bid). See “Offer”.
BROKER: A person or institution that conducts investment transactions on behalf of the buyer and
seller of the investment and earns a commission on the transaction.
COLLATERAL: Securities, evidence of deposit, or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
ANNUAL COMPREHENSIVE FINANCIAL REPORT
(ACFR): The official annual report for the City of
Palo Alto. It includes combined financial statements for each individual fund and account group prepared in conformity with Generally Accepted Accounting Principles and pronouncements set forth by the Governmental Accounting Standards Board (GASB). The ACFR also includes supporting schedules that are necessary to demonstrate compliance with finance‐ related legal and contractual provisions, extensive introductory material, and a detailed statistical section.
COUPON: The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value or the certificate attached to a bond evidencing interest due on a payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: (1) delivery versus
payment (DVP); and (2) delivery versus receipt (DVR). DVP is delivery of securities with an exchange of money for the securities. DVR is delivery of securities with an exchange of a signed receipt for the securities.
DISCOUNT: The difference between the acquisition cost of a security and its value at maturity when quoted at lower than face value. A security that sells below original offering price shortly after sale, is also is considered to be at a discount.
DISCOUNT SECURITIES: Non‐interest‐bearing money market instruments that are issued a discount and that are redeemed at maturity for full face value (e.g., U.S. Treasury Bills).
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DIVERSIFICATION: Dividing investment funds among a variety of securities that offer independent returns.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION (“FAMC” or “FMAC”):
A federal agency
established in 1988 to provide a secondary market for farm mortgage loans. Informally called Farmer Mac.
FEDERAL CREDIT AGENCIES: Agencies of the Federal Government that were established to supply credit to various classes of institutions and individuals (e.g., S&Ls, small business firms, students, farmers, farm cooperatives, and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION (“FDIC”): A federal agency that insures all types of deposits received at an insured bank, including deposits in a checking account, negotiable order of withdrawal (NOW) account, savings account, money market deposit account (MMDA) or time deposit such as a certificate of deposit (CD). FDIC insurance covers depositors' accounts at each insured bank, dollar‐for‐dollar, including principal and any accrued interest through the date of the insured bank's closing, up to the insurance limit.
The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these investments are purchased at an insured bank. The FDIC does not insure U.S. Treasury bills, bonds or notes, but these investments are backed by the full faith and credit of the United States government.
The standard maximum deposit insurance amount is described as the “SMDIA” in FDIC regulations.
The SMDIA is $250,000 per depositor, per insured bank.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open‐market operations.
FEDERAL HOME LOAN BANKS (“FHLB”): Government‐sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions, and insurance companies. The mission of the FHLBs is to liquefy the housing‐related assets of its members, who must purchase stock in their District Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (“FNMA”): FNMA, like GNMA, was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder‐owned corporation. The corporation’s purchases include a variety of adjustable mortgages and second loans, in addition to fixed‐rate mortgages.
FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest.
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FEDERAL OPEN MARKET COMMITTEE (“FOMC”): The FOMC consists of seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of government securities in the open market, as a means of influencing the volume of bank credit and money.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven‐member Board of Governors in Washington, D.C., 12 regional banks, and about 5,700 commercial banks that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (“GNMA” or “Ginnie Mae”): Securities that influence the volume of bank credit that is guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. A security holder is protected by the full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA, or FMHM mortgages. The term “pass‐throughs” is often used to describe Ginnie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid
and asked prices is narrow, and reasonable amount can be done at those quotes.
LOCAL GOVERNMENT AGENCY: A local government agency is any city, county, city and county, district, or other local governmental body or corporation, including the California State Universities (CSU) and University of California (UC) systems, K‐12 schools and community colleges empowered to expend public funds.
LOCAL GOVERNMENT INVESTMENT FUND (“LAIF”): Monies from local governmental units may be remitted to the California State Treasurer for deposit in this special fund for the purpose of investment.
MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase‐reverse repurchase agreements that establish each party’s rights in the transactions. A master agreement will often specify, among other things, the right of the buyer (lender) to liquidate the underlying securities in the event of default by the seller (borrower).
MATURITY: The date upon which the principal or stated value of an investment becomes due and payable.
MONEY MARKET: The market in which short‐term debt instruments (e.g., bills, commercial paper, and bankers’ acceptances) are issued and traded.
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OFFER: The price asked by a seller of securities (when one buys securities, one asks for an offer). See “Asked” and “Bid”.
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank, as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve’s most important and most flexible monetary policy tool.
PORTFOLIO: A collection of securities that an investor holds.
PRIMARY DEALER: A group of government securities dealers that submit daily reports of market activity and positions, and monthly financial statements to the Federal Reserve Bank of New York, and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) ‐‐ registered securities broker‐dealers, banks, and a few unregulated firms.
PRUDENT INVESTOR RULE: An investment standard cited in the California Government Code Section 53600 et seq. Under this standard, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution that: (1) does not claim exemption from the payment of any sales, compensating use, or ad valorem taxes under the laws of this state; (2) has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability; and (3) has been approved by the Public Deposit Protection Commission to hold public deposits.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution.
SECURITIES AND EXCHANGE COMMISSION: An agency created by Congress to administer securities legislation for the purpose of protecting investors in securities transactions.
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Fiscal Year 2026 Investment Policy – Proposed Feb 2, 2026 Revised | Page 28 of 29 STRUCTURED NOTES: Notes issued by instrumentalities (e.g., FHLB, FNMA, SLMA) and by corporations, that have imbedded options (e.g., call features, step‐up coupons, floating rate coupons, derivative‐based returns) in their debt structure. The market performance of structured notes is affected by fluctuating interest rates; the volatility of imbedded options; and shifts in the yield curve.
SUPRANATIONALS: International institutions that provide development financing, advisory services and/or financial services to their member countries to achieve the overall goal of improving living standards through sustainable economic growth. The California Government Code Section 53601 allows local agencies to purchase the United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), or Inter‐American Development Bank (IADB).
TIME CERTIFICATE OF DEPOSIT: A non‐negotiable certificate of deposit, which cannot be sold prior to maturity.
TREASURY BILLS: A non‐interest‐bearing
discount security that is issued by the U.S. Treasury to finance the national debt. Most T‐bills are issued to mature in three months, six months, or one year.
TREASURY BONDS: Long‐term, coupon‐bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of more than 10 years.
TREASURY NOTES: Medium‐term, coupon‐bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of two to 10 years.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
YIELD‐TO‐CALL (YTC): The rate of return an investor earns from a bond assuming the bond is redeemed (called) prior to its nominal maturity date.
YIELD‐TO‐MATURITY: The current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity.
ZERO‐COUPON SECURITIES: Security that is issued at a discount and makes no periodic interest payments. The rate of return consists of a gradual accretion of the principal of the security and is payable at par upon maturity.
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Fiscal Year 2026 Investment Policy – Proposed Feb 2, 2026 Revised | Page 29 of 29 Recommended: Date:__________________
Chief Financial Officer
Approved: Date:__________________
City Manager
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Investment Policy
(Proposed February 9, 2026)
INTRODUCTION
The City of Palo Alto invests its pooled idle cash according to State of California law and the charter of the City of Palo Alto. In particular, the City follows “The Prudent Investor Standard” cited in the State Government Code (Section 53600.3). Under this standard, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
INVESTMENT OBJECTIVES
The primary objectives, in priority order, of investment activities shall be safety, liquidity, and return:
1. Safety: Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. The objective will be to mitigate credit risk and interest rate risk.
a) Credit risk is the risk that an obligation will not be paid and a loss will result. The City will seek to minimize this risk by:
Limiting investment to the safest types of securities or minimum credit quality rating as listed in the “Authorized Investment” section Diversifying its investments among the types of securities that are authorized under this investment policy
b) Interest rate risk is the risk that changes in interest rates will adversely affect the value of an investor’s portfolio. For example, an investor with large holdings in long‐term bonds has assumed significant interest rate risk because the value of Item 3
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Investment Policy – Proposed Feb 2, 2026 | Page 2 of 24 the bonds will fall if interest rates rise. The City can minimize this risk by:
Structuring the investment portfolio so that securities mature to meet cash flow requirements
2. Liquidity: Liquidity is the second most important objective of the investment program. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by maintaining a portion of the portfolio in short‐term investments. The investment portfolio will consist of securities with active secondary or resale markets should the need to sell a security prior to maturity arises.
3. Return: Return on the City’s portfolio is last in priority among investment objectives.
The investment portfolio shall be designed to obtain a market rate of return throughout budgetary and economic cycles that reflects the authorized investments, risk constraints, and liquidity needs outlined in the City’s investment policy.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) RESPONSIBILITIES In addition to and subordinate to the Safety, Liquidity, and Return investment objectives, investments that support sound environmental, social and governance (ESG) objectives are also considered. While the City’s portfolio is not classified as an ESG portfolio, investments in entities that support community well‐being through practices that emphasize safe and environmentally sound objectives; fair labor practices; and equality of rights regardless of sex, race, age, disability, or sexual orientation, is encouraged. Direct investments in entities that manufacture tobacco products, firearms, and engage in direct production or drilling of fossil fuels is discouraged.
This section applies to new investments (after November 5, 2018) only and does not require divestment of existing investments. Investments in Certificates of Deposit (CDs) and Negotiable Certificates of Deposit are exempt from the ESG investing objective.
SCOPE
A. This investment policy shall apply to all financial assets of the City of Palo Alto as accounted for in the Annual Comprehensive Financial Report (ACFR), including but not limited to the following funds:
1. General Fund
2. Special Revenue Funds
3. Debt Service Funds
4. Capital Project Fund
5. Enterprise Funds
6. Internal Service Funds
7. Trust and Agency Funds
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Investment Policy – Proposed Feb 2, 2026 | Page 3 of 24 B. The policy does not cover funds held by in the City’s Public Pension Retirement Funds, the Retiree Medical Funds (Other Post‐Employment Benefits Trust or OPEB) , the Pension Trust Fund (Section 115 Trust), Deferred Compensation programs, and self‐insurance funds held by City’s Risk PollPool Joint Powers Authority
C. Investments of bond proceeds shall be governed by the provisions of the related bond indentures.
GENERAL INVESTMENT GUIDELINES
1. The maximum stated final maturity of individual securities in the portfolio should be ten years.
2. No more than 30% of the market value of the total portfolio shall be invested in securities with maturities beyond five years.
3. The City shall maintain a minimum of one month’s net cash needs in short term and/or liquid investments. Liquid investments are investment with a maturity of one year or less, cash deposit accounts, pooled investment fund (i.e. LAIF), or a money market mutual fund.
4. Should the ratio of the market value of the portfolio to the book value of the portfolio fall below 95%, the Administrative Services Department will report this fact to the City Council quarterly and evaluate whether there is any risk of holding any of the securities to maturity.
5. Where the Investment Policy specifies a percentage limitation for a particular category of investment, that percentage is applicable only at the date of purchase. A later increase or decrease in a percentage resulting from a change in the portfolio’s assets or values shall not constitute a violation of that restriction. As soon as reasonably possible, percentage limitations will be restored as investments mature in each category.
AUTHORIZED INVESTMENTS
The California Government Code (Sections 53600 et seq.) governs investment of City funds. Within the investments permitted by the Code, the City seeks to further restrict eligible investments to the guidelines listed below. In the event there is a difference between the Policy and the Code, the more restrictive parameters will take precedence. Percentage holding limits and minimum credit quality requirements listed in this section apply at the time the security is purchased.
Any investment currently held at the time the policy is adopted, which does not meet the new policy guidelines, can be held until maturity and shall be exempt from the current policy. At the time of the investment’s maturity or liquidation, such funds shall be reinvested only as provided in Item 3
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Investment Policy – Proposed Feb 2, 2026 | Page 4 of 24 the current policy. The following investments are authorized:
1. U.S. Treasuries (e.g. Treasury notes, bonds and bills) and other government obligations for which the full faith and credit of the Unites States are pledged for the payment of principal and interest.
a) There is no limit on purchase of these securities.
b) Securities will not exceed 10 years maturity.
2. Federal Agencies or United States Government‐Sponsored Enterprise Obligations – including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government‐sponsored enterprises (GSE). a. There is no limit on purchase of these securities except for:
No more than 30% of the total portfolio may be invested in any single federal agency/GSE issuer.
Callable and Multi‐step‐up securities provided that:
‐ The potential call dates are known at the time of purchase ‐ The interest rates at which they “step‐up” are known at the time of purchase
‐ The entire face value of the security is redeemed at the call date ‐ No more than 20% of the market value of the total portfolio may be invested in federal agency callable and step‐up securities b. Securities will not exceed 10 years maturity.
3. Municipal Securities
a) Municipal securities must be rated in a rating category of “A” or its equivalent or better by at least one Nationally Recognized Statistical Rating Organization (“NRSRO”) that is registered with the U.S. Securities and Exchange Commission.
b) Municipal securities may not exceed 30% of the market value of the total portfolio.
c) No more than 5% of the market value of the total portfolio may be invested in any single issuer.
d) Securities will not exceed 10 years maturity.
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Investment Policy – Proposed Feb 2, 2026 | Page 5 of 24 e) Investments include:
i) Registered state warrants or treasury notes or bonds of the State of California and bonds, notes, warrants, or other evidences of indebtedness of any local agency within California, including bonds payable solely out of the revenues from a revenue producing property owned, controlled, or operated by the state or local agency or by a department, board, agency, or authority of the state or local agency.
ii) Registered treasury notes or bond of any of the 49 United States in addition to the State of California, including bonds payable solely out of the revenues from a revenue‐producing property owned, controlled, or operated by a state or by a department, board, agency or authority of any of the other 49 United States, in addition to the State of California.
4. Certificates of Deposit (CD) ‐ A debt instrument issued by a bank for a specified period of time at a specified rate of interest. Purchase of CD’s are limited to:
a) May not exceed 20% of the market value of the portfolio.
b) No more than 10% of the market value of the portfolio in collateralized CDs in any institution.
c) Purchase collateralized deposits only from federally insured large banks that are rated by one NRSRO.
d) For non‐rated banks, deposit should be limited to amounts federally insured (FDIC). – See Appendix C
e) Rollovers are not permitted without specific instruction from authorized City staff.
5. Banker's Acceptance Notes (BA) – Bills of exchange or time drafts drawn on and accepted by commercial banks. Purchase of banker’s acceptances are limited to:
a) No more than 40% of the market value of the portfolio.
b) Not to exceed 180 days maturity.
c) No more than 5% of the market value of the total portfolio with any one institution.
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6. Commercial Paper ‐ Short‐term unsecured obligations issued by banks, corporations, and other borrowers. Purchases of commercial paper are limited to entities that meets all of the following conditions in either paragraph (a) or (b) and other requirements specified below:
a) Securities issued by corporations:
i) A corporation organized and operating in the United States with assets more than $500 million.
ii) The securities are rated “A‐1” or its equivalent or better by at least one NRSRO.
iii) If the issuer has other debt obligations, they must be rated in a rating category of “A” or its equivalent or better by at least one NRSRO.
b) Securities issued by other entities:
i) The issuer is organized within the United States as a special purpose corporation, trust, or limited liability company.
ii) The securities must have program‐wide credit enhancements including, but not limited to,
overcollateralization, letters of credit,
or a surety bond.
iii) The securities are rated “A‐1” or its equivalent or better by at least one NRSRO.
Moreover, no more than 10% of the outstanding commercial paper of any single issuer is permitted, and under a provision sunsetting on January 1, 2031 (SB 998), no more than 40% of the total portfolio market value may be invested in Commercial Paper. No more than 5% of the total portfolio market value may be invested in any single issuer.
The maximum maturity may not exceed 397 days.
7. Local Agency Investment Fund (LAIF) – A State of California managed investment pool may be used up to the maximum permitted by California State Law.
8. Short‐Term Repurchase Agreements (REPO) – A contractual agreement between a seller and a buyer, usually of U.S. government securities, whereby the seller agrees to repurchase the securities at an agreed upon price and, usually, at a stated time.
Purchases of REPO’s must:
a) Not to exceed one (1) year.
b) Market value of securities that underlay a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities.
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Investment Policy – Proposed Feb 2, 2026 | Page 7 of 24 c) A Master Repurchase agreement must be signed with the bank or dealer.
Terms of the Master Purchase Agreement must be aligned with requirements outlined in California Government Code section 53601(j).
9. Collateralized Bank Deposits – City’s deposits with financial institutions will be collateralized with pledged securities per California Government Code, Section 53651.
There are no limits on the dollar amount or percentage that the City may invest in collateralized bank deposits.
10. Money Market Mutual Funds – Money Market Mutual Funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 and issued by diversified management companies and meet either of the following criteria:
a) Have attained the highest ranking or the highest letter and numerical rating provided by not less than two (2) NRSROs; or
b) Have retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years’ experience managing money market mutual funds with assets under management in excess of $500 million.
c) No more than 20% of the total portfolio market value may be invested in the shares of any one Money Market Mutual Fund.
11. Shares of Beneficial Interest Issued by a Joint Powers Authority (JPA) – provided that:
a) The JPA is organized pursuant to California Government Code Section 6509.7 and invests in the securities and obligations authorized in subdivisions (a) to (r), inclusive.
b) Each share shall represent an equal proportional interest in the underlying pool of securities owned by the JPA.
c) The JPA has retained an investment advisor who is registered with the SEC (or exempt from registration), has assets under management in excess of $500 million, and has at least five years’ experience investing in instruments authorized by Section 53601, subdivisions (a) to (q). d) No more than 20% of the total market value of the portfolio may be invested in shares of beneficial interest issued by a joint powers authority.
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12. Negotiable Certificates of Deposit (NCD) issued by nationally or state‐chartered banks, a savings association or a federal association, a state or federal credit union, or by a federally licensed or state licensed branch of a foreign bank. Purchases of negotiable certificates of deposit:
a) The amount of the NCD insured up to the FDIC limit does not require any credit ratings.
b) Any amount above the FDIC insured limit must be issued by institutions which have short‐term debt obligations rated “A‐1” or its equivalent or better by at least one NRSRO; or long‐term obligations rated in a rating category of “A” or its equivalent or better by at least one NRSRO. c) No more than 30% of the total portfolio market value may be invested in NCDs.
d) No more than 5% of the total portfolio market may be invested in any single issuer.
e) The maximum maturity may not exceed five (5) years.
13. Medium‐Term Corporate Notes – Issued by corporation organized and operating within the United States or by depository institutions licensed by the United States or any state and operating with the United States.
a) Not to exceed five (5) years maturity.
b) The securities shall be rated in a rating category of “A” or its equivalent or better by at least one NRSRO.
c) No more than 30% of the market value of the total portfolio may be invested in medium‐term corporate notes.
d) No more than 5% of the market value of the total portfolio may be invested in securities of any single issuer.
e) If securities owned by the City are downgraded by Moody’s, Fitch, or Standard & Poor’s to a level below the rating category of A, it shall be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio.
14. Asset‐Backed, Mortgage‐Backed, Mortgage Pass‐Through Securities, and Collateralized Mortgage Obligations – from issuers not defined in subparagraphs 1 Item 3
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Investment Policy – Proposed Feb 2, 2026 | Page 9 of 24 and 2 of the Authorized Investments section of this policy, provided that:
a. The securities are rated in a rating category of “AA” or its equivalent or better by a NRSRO.
b. No more than 20% of the total portfolio may be invested in these securities.
c. No more than 5% of the total portfolio may be invested in any single Asset‐Backed or Commercial Mortgage security issuer.
d. The maximum maturity does not exceed five (5) years.
15. Supranational Organizations Securities – Supranational organizations refer to Issues that are US dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC) and Inter‐American Development Bank (IADB).
a. Securities will not exceed five (5) years maturity.
b. No more than 30% of the market value of the total portfolio. c. No more than 10% of the market value of the total portfolio with any one institution.
Securities must be rated in a rating category of “AA” or its equivalent or better by a NRSRO.
Appendix A provides a more detailed description of each investment vehicle and its security and liquidity features.
PROHIBITED INVESTMENTS:
Includes all investments not specified above, and in particular:
1. Reverse repurchase agreements
2. Derivatives, as defined in Appendix B
3. State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to futures and options.
4. In accordance with Government Code, Section 53601.6, investment in inverse floaters, range notes, or mortgage derived interest‐only strips is prohibited.
5. Investment in any security that could result in a zero interest accrual if held to maturity is prohibited. Under a provision sunsetting on January 1, 2031, securities backed by the U.S. Government that could result in a zero‐ or negative‐interest accrual if held to maturity are permitted.
6. Trading securities for the sole purpose of speculating on the future direction of interest Item 3
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7. Purchasing or selling securities on margin is prohibited.
8. The use of reverse repurchase agreements, securities lending or any other form of borrowing or leverage is prohibited.
9. The purchase of foreign currency denominated securities is prohibited.
10. The purchase of a security with a forward settlement date exceeding 45 days from the time of the investment is prohibited.
Appendix B provides a more detailed description of reverse repurchase agreements and derivatives, which are prohibited, for City investment.
AUTHORIZED INVESTMENT PERSONNEL
Idle cash management and investment transactions are the responsibility of the Administrative Services Department. The Administrative Services Department is under the control of the Director of Administrative Services (Director), as treasurer, who is subject to the direction and supervision of the City Manager.
The Assistant Directors of Administrative Services (Assistant Director), who reports to the Director, are authorized to make all investment transactions allowed by the Statement of Investment Policy.
The Assistant Director may authorize the Manager of Treasury, Debt & Investments (Manager), Senior Management Analyst (Analyst), and/or designated investment firm (Firm) to enter into investments within clearly specified parameters. The City may engage the services of one or more external investment advisers, who are registered under the Investment Advisers Act of 1940, to assist in the management of the City’s investment portfolio in a manner consistent with the City’s objectives. External investment advisers may be granted discretion to purchase and sell investment securities in accordance with this investment policy.
The Investment function is under the supervision of the Assistant Director. The Assistant Director is charged with the responsibility to manage the investment program (portfolio), which includes developing and monitoring the City's cash flow model and developing long‐term revenue and financing strategies and forecasts.
The Manager, Analyst, and/or Firm are subject to the direction and supervision of the Assistant Director. The Manager, Analyst, and/or Firm assist the Assistant Director, in the purchase and sale of securities. The Manager, Analyst, and/or Firm also prepare the quarterly report, and record daily all investment
transactions as to the type of investment, amount, yield, and maturity. Cash flow projections are prepared as needed.
No other person has authority to make investment transactions without the written authority of the Director or Assistant Director of Administrative Services.
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Investment Policy – Proposed Feb 2, 2026 | Page 11 of 24 A. The Director of Administrative Services or designee shall maintain procedures for establishing a list of authorized broker/dealers and financial institutions which are approved for investment purposes. Due inquiry shall determine whether such authorized broker/dealers, and the individuals covering the City are reputable and trustworthy, knowledgeable and experienced in public agency investing and able to meet all of their financial obligations. These institutions may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15c3‐1 (uniform net capital rule).
B. In accordance with Section 53601.5, institutions eligible to transact investment business with the City include:
1. Institutions licensed by the state and proof of FINRA certification as a broker‐dealer, as defined in Section 25004 of the Corporations Code, with proof of FINRA certification.
2. Institutions that are members of a federally regulated securities exchange.
3. Primary government dealers as designated by the Federal Reserve Bank and non‐ primary government dealers.
4. Nationally or state‐chartered banks.
5. Savings association or federal association (as defined in Section 5102 of the Financial Code).
6. The Federal Reserve Bank.
7. Direct issuers of securities eligible for purchase.
C. Selection of financial institutions and broker/dealers authorized to engage in transactions will be at the sole discretion of the City, except where the City utilizes an external investment adviser in which case the City may rely on the adviser for selection.
D. All financial institutions which desire to become qualified bidders for investment transactions (and which are not dealing only with the investment adviser) must supply the Director of Administrative Services or designee with audited financials and a statement certifying that the institution has reviewed the California Government Code, Section 53600 et seq. and the City’s investment policy. The Director of Administrative Services or designee will conduct an annual review of the financial condition and registrations of such qualified bidders.
E. To the extent practicable, the Director of Administrative Services or designee shall endeavor to complete investment transactions using a competitive bid process whenever possible. The City’s Director of Administrative Services will determine which financial institutions are authorized to provide investment services to the City. It shall be the City’s policy to purchase securities only from authorized institutions and firms.
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Investment Policy – Proposed Feb 2, 2026 | Page 12 of 24 F. Selection of broker/dealers used by an external investment adviser retained by the City will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers shall be selected on a competitive basis and their bid or offering prices shall be recorded. If there is no other readily available competitive offering, best efforts will be made to document quotations for comparable or alternative securities. When purchasing original issue instrumentality securities, no competitive offerings will be required as all dealers in the selling group offer those securities at the same original issue price.
G. Public deposits will be made only in qualified public depositories as established by State law.
Deposits will be insured by the Federal Deposit Insurance Corporation, or, to the extent the amount exceeds the insured maximum, will be collateralized in accordance with State law.
SAFEKEEPING AND CUSTODY
All securities shall be delivered to the City's safekeeping custodian and held in the name of the City of Palo Alto, with the exception of the following investments:
a) Certificates of deposit, which may be held by the City itself.
b) City shares in pooled investment funds, under contract.
c) Mutual funds
d) Local Agency Investment Fund (LAIF)
POLICY REVIEW AND REPORTING ON INVESTMENTS
Monthly, the Administrative Services Department will review performance in relation to Council adopted Policy. Per California Government Code Section 53646, quarterly, the Department will report to Council (within 45 days after the end of the quarter) investment activity, including: the portfolio’s performance in comparison to policy, explain any variances from policy, provide any recommendations for policy changes, and discuss overall compliance with the City’s Investment Policy. In addition, the Department will provide Council with:
a) An asset listing showing par value, cost and independent third‐party fair market value of each security as of the date of the report, the source of the valuation, type of investment, issuer, maturity date and interest rate.
b) A description of the funds, investments and programs (including lending programs) managed by contracted parties (i.e. LAIF; LGIPS, outside money managers and securities lending agents)
c) A statement of compliance with investment policy, including a schedule of any transactions or holdings which do not comply with this policy or with the California Item 3
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d) Report on the City’s ability to meet expenditure requirements over the next six months.
Per California Government Code Section 53607, the Department shall provide a monthly report of transactions (investments, reinvestment, sold, and exchanged securities) made during the month to the Council. This reporting requirement is separate and distinct from the quarterly investment report submitted under Code Section 53646.
Annually, the Administrative Services Department will present a Proposed Statement of Investment Policy, to include the delegation of investment authority, to the City Council for review during the annual budget process. All proposed changes in policy must be approved by the Council prior to implementation.
Adopted by City Council October 22, 1984 Amended by City Council June 17, 2003 Monthly reporting effective January 1985 Amended by City Council June 28, 2004 Amended and Adopted by City Council June 24,
1985
Amended by City Council June 20, 2005
Amended by City Council December 2, 1985 Amended by City Council June 12, 2006 Amended by City Council June 23, 1986 Amended by City Council June 11, 2007 Amended by City Council June 22, 1987 Amended by City Council June 09, 2008 Amended by City Council August 8, 1988 Amended by City Council June 15, 2009 Amended by City Council November 28, 1988 Amended by City Council June 28, 2010 Amended by City Council June 26, 1989 Amended by City Council June 20, 2011 Amended by City Council May 14, 1990 Amended by City Council June 18, 2012 Amended by City Council June 24, 1991 Amended by City Council June 03, 2013 Amended by City Council June 22, 1992 Amended by City Council June 16, 2014 Amended by City Council June 23, 1993 Amended by City Council June 15, 2015 Amended by City Council June 20, 1994 Amended by City Council June 13, 2016 Amended by City Council June 19, 1995 Amended by City Council June 27, 2017 Amended by City Council June 24, 1996 Amended by City Council November 5, 2018 Amended by City Council June 23, 1997 Amended by City Council June 24, 2019 Amended by City Council January 26, 1998 Adopted by City Council June 22, 2020 Amended by City Council June 22, 1998 Amended by City Council June 21, 2021 Amended by City Council June 28, 1999 Adopted by City Council June 20, 2022 Amended by City Council June 19, 2000 Adopted by City Council June 19, 2023 Amended by City Council June 11, 2001 Amended by City Council June 17, 2024 Amended by City Council June 17, 2002 Adopted by City Council June 16, 2025 Item 3
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EXPLANATION OF PERMITTED INVESTMENTS
1. U.S. Government Securities: United States Treasury notes, bonds, bills, or certificates of indebtedness or those for which the faith and credit of the United States are pledged for the payment of principal and interest.
2. U.S. Government Agency Securities: U.S. Government Agency Obligations include the securities of the Federal National Mortgage Association (FNMA), Federal Land Banks (FLB), Federal Intermediate Credit Banks (FICB), banks for cooperatives, Federal Home Loan Banks (FHLB), Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Small Business Administration (SBA), Federal Farm Credit (FFC), and Federal Agricultural Mortgage Corporation (FAMC or FMAC). Federal agency securities differ from other types of securities, as well as among themselves. Their characteristics depend on the issuing agency. It is possible to distinguish three types of issues: (A) participation certificates (pooled securities), (B) Certificates of interest (pooled loans), (C) notes, bonds, and debentures. The securities of a few agencies are explicitly backed by the full faith and credit of the U.S. Government. All other issues purchased by the City have implied but not guaranteed backing from the federal government.
3. Certificates of Deposit: A certificate of deposit (CDs) is a receipt for funds deposited in a bank, savings bank, or savings and loan association for a specified period of time at a specified rate of interest. Denominations are $250,000 and up. The first $250,000 of a certificate of deposit is guaranteed by the Federal Deposit Insurance Corporation (FDIC), if the deposit is with a bank or savings bank, or the Savings Association Insurance Fund (SAIF), if the deposit is with a savings and loan. CDs with a face value in excess of $250,000 can be collateralized by U.S. Government Agency and Treasury Department securities or first mortgage loans.
Government securities must be at least 110% of the face value of the CD collateralized in excess of the first $250,000. The value of first mortgages must be at least 150% of the face value of the CD balance insured in excess of the first $250,000. Generally, CDs are issued for more than 30 days and the maturity can be selected by the purchaser.
4. Bankers' Acceptance: A Banker's Acceptance (BA) is a negotiable time draft or bill of exchange drawn on and accepted by a commercial bank. Acceptance of the draft irrevocably obligates the bank to pay the bearer the face amount of the draft at maturity. BAs are usually created to finance the import and export of goods, the shipment of goods within the United States and storage of readily marketable staple commodities. In addition to the guarantee by the accepting bank, the transaction is identified with a specific commodity. Warehouse receipts verify that the pledged commodities exist, and, by definition, these commodities are readily marketable. The sale of the underlying goods generates the necessary funds to liquidate the indebtedness.
BAs enjoy marketability since the Federal Reserve Bank is authorized to buy and sell prime BAs with maturities of up to nine months. The Federal Reserve Bank enters into repurchase agreements in the normal course of open market operations with BA dealers.
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Investment Policy – Proposed Feb 2, 2026 | Page 15 of 24 As are sold at a discount from par. An acceptance is tied to a specific loan transaction; therefore, the amount and maturity of the acceptance is fixed.
5. Commercial Paper: Commercial paper notes are unsecured promissory notes of industrial corporations, utilities, and bank holding companies. Interest is discounted from par and calculated using actual number of days on a 360‐day year. The notes are in bearer form, with maturities up to 397 days selected by the purchaser, and denominations generally start at $100,000. There is a small secondary market for commercial paper notes and an investor may sell a note prior to maturity.
Commercial paper notes are backed by unused lines of credit from major banks. Some issuer's notes are insured, while some are backed by irrevocable letters of credit from major banks. State law limits a City to investments in United States corporations having assets in excess of five hundred million dollars with an "A" or higher rating by a nationally recognized rating service for the issuer's debentures.
6. Local Agency Investment Fund Demand Deposit: The Local Agency Investment Fund LAIF) was established by the State to enable treasurers to place funds in a pool for investments.
The City is limited to an investment of the amount allowed by LAIF. LAIF has been particularly beneficial to those jurisdictions with small portfolios. Palo Alto uses this fund for short‐term investment, liquidity, and yield.
7. Repurchase Agreements: A Repurchase Agreement (REPOS) is a contractual arrangement between a financial institution or dealer and an investor. The agreement normally can run for one or more days. The investor puts up funds for a certain number of days at a stated yield. In return, the investor takes title to a given block of securities as collateral. At maturity, the securities are repurchased and the funds repaid, plus interest. Usually, amounts are $500,000 or more, but some REPOS can be smaller.
8. Mutual Funds: Mutual funds are shares of beneficial interest issued by diversified management companies, as defined by Section 23701 M of the Revenue and Taxation Code. To be eligible for investment, these funds must:
a) Attain the highest ranking in the highest letter and numerical rating provided by not less than two of the three largest nationally recognized rating services; or b) Have an investment advisor registered with the Securities and Exchange Commission with not less than five years’ experience investing in the securities and obligations, as authorized by subdivisions (a) to (n), inclusive, of Section 53601 of the California Government Code, and with assets under management in excess of five hundred million dollars; and
c) Invest solely in those securities and obligations authorized by Sections 53601 and Item 3
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Investment Policy – Proposed Feb 2, 2026 | Page 16 of 24 53635 of the California Government Code. Where the Investment Policy of the City of Palo Alto may be more restrictive than the State Code, the Policy authorizes investments in mutual funds that shall have minimal investment in securities otherwise restricted by the City's Policy. Minimal investment is defined as less than 5% of the mutual fund portfolio; and
d) The purchase price of shares of beneficial interest purchased shall not include any commission that these companies may charge.
e) Have a net asset value of $1.00.
9. Callable Securities and Multi‐Step‐ups: Callable securities are defined as fixed interest rate government agency securities that give the issuing agency the option of returning the invested funds at a specific point in time to the purchaser. Multi‐step‐ups are government agency securities in which the interest rate increases ("steps‐up") at preset intervals, and which also have a callable option that allows the issuing agency to return the invested funds at a preset interval.
10. Negotiable Certificates of Deposit (NCD): NCDs are large‐dollar‐amount, short‐term certificate of deposit. Such certificates are issued by large banks and bought mainly by corporations and institutional investors. They are payable either to the bearer or to the order of the depositor, and, being negotiable, they enjoy an active secondary market, where they trade in round lots of $5 million. Although they can be issued in any denomination from $100,000 up, the typical amount is $1 million also called a Jumbo Certificate of Deposit.
State law prohibits the investment of local agency funds in negotiable certificates of deposit issued by a state or federal credit union if a member of the legislative body of the local agency, or any person with investment decision making authority in the administrative, manager’s, budget, auditor‐controller’s, or treasurer’s offices of the local agency also serves on the board of directors, other credit committee or the supervisory committee of the state or federal credit union issuing the negotiable certificate of deposit.
11. Medium‐Term Corporate Notes: All corporate and depository institution debt securities with a maximum remaining maturity of five years or less, issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. According to California Government Code Section 53601, “Notes eligible for investment under this subdivision shall be rated in a rating category of “A” or its equivalent or better by a nationally recognized rating service.
Purchase of medium‐term notes shall include other instruments authorized by this section and shall not exceed 30% of the agency’s moneys that may be invested pursuant to this section.”
12. Supranational Securities: California Government Code Section 53601 defines allowable supranational securities as United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, the International Finance Corporation, and Inter‐ American Item 3
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Investment Policy – Proposed Feb 2, 2026 | Page 17 of 24 Development Bank. Supranationals are well capitalized and in most cases have strong credit support from contingent capital calls from their member countries. Section 53601 was amended effective January 1, 2015 to allow local agencies to invest in the senior debt obligations of these three supranational issuers which are eligible for purchase and resale within the United States. These entities were established with the purpose of ending poverty and raising the standard of living around the world through sustainable economic growth.
a) The supranationals are international organization owned by member countries.
These are:
International Bank for Reconstruction and Development (IBRD or World Bank), a member of the World Bank Group, provides direct loans and guarantees to sovereigns and government‐backed projects International Finance Corporation (IFC), a member of the World Bank Group, supports the creation and growth of private companies through direct lending and equity investment, attracting third party capital, and providing advisory services
Inter‐American Development Bank (IADB), a member of the Inter‐ American Development Bank Group, provides loans, grants, and guarantees to sovereigns in Latin America and the Caribbean
b) Additional characteristics shared by the IBRD, IFC, and IADB include:
Headquartered in Washington, D.C. with the United States as the largest shareholder of each organization
13. Asset‐Backed, Mortgage‐Backed, Mortgage Pass‐Through Securities, and Collateralized Mortgage Obligations are securities that represent pools of debt collateralized by an underlying pool of assets—usually ones that generate a cash flow from debt, such as mortgages, loans, leases, credit card balances, or receivables. It takes the form of a bond or note, paying income at a fixed rate for a set amount of time, until maturity.
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Investment Policy – Proposed Feb 2, 2026 | Page 18 of 24 APPENDIX B
EXPLANATION OF PROHIBITED INVESTMENTS
1. Reverse Repurchase Agreements: A Reverse Repurchase Agreement (Reverse REPO) is a contractual agreement by the investor (e.g. local agency) to post a security it owns as collateral, and a bank or dealer temporarily exchanges cash for this collateral, for a specific period of time, at an agreed‐upon interest rate. During the period of the agreement, the local agency may use this cash for any purpose. At maturity, the securities are repurchased from the bank or dealer, plus interest.
California law contains a number of restrictions on the use of Reverse REPOS by local agencies.
2. Derivatives: A derivative is a financial instrument created from, or whose value depends on (is derived from), the value of one or more underlying assets or indices. The term "derivative" refers to instruments or features, such as forwards, futures, currency and interest rate swaps, options, caps and floors. Except for those callable and multi‐step‐up securities as described under Permitted Investments, derivatives are prohibited.
Certain derivative products have characteristics which could include high price volatility, liquid markets, products that are not market‐tested, products that are highly leveraged, products requiring a high degree of sophistication to manage, and products that are difficult to value.
According to California law, a local agency shall not invest any funds in inverse floaters, range notes, or interest‐only strips that are derived from a pool of mortgages.
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Investment Policy – Proposed Feb 2, 2026 | Page 19 of 24 APPENDIX C
GLOSSARY OF INVESTMENT TERMS
AGENCIES: Federal agency and instrumentality securities.
ASKED: The price at which securities are offered.
BID: The price offered by a buyer of securities (when one sells securities, one asks for a bid). See “Offer”.
BROKER: A person or institution that conducts investment transactions on behalf of the buyer and
seller of the investment and earns a commission on the transaction.
COLLATERAL: Securities, evidence of deposit, or other property, which a borrower pledges to secure repayment of a loan. Also refers to securities pledged by a bank to secure deposits of public monies.
ANNUAL COMPREHENSIVE FINANCIAL REPORT
(ACFR): The official annual report for the City of
Palo Alto. It includes combined financial statements for each individual fund and account group prepared in conformity with Generally Accepted Accounting Principles and pronouncements set forth by the Governmental Accounting Standards Board (GASB). The ACFR also includes supporting schedules that are necessary to demonstrate compliance with finance‐ related legal and contractual provisions, extensive introductory material, and a detailed statistical section.
COUPON: The annual rate of interest that a bond’s issuer promises to pay the bondholder on the bond’s face value or the certificate attached to a bond evidencing interest due on a payment date.
DEALER: A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
DEBENTURE: A bond secured only by the general credit of the issuer.
DELIVERY VERSUS PAYMENT: There are two methods of delivery of securities: (1) delivery versus
payment (DVP); and (2) delivery versus receipt (DVR). DVP is delivery of securities with an exchange of money for the securities. DVR is delivery of securities with an exchange of a signed receipt for the securities.
DISCOUNT: The difference between the acquisition cost of a security and its value at maturity when quoted at lower than face value. A security that sells below original offering price shortly after sale, is also is considered to be at a discount.
DISCOUNT SECURITIES: Non‐interest‐bearing money market instruments that are issued a discount and that are redeemed at maturity for full face value (e.g., U.S. Treasury Bills).
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DIVERSIFICATION: Dividing investment funds among a variety of securities that offer independent returns.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION (“FAMC” or “FMAC”):
A federal agency
established in 1988 to provide a secondary market for farm mortgage loans. Informally called Farmer Mac.
FEDERAL CREDIT AGENCIES: Agencies of the Federal Government that were established to supply credit to various classes of institutions and individuals (e.g., S&Ls, small business firms, students, farmers, farm cooperatives, and exporters).
FEDERAL DEPOSIT INSURANCE CORPORATION (“FDIC”): A federal agency that insures all types of deposits received at an insured bank, including deposits in a checking account, negotiable order of withdrawal (NOW) account, savings account, money market deposit account (MMDA) or time deposit such as a certificate of deposit (CD). FDIC insurance covers depositors' accounts at each insured bank, dollar‐for‐dollar, including principal and any accrued interest through the date of the insured bank's closing, up to the insurance limit.
The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these investments are purchased at an insured bank. The FDIC does not insure U.S. Treasury bills, bonds or notes, but these investments are backed by the full faith and credit of the United States government.
The standard maximum deposit insurance amount is described as the “SMDIA” in FDIC regulations.
The SMDIA is $250,000 per depositor, per insured bank.
FEDERAL FUNDS RATE: The rate of interest at which Fed funds are traded. This rate is currently pegged by the Federal Reserve through open‐market operations.
FEDERAL HOME LOAN BANKS (“FHLB”): Government‐sponsored wholesale banks (currently 12 regional banks) which lend funds and provide correspondent banking services to member commercial banks, thrift institutions, credit unions, and insurance companies. The mission of the FHLBs is to liquefy the housing‐related assets of its members, who must purchase stock in their District Bank.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (“FNMA”): FNMA, like GNMA, was chartered under the Federal National Mortgage Association Act in 1938. FNMA is a federal corporation working under the auspices of the Department of Housing and Urban Development (HUD). It is the largest single provider of residential mortgage funds in the United States. Fannie Mae, as the corporation is called, is a private stockholder‐owned corporation. The corporation’s purchases include a variety of adjustable mortgages and second loans, in addition to fixed‐rate mortgages.
FNMA’s securities are also highly liquid and are widely accepted. FNMA assumes and guarantees that all security holders will receive timely payment of principal and interest.
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FEDERAL OPEN MARKET COMMITTEE (“FOMC”): The FOMC consists of seven members of the Federal Reserve Board and five of the 12 Federal Reserve Bank Presidents. The President of the New York Federal Reserve Bank is a permanent member, while the other Presidents serve on a rotating basis. The Committee periodically meets to set Federal Reserve guidelines regarding purchases and sales of government securities in the open market, as a means of influencing the volume of bank credit and money.
FEDERAL RESERVE SYSTEM: The central bank of the United States created by Congress and consisting of a seven‐member Board of Governors in Washington, D.C., 12 regional banks, and about 5,700 commercial banks that are members of the system.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (“GNMA” or “Ginnie Mae”): Securities that influence the volume of bank credit that is guaranteed by GNMA and issued by mortgage bankers, commercial banks, savings and loan associations, and other institutions. A security holder is protected by the full faith and credit of the U.S. Government. Ginnie Mae securities are backed by the FHA, VA, or FMHM mortgages. The term “pass‐throughs” is often used to describe Ginnie Maes.
LIQUIDITY: A liquid asset is one that can be converted easily and rapidly into cash without a substantial loss of value. In the money market, a security is said to be liquid if the spread between bid
and asked prices is narrow, and reasonable amount can be done at those quotes.
LOCAL GOVERNMENT AGENCY: A local government agency is any city, county, city and county, district, or other local governmental body or corporation, including the California State Universities (CSU) and University of California (UC) systems, K‐12 schools and community colleges empowered to expend public funds.
LOCAL GOVERNMENT INVESTMENT FUND (“LAIF”): Monies from local governmental units may be remitted to the California State Treasurer for deposit in this special fund for the purpose of investment.
MARKET VALUE: The price at which a security is trading and could presumably be purchased or sold.
MASTER REPURCHASE AGREEMENT: A written contract covering all future transactions between the parties to repurchase‐reverse repurchase agreements that establish each party’s rights in the transactions. A master agreement will often specify, among other things, the right of the buyer (lender) to liquidate the underlying securities in the event of default by the seller (borrower).
MATURITY: The date upon which the principal or stated value of an investment becomes due and payable.
MONEY MARKET: The market in which short‐term debt instruments (e.g., bills, commercial paper, and bankers’ acceptances) are issued and traded.
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OFFER: The price asked by a seller of securities (when one buys securities, one asks for an offer). See “Asked” and “Bid”.
OPEN MARKET OPERATIONS: Purchases and sales of government and certain other securities in the open market by the New York Federal Reserve Bank, as directed by the FOMC in order to influence the volume of money and credit in the economy. Purchases inject reserves into the bank system and stimulate growth of money and credit; sales have the opposite effect. Open market operations are the Federal Reserve’s most important and most flexible monetary policy tool.
PORTFOLIO: A collection of securities that an investor holds.
PRIMARY DEALER: A group of government securities dealers that submit daily reports of market activity and positions, and monthly financial statements to the Federal Reserve Bank of New York, and are subject to its informal oversight. Primary dealers include Securities and Exchange Commission (SEC) ‐‐ registered securities broker‐dealers, banks, and a few unregulated firms.
PRUDENT INVESTOR RULE: An investment standard cited in the California Government Code Section 53600 et seq. Under this standard, all governing bodies of local agencies or persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the prudent investor standard. When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the agency.
QUALIFIED PUBLIC DEPOSITORIES: A financial institution that: (1) does not claim exemption from the payment of any sales, compensating use, or ad valorem taxes under the laws of this state; (2) has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability; and (3) has been approved by the Public Deposit Protection Commission to hold public deposits.
RATE OF RETURN: The yield obtainable on a security based on its purchase price or its current market price.
SAFEKEEPING: A service to customers rendered by banks for a fee whereby securities and valuables of all types and descriptions are held in the bank’s vaults for protection.
SECONDARY MARKET: A market made for the purchase and sale of outstanding issues following the initial distribution.
SECURITIES AND EXCHANGE COMMISSION: An agency created by Congress to administer securities legislation for the purpose of protecting investors in securities transactions.
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Investment Policy – Proposed Feb 2, 2026 | Page 23 of 24 STRUCTURED NOTES: Notes issued by instrumentalities (e.g., FHLB, FNMA, SLMA) and by corporations, that have imbedded options (e.g., call features, step‐up coupons, floating rate coupons, derivative‐based returns) in their debt structure. The market performance of structured notes is affected by fluctuating interest rates; the volatility of imbedded options; and shifts in the yield curve.
SUPRANATIONALS: International institutions that provide development financing, advisory services and/or financial services to their member countries to achieve the overall goal of improving living standards through sustainable economic growth. The California Government Code Section 53601 allows local agencies to purchase the United States dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), or Inter‐American Development Bank (IADB).
TIME CERTIFICATE OF DEPOSIT: A non‐negotiable certificate of deposit, which cannot be sold prior to maturity.
TREASURY BILLS: A non‐interest‐bearing
discount security that is issued by the U.S. Treasury to finance the national debt. Most T‐bills are issued to mature in three months, six months, or one year.
TREASURY BONDS: Long‐term, coupon‐bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of more than 10 years.
TREASURY NOTES: Medium‐term, coupon‐bearing U.S. Treasury securities that are issued as direct obligations of the U.S. Government, and having initial maturities of two to 10 years.
YIELD: The rate of annual income return on an investment, expressed as a percentage.
YIELD‐TO‐CALL (YTC): The rate of return an investor earns from a bond assuming the bond is redeemed (called) prior to its nominal maturity date.
YIELD‐TO‐MATURITY: The current income yield minus any premium above par or plus any discount from par in purchase price, with the adjustment spread over the period from the date of purchase to the date of maturity.
ZERO‐COUPON SECURITIES: Security that is issued at a discount and makes no periodic interest payments. The rate of return consists of a gradual accretion of the principal of the security and is payable at par upon maturity.
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Investment Policy – Proposed Feb 2, 2026 | Page 24 of 24 Recommended: Date:__________________
Chief Financial Officer
Approved: Date:__________________
City Manager
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Public Works
Meeting Date: February 9, 2026
Report #:2509-5246
TITLE
Adoption of a Resolution Authorizing the City Manager to Negotiate and Execute Purchase Orders with To-Be-Determined Vendor(s) to Procure Nine Vehicle/Equipment Purchases for a Total Not-to-Exceed Amount of $1,430,000; Approval of a Fourth Amended and Restated Purchase Order Number 4521000199 with Altec Industries, Inc., to Increase the Purchase Order Amount by $94,911 to a New Not-to Exceed Amount of $1,167,986 for Two Vehicle/Equipment Purchases; and Amend the FY 2026 Budget in the Vehicle Replacement and Maintenance Fund and Electric Funds; CEQA Status – Not a Project
RECOMMENDATION
Staff recommends that the City Council:
1. Adopt a resolution to authorize the City Manager or their designee to:
a. Negotiate and execute a purchase order in an amount not to exceed $300,000 with a to-be-determined vendor for the purchase of One Cable Handling Trailer; b. Negotiate and execute a purchase order in an amount not to exceed $430,000 with a to-be-determined vendor for the purchase of One CAT Wheel Loader; c. Negotiate and execute a purchase order(s) in an amount not to exceed $700,000 with a to-be-determined vendor(s) for the purchase of 7 patrol vehicles; and
2. Approve and authorize the City Manager or their designee to amend Purchase Order No. 451000199 with Altec Industries, Inc., to increase the previously approved Purchase Order amount by $94,911, for a new total not-to-exceed amount of $1,167,986, which includes a 5% contingency in the amount of $55,618 for unforeseen cost increases, for the purchase of two 2025 Peterbilt 548 Hydraulic Digger Derricks, utilizing a cooperative purchase agreement via Sourcewell, a cooperative purchasing agency serving government and not-for-profit organizations; and
3. Amend the Fiscal Year 2026 Budget Appropriation (by a 2/3 vote) for Item 4
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a. The Utilities Electric Fund by:
i. Increasing the transfer to the Vehicle Replacement and Maintenance Fund in the amount of $94,911; and
ii. Decreasing the Electric Distribution Reserve in the amount of $94,911; and
b. The Vehicle Replacement and Maintenance Fund by:
i. Increasing the transfer from the Utilities Electric Fund by $94,911; and ii. Increasing the expense appropriation for the Scheduled Vehicle and Equipment Replacement Fiscal Year 2020 project (VR-20000) by $94,911.
EXECUTIVE SUMMARY
This report seeks City Council authorization for the purchase of essential fleet equipment previously approved as part of the Fiscal Year 2026 Capital Budget, including one cable reel trailer, one Caterpillar wheel loader, and seven police patrol vehicles. Delegating purchase authority to the City Manager will enable staff to secure these units within rapidly changing and often narrow industry ordering windows, ensuring timely replacement and continued operational reliability. The report also requests approval of a fourth amended and restated purchase order with Altec Industries, Inc., to increase funding by $94,911 for two hydraulic digger derricks, correcting a sales tax omission identified from the prior Council action in Staff Report #2504-45671. Budget amendments are included to align appropriations with updated costs. Together, these actions support continuity of critical City services, maintain compliance with the fleet replacement policy, and advance the City Council’s long-term sustainability and fleet electrification goals where feasible.
BACKGROUND
The Vehicle and Equipment Use, Maintenance, and Replacement Policy section 4-1 provides for the on-going replacement of City fleet vehicles and equipment. Replacements are scheduled using guidelines based on age, mileage accumulation, and obsolescence. Policy 4-1 prescribes a replacement interval of 5 years or 100,000 miles for full-size police patrol vehicles and 5-15 years or 5,000 hours for trailers and miscellaneous construction equipment.
Over the last several years, the City has experienced limited vehicle availability, rising costs, and very narrow ordering windows due to ongoing supply chain challenges in the automotive and equipment industries. These constraints have made it increasingly difficult to complete fleet replacements in a timely manner, as ordering windows often close before staff can complete 1 City Council, September 15, 2025; Agenda Item #7; SR #2509-4567, https://portal.laserfiche.com/Portal/DocView.aspx?id=225740&repo=r-704298fc&searchid=cd6a53fb-c52b-40ae- 819a-afdfa2b3f9e0
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the standard procurement and Council approval process. These replacements were previously reviewed and approved by City Council as part of the adopted Fiscal Year 2026 Capital Budget.
The two hydraulic digger derricks are being resubmitted to Council to correct an oversight in Staff Report #2504-4567, approved on the September 15, 2025 Council meeting’s consent calendar, where required sales tax was not included in the previously approved not-to-exceed amount.
ANALYSIS
To address recent supply chain and purchasing challenges, this report recommends that Council adopt a resolution (Attachment B) authorizing the City Manager to negotiate and execute purchase orders for one cable reel trailer, one Caterpillar wheel loader, and seven police patrol vehicles programmed for replacement in Fiscal Year 2026. Delegating final purchase authority will allow staff to act quickly when ordering opportunities arise, ensuring that replacements are secured in line with City policy, fleet needs, and Council’s goals, including the continued transition toward vehicle electrification.
Cable Reel Trailer (1 unit): The City owns and operates a single 2006 Hogg & Davis Cable Reel Trailer (Unit 7681), purchased in 2008, programmed for replacement in Fiscal Year 2026. This specialized utility trailer is employed by the Utilities Department to remove, transport, and install reels of electrical cable across the City’s distribution network. This equipment plays a critical role in the City’s infrastructure maintenance by streamlining cable handling tasks, reducing downtime of utilities services, and supporting efficient system upgrades.
Caterpillar Wheel Loader (1 unit): The City owns a single 2008 Caterpillar 950H Wheel Loader (Unit 4326), purchased in 2008, which meets the City’s replacement criteria and is scheduled for replacement in Fiscal Year 2026. The Utilities Department operates the loader at the Municipal Service Center to handle construction spoils, street sweeping debris, and tree sections for off-hauling. Its large, high-reach design is necessary for loading into tall end-dump trucks and it is the only unit in the fleet capable of moving and operating material screeners.
While primarily used by Utilities, it also supports Public Works with off-loading tasks as needed.
Police Patrol Vehicles (7 units): The City owns and operates a total of 31 patrol vehicles within the Police Department. Seven patrol vehicles meeting or exceeding the City’s replacement criteria are programmed for replacement in Fiscal Year 2026. The vehicles are assigned to patrol operations and are utilized by multiple shifts to provide continuous law enforcement coverage throughout the community. Of these seven units, funding was budgeted for two Rivian R1S models to further vehicle electrification of the Police fleet, and five hybrid units.
Hydraulic Digger Derricks (2 units): The replacement of two hydraulic digger derricks was previously approved by Council. Staff identified a discrepancy related to sales tax that was not reflected in the original not-to-exceed amount. Staff is requesting approval of a fourth Item 4
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amended and restated purchase order, with an increase of $94,911 to correct for this error.
This adjustment will enable the City to proceed with the purchase as intended and maintain operational continuity for utility field operations.
Fleet Electrification Goals
The City continues to advance its fleet electrification and greenhouse gas reduction goals by prioritizing zero-emission and low-emission vehicle technologies where operationally feasible.
Fleet replacement decisions are evaluated on a vehicle-by-vehicle basis, taking into account maintenance schedules, operational requirements, infrastructure readiness, and total cost of ownership. Where fully electric options are not currently viable, hybrid or conventional fuel vehicles are used to maintain essential services while supporting a phased transition toward electrification.
The City currently operates 41 active battery electric vehicles across multiple departments.
Additionally, more than 70 fleet vehicle replacements are planned to transition to electric over the next five fiscal years, reflecting Council’s long-term sustainability objectives. These planned replacements are separate from, and in addition to, the vehicles proposed in this staff report.
The vehicle purchases included in this report support the City’s electrification goals while meeting operational needs.
Police Patrol Vehicles (7 units): Two of the seven vehicles will be fully electric Rivian R1S vehicles, expanding the use of zero-emission vehicles in the Police Department. Five patrol vehicles will be hybrid gasoline-electric models, selected to provide emissions reductions while maintaining the range, refueling flexibility, and reliability required for multi-shift patrol operations. EV charging capacity at the Public Safety Building continues to be evaluated and expanded.
Caterpillar Wheel Loader (1 unit): There is no commercially available electric wheel loader that can reliably meet the City’s operational requirements. The replacement will be diesel-powered and is necessary to ensure continuity of critical Utilities and Public Works operations.
Hydraulic Digger Derricks (2 units): The hydraulic digger derricks are diesel-powered; no electric or hybrid alternatives perform the necessary utility line work. Staff will continue to monitor advancements in zero-emission utility truck technologies for future replacements.
Overall, this procurement reflects a balanced and incremental approach to fleet electrification by expanding electric vehicle adoption where feasible, incorporating hybrid technology to provide near-term benefits, and utilizing conventional fuel vehicles only where necessary to maintain safe and reliable City services.
Procurement Process
Staff plans to follow the City’s procurement regulations as outlined in the PAMC. Processes Item 4
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authorized may utilize a cooperative purchasing agreement, such as Sourcewell, in lieu of conducting competitive solicitations, allowed under PAMC section 2.30.360 (j), and/ or may include formal solicitations as would otherwise be required by PAMC section 2.30.310 (b). The procurement method for the vehicles will also be determined at a later date. As the order window is often short, this delegation to the City Manager allows staff to move quickly with the dealer to secure the vehicles whether through bidding or a cooperative purchasing agreement process.
Palo Alto Municipal Code section 2.30.360 (j) allows the use of cooperative purchasing agreements in lieu of conducting a competitive solicitation. Altec was awarded a contract by Sourcewell, a cooperative purchasing agency serving governmental, higher education, K-12 education, not-for-profit, tribal government, and other public agencies. For the Digger Derrick vehicles, Sourcewell conducted a Request for Proposals under which Altec Capital was an awarded vendor. Altec’s contract with Sourcewell was subsequently amended to allow Altec to increase its contract pricing.
Staff recommends that Council approve the amended purchase order with Altec Industries, Inc. (Attachment A) for the purchase of two 2025 Peterbilt 548 Hydraulic Digger Derricks. Staff has considered alternatives and believes this remains the most cost-effective means of procuring the required equipment. If this request is not approved, the City will forfeit the two 2025 Peterbilt 548 chassis that are designated for this build. Staff would then have to request a new specification and quote for a later year model chassis and return to Council for approval. This would further increase the purchase cost and delay the delivery of these new vehicles.
FISCAL/RESOURCE IMPACT
Funding was approved and is available for the purchase of the cable reel trailer, Caterpillar wheel loader, and seven police patrol vehicles in the Vehicle Replacement Fund Scheduled Vehicle and Equipment Replacement – Fiscal Year 2026 project (VR-26000), including funding for the purchase of two Rivian R1S models, supporting the City’s fleet electrification and sustainability goals. Despite recent budget reductions, staff is not recommending deferral of these replacements as the equipment and vehicles support critical operational and public safety functions and are among the high-priority needs identified in the City‘s replacement program.
While other aging vehicles have been deferred, these units have reached the end of their useful life and present increasing maintenance, reliability, and operational continuity risks if not replaced. Replacement recommendations were reviewed through the Fleet Review Committee to ensure purchases are strategic, fiscally responsible, and aligned with operational necessity.
To fund the amended purchase of the two 2025 Peterbilt 548 Hydraulic Digger Derrick trucks, the Fiscal Year 2026 budget will be amended by increasing the transfer from the Electric Fund to the Vehicle Replacement and Maintenance Fund by $94,911 and decreasing the Electric Distribution Reserve by the same amount. Both the expense and revenue Fiscal Year 2026 appropriations in the Scheduled Vehicle and Equipment Fiscal Year 2020 project (VR-20000) will Item 4
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also be increased by $94,911. As a result of the adjustments, the average cost of each truck is now estimated at over $556,000, when originally, they were estimated at $316,933 in 2021.
STAKEHOLDER ENGAGEMENT
Requests for vehicle replacements are presented to the Fleet Review Committee (FRC) for approval during the development of the proposed budget and any deviation from these plans is also reviewed by the Committee. The FRC is comprised of executive leadership representatives from the Public Works and Administrative Services Departments and the City Manager’s Office.
Additionally, Fleet staff review proposed vehicle replacements with the departments using the vehicles.
ENVIRONMENTAL REVIEW
This purchase is exempt from the provisions of the California Environmental Quality Act (CEQA) under sections 10560 and 10561.
ATTACHMENTS
Attachment A: Altec Quote for Digger Derricks
Attachment B: Resolution Authorizing City Manager to Procure Trailer, Wheel Loader, and Police Patrol Vehicles
APPROVED BY:
Brad Eggleston, Director Public Works/City Engineer
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Quote Number: 1512085
Opportunity Number: 23081082
Sourcewell Contract #: 110421-ALT
Date: 9/26/2025
REFERENCE ALTEC MODEL
Sourcewell
Price
50' Fully Hydraulic derrick, rear mount $329,955
(A.)
1 DH50-E 50' Electric / Hydraulic Derrick, Rear Mount (DH50E) $5,451 (A1.)
1 RADIO RADIO REMOTE CONTROLS (Required with Platfrom) $16,414 2 BOSL Boom Out of Stow Indicator for Lower Boom $385
3 UHPP UHPP – Hydraulic pole puller. Used to pull poles for replacement.Comes with 7’ of 1/2” high tensile chain and a base. Powered bylower tool circuit at 8 gpm. $2,592 4 HRS
HOSE REEL. Spring Loaded for Mounting 25’ Conductive Hoses with HTMA Quick Couplings that Come with the Lower Tool Circuit. When it is an available option, Lower Tool Circuit Must be Ordered Separately.
$2,088
5 POP1 Plastic Outrigger Pad, 24" x 24" x 1" (Pair) $597 6 SPOT4 SIX (6) POINT STROBE SYSTEM (LED) $1,220
7 DLB2 Directional Light Bar (Amber, 42"L, Super-LED) $2,254 8 SPOT6 Remote Spot Light, LED, Permanent Mount, With Wireless Dash Mounted Controls And Programmable Wireless Remote $1,066
PSWI2 Inverter with minimum 3000W 120V @ 25A pure sine wave output, hardwired to outlets and 12VDC input. $3,766
BATSTOR Deep Cycle Auxiliary Battery for Vented Applications & Remote Steel Enclosure $2,154 VRI 120 Volt GFCI Receptacle, Includes Weather-Resistant Enclosure (3) $1,095 VCAM Backup Camera System $1,313
PTO-HM PTO Hour Meter Digital with 10,000 Hour Display $182 SOURCEWELL OPTIONS TOTAL: $370,532
(B.)
1 UNIT Custom Unit Options $13,151
2 UNIT & HYDRAULIC ACC Unit/Hydraulic Custom options $8,163 3 BODY Custom body ILO standard body $27,938
4 BODY & CHASSIS ACC Custom body & chassis accessories $10,867 5 ELECTRICAL Custom electrical options $6,223
6 FINISHING Paint, Non-skid, Inbound Freight, & Inspection $25,436 7 CHASSIS MY27 Peterbilt 548 $55,095
8 OTHER $0
OPEN MARKET OPTIONS TOTAL: $146,873
SUB-TOTAL FOR UNIT/BODY/CHASSIS: $517,405.00
Delivery to Customer:
Estimated Taxes (Delivery non-taxable):
FET:
CA Doc/Admin/Tire Fees:
$715.00
$47,213.21
TBD
$542.50
Extended Warranty: $12,160.00
Sentry Training $4,552.96
TOTAL FOR UNIT/BODY/CHASSIS: $582,588.67
BUILD LOCATION: TBD
WARRANTY: Standard Altec Warranty for Aerials and Derricks - One (1) year parts warranty One (1) year labor warranty Ninety (90) TRADE-IN: Please ask your Altec Account Manager for more information CHASSIS: Per Altec Commercial Standard
DELIVERY: No later than ___24__ months ARO, FOB Customer Location TERMS: Net 30 days
BEST VALUE: Altec boasts the following "Best Value" features: Altec ISO Grip Controls for Extra Protection, Only Lifetime Warranty on Structural Components in Industry, Largest Service Network in Industry (Domestic and Overseas), Altec SENTRY Web/CD Based Training, Dedicated/Direct Gov't Sales Manager, In-Service Training with Every Order.
TO ORDER: To order, please contact the Altec Account Manager listed above. **Pricing valid for 45 days**
NOTES
PAINT COLOR: White to match chassis, unless otherwise specified Quoted by: Allyson Day
Altec Account Manager: Michael Russell
Email: [email protected]
PRICING: Altec will make every effort to honor this quotation, subject to the following provisions. Prices for equipment with production start dates 12 months and beyond are budgetary only due to irregular cost inflation and market volatility. These prices will be reviewed based on market conditions and confirmed closer to the production date. Quotes and orders with chassis model year beyond the current open order bank, should be considered estimates only. Altec's turn-key pricing is subject to change in accordance with chassis pricing received from the OEM. Chassis model year, specifications and price will be reviewed and confirmed when specific model year information becomes available from the OEM and that chassis price difference will be passed through to the customer.
Altec Industries, Inc.
SOURCEWELL OPTIONS ON CONTRACT (Unit)
SOURCEWELL OPTIONS ON CONTRACT (General)
OPEN MARKET ITEMS (Customer Requested)
DH50
Quoted for: City of Palo Alto
Customer Contact: Danitra Bahlman
Phone: / Email: 650-496-5920 / [email protected] City of Palo Alto DH50E Sourcewell Q1512085-7- Peterbilt Chassis Item 4
Attachment A - Altec Quote
for Digger Derricks
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Quote Number: 1666173
Opportunity Number: 24118673
Sourcewell Contract #: 110421-ALT
Date: 9/26/2025
REFERENCE ALTEC MODEL
Sourcewell
Price
60' Digger Derrick $353,741
(A.)
1 D3060E-JIB 10ft. Material Handling Jib $1,584
(A1.)
1 BOSL Boom Out of Stow Indicator for Lower Boom $385
2 BOSU Boom Out of Stow Inficator for Upper Boom $385
3 MCR1 JIB ADAPTER. Jib adapter is for Altec 4.1" x 4.1" Square Jibs (Square to Round Conversion) $871
4 UA18 18” Diameter Dirt Auger Full Flight $1,912
5 UHPP UHPP – Hydraulic pole puller. Used to pull poles for replacement.Comes with 7’ of 1/2” high tensile chain and a base. Powered bylower tool circuit at 8 gpm. $2,592 6 RBS Rubber Belted Step $546
7 POP1 Plastic Outrigger Pad, 24" x 24" x 1" (Pair x2) $1,194 8 CH-R Cone Holder,Ring Style (qty 2) $628
9 SPOT4 SIX (6) POINT STROBE SYSTEM (LED) $1,220
10 DLB2 Directional Light Bar (Amber, 47"L, Super-LED) $2,254 11 SPOT6 Remote Spot Light, LED, Permanent Mount, With Wireless Dash Mounted Controls And Programmable Wireless Remote $1,066
12 VCAM Backup Camera System $1,313
13 PSWI2 Inverter with minimum 3000W 120V @ 25A pure sine wave output, hardwired to outlets and 12VDC input. $3,766
14 BATSTOR Deep Cycle Auxiliary Battery for Vented Applications & Remote Steel Enclosure (2) $4,308 15 VRI 120 Volt GFCI Receptacle, Includes Weather-Resistant Enclosure (3) $1,095 16 PTO-HM PTO Hour Meter Digital with 10,000 Hour Display $182 SOURCEWELL OPTIONS TOTAL: $379,042
(B.)
1 UNIT Custom unit options $8,130
2 UNIT & HYDRAULIC ACC Unit/Hydraulic Custom options $11,278 3 BODY Custom body ILO preferred body $15,244
4 BODY & CHASSIS ACC Custom body & chassis accessories $6,336 5 ELECTRICAL Custom electrical options $4,879
6 FINISHING Paint, non-skid, inbound freight, & inspection $27,251 7 CHASSIS Peterbilt 548 MY2027 ILO Freightliner M2-106 $21,023 OPEN MARKET OPTIONS TOTAL: $94,141
SUB-TOTAL FOR UNIT/BODY/CHASSIS: $473,183.00
Delivery to Customer:
Estimated Taxes (Delivery non-taxable):
FET:
CA Doc/Admin/Tire Fees:
$715.00
$43,177.95
TBD
$542.50
Extended Warranty: $12,160.00
TOTAL FOR UNIT/BODY/CHASSIS: $529,778.45
Altec Industries, Inc.
SOURCEWELL OPTIONS ON CONTRACT (Unit)
SOURCEWELL OPTIONS ON CONTRACT (General)
OPEN MARKET ITEMS (Customer Requested)
D3060E
Quoted for: City of Palo Alto
Customer Contact: Danitra Bahlman
Phone: / Email: 650-496-5920 / [email protected] **Pricing valid for 45 days**
NOTES
PAINT COLOR: White to match chassis, unless otherwise specified Quoted by: Allyson Day
Altec Account Manager: Michael Russell
Email: [email protected]
PRICING: Altec will make every effort to honor this quotation, subject to the following provisions. Prices for equipment with production start dates 12 months and beyond are budgetary only due to irregular cost inflation and market volatility. These prices will be reviewed based on market conditions and confirmed closer to the production date. Quotes and orders with chassis model year beyond the current open order bank, should be considered estimates only. Altec's turn-key pricing is subject to change in accordance with chassis pricing received from the OEM. Chassis model year, specifications and price will be reviewed and confirmed when specific model year information becomes available from the OEM and that chassis price difference will be passed through to the customer.
BUILD LOCATION: TBD
WARRANTY: Standard Altec Warranty for Aerials and Derricks - One (1) year parts warranty One (1) year labor warranty Ninety (90) TRADE-IN: Please ask your Altec Account Manager for more information CHASSIS: Per Altec Commercial Standard
DELIVERY: No later than ___24__ months ARO, FOB Customer Location TERMS: Net 30 days
BEST VALUE: Altec boasts the following "Best Value" features: Altec ISO Grip Controls for Extra Protection, Only Lifetime Warranty on Structural Components in Industry, Largest Service Network in Industry (Domestic and Overseas), Altec SENTRY Web/CD Based Training, Dedicated/Direct Gov't Sales Manager, In-Service Training with Every Order.
TO ORDER: To order, please contact the Altec Account Manager listed above.
City of Palo Alto Sourcewell - D3060E -Q1666173-2
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Attachment A - Altec Quote
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*NOT YET APPROVED*
1 0013_20260121_mv30
Resolution No. ____
Resolution of the Council of the City of Palo Alto Authorizing the City Manager to Negotiate and Execute Purchase Orders with To-Be-Determined Vendor(s) to Procure One Cable Handling Trailer, One Caterpillar Wheel Loader, and Seven Police Patrol Vehicles for a One-Time Purchase with a Total Not-to-Exceed Amount of $1,430,000
R E C I T A L S
A. The Vehicle and Equipment Use, Maintenance, and Replacement Policy, Section 4-1, provides for the on -going replacement of City fleet vehicles and equipment, and prescribes replacement intervals based on age, mileage accumulation, hours of use, and obsolesc ence, including a replacement interval of five (5) years or 100,000 miles for full -size police patrol vehicles, and five (5) to fifteen (15) years or 5,000 hours for trailers and miscellaneous construction equipment.
B. The City’s fleet includes one cable handling trailer, one Caterpillar wheel loader, and seven police patrol vehicles that meet or exceed the applicable replacement criteria and are programmed for replacement in Fiscal Year 2026.
C. Over the last several years, the City has experienced limited vehicle and equipment availability, rising costs, and very narrow ordering windows due to ongoing supply chain challenges in the automotive and heavy equipment industries, making it increasingly difficult to complete fleet replacements in a timely manner through the standard procurement and Council approval process.
D. Delegating authority to the City Manager, as permitted under the Municipal Code, to negotiate and execute purchase orders for the replacement equipment described above will allow the City to act efficiently and expeditiously when ordering windows become av ailable, while remaining consistent with Council policy and adopted fleet replacement plans.
NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. The City Manager or their designee is hereby authorized to negotiate and execute purchase orders with vendors, yet to be determined, to procure one (1) cable handling trailer, one (1) Caterpillar wheel loader, and seven (7) police patrol vehicles, for a on e-time purchase in a total amount not to exceed $1,430,000.
//
//
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Attachment B - Resolution
Authorizing City Manager to
Procure Trailer, Wheel
Loader, and Police Patrol
Vehicles
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*NOT YET APPROVED*
2 0013_20260121_mv30
SECTION 2. The Council finds that adoption of this resolution is not a project under the California Environmental Quality Act (CEQA) Guidelines section 15378(b)(5), as it is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment, and therefore no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
__________________________ _____________________________ City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
__________________________ _____________________________ Assistant City Attorney City Manager
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Attachment B - Resolution
Authorizing City Manager to
Procure Trailer, Wheel
Loader, and Police Patrol
Vehicles
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Public Works
Meeting Date: February 9, 2026
Report #:2512-5756
TITLE
Approval of an Increase of Construction Contingency for Contract No. C24189237 with SAK Construction, LLC in the Amount of $800,000 and Amend the FY 2026 Budget in the Wastewater Treatment Fund for the Joint Intercepting Sewer Rehabilitation (Phase 1) Project (WQ-24000); CEQA Status - Exempt under CEQA Guidelines Section 15301 (Repairs to Existing Facilities)
RECOMMENDATION
Staff recommends that the City Council:
1. Approve an increase in construction contingency for Contract No. C24189237 with SAK Construction, LLC in an amount not to exceed $800,000 for a total contract contingency amount not to exceed $4,334,770; and
2. Approve an amendment to the Fiscal Year 2026 Adopted Capital Budget Appropriation for the Wastewater Treatment Fund (requires a 2/3 vote) by:
a. Increasing the Joint Intercepting Sewer Rehabilitation (Phase 1) Project (WQ- 24000) appropriation by $800,000; and
b. Decreasing the Wastewater Treatment Fund balance by $800,000.
EXECUTIVE SUMMARY
The Joint Intercepting Sewer Rehabilitation (Phase 1) Project addressed critical structural deterioration in a 72-inch trunk sewer that conveys wastewater flows from Mountain View, Los Altos, Los Altos Hills, and a portion of Palo Alto. During construction, unforeseen site conditions, necessary design clarifications, and contractor sequencing challenges required multiple change orders that exhausted the original construction contingency. Staff recommends increasing the contingency for Contract No. C24189237 with SAK Construction, LLC. by $800,000, bringing the total contingency to $4,334,770 and the total potential contract not-to- exceed amount to $11,682,470.1
1 SAK Inc., Construction Contract for the Joint Intercepting Sewer Rehabilitation Project C24189237; https://paloalto.gov/files/assets/public/v/1/public-works/rwqcp/contracts/contract-c24189237_sak_signed.pdf Item 5
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Delivery delays for the two replacement gates extended the duration of the bypass system beyond what was originally anticipated, resulting in additional rental costs. Following completion of the work, staff initiated final change order negotiations and reviewed the original assumptions used to budget the bypass system. This review determined that the estimated duration for rental equipment associated with gate installation was insufficient and did not account for additional required rental (8 days) and associated costs. In addition, additional contingency is required to complete remaining restoration work outside of the RWQCP allowing for reopening of trails in Byxbee Park and to fully close out the project.
BACKGROUND
The Joint Intercepting Sewer Rehabilitation (Phase 1) Project rehabilitated 2,364 linear feet of deteriorated 72-inch diameter concrete sewer pipe to address extensive corrosion in a critical section of the Joint Intercepting Sewer (JIS) leading to the RWQCP. This section of the JIS conveys most of the wastewater flow from Mountain View, Los Altos, Los Altos Hills, and Palo Alto into the RWQCP. Construction began in winter 2024 but encountered unforeseen site conditions and contractor schedule and sequencing challenges, resulting in delays, multiple change orders, and an extension of field construction into the 2025 dry season.
In August 2025, City Council approved an increase of $1.8 million in contingency to allow extension of a bypass system to isolate and evaluate a major junction structure to the RWQCP.3 The inspection and testing confirmed that two of the gates used to control wastewater flows to the RWQCP were corroded beyond repair and required replacement. In addition, the junction box’s protective concrete coating had deteriorated over the years, leaving concrete exposed in the corrosive atmosphere. The entire box required concrete repair and recoating.
In October 2025, City Council approved an additional increase of $1 million to cover operation of a bypass operation to install new gates and close-out of the project.4 The costs for this portion of the bypass system included rental of additional pumps, mechanical piping manifolds, valves and other appurtenances in addition to costs to operate the system. Rental rates of equipment and operations costs were negotiated with the contractor and were subject to extension if equipment deliveries or installation activities were delayed.
Total contingency was amended to a not-to-exceed amount of $3,534,770, as documented in Staff Reports #2505-4733 and #2508-5114.2,3
3 City Council, August 11, 2025; Agenda Item #10; SR #2505-4733 https://portal.laserfiche.com/Portal/DocView.aspx?id=212556&repo=r-704298fc&searchid=04bc1591-7a68-4621- 94d3-b6f203e01141
4 City Council, October 20, 2025; Agenda Item #5; SR #2508-5114 https://portal.laserfiche.com/Portal/DocView.aspx?id=231075&repo=r-704298fc 3 City Council, August 11, 2025; Agenda Item #10; SR #2505-4733, https://portal.laserfiche.com/Portal/DocView.aspx?id=212556&repo=r-704298fc&searchid=991e534b-ab35-4d0a- 99ec-c20b29fcc807
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ANALYSIS
Staff recommends increasing the total authorized contingency for Contract No. C24189237 with SAK construction, LLC by $800,000 to $4,334,770, resulting in a revised total not-to-exceed contract amount of up to $11,682,470. From the total additional contingency amount of $800,000, approximately $125,000 will cover the additional repair work in Byxbee Park and the remaining $675,000 will be used to cover for the discrepancy in the estimate for the operation of the temporary bypass system within the RWQCP and remaining change order items still under discussion.
To allow isolation of Junction Box No. 0 (JB-0) inside RWQCP, to evaluate structural conditions, remove the deteriorated box concrete coating, perform concrete repairs followed by recoating of the concrete, and replace two severely corroded gates that control influent flows, two Contingency increases were previously approved. The contractor was requested to remove accumulated grit in the box and in the RWQCP Influent Pump Station wet well over three consecutive weekend nights to protect the downstream pumps and other equipment from damage. Procurement and installation of the new gates were performed under the RWQCP’s On-Call Emergency Construction contract. Installation of the gates inside JB-0 required that a portion of the temporary bypass system used during the main relining phase of the Project remain in operation to keep JB-0 isolated.
The design and cost assumptions for the temporary bypass system accounted for the operational complexity of the work, including the requirement for continuous 24/7 monitoring by qualified personnel to ensure system performance and protect public health and safety, particularly important during periods of inclement weather or elevated wastewater flows.
Because the bypass system was already installed under the SAK contract, staff extended bypass operations under SAK’s existing contract to minimize mobilization costs.
Subsequent delays in the delivery of the replacement gates extended the period during which the temporary bypass system was required to remain in operation beyond the duration originally assumed. As a result, additional equipment rental (8 days) and associated costs were incurred. In November 2025, the replacement gates were successfully installed, and the bypass system was subsequently removed. The RWQCP resumed normal operations on November 12, 2025.
Following completion of the construction work, staff initiated final change order negotiations and determined that the estimated duration for rental equipment required to support gate installation was insufficient. The original assumptions allowed eight weeks for gates fabrication and shipment; however it was nine weeks until the gates arrived on site, resulting in daily rental costs of eight more days until the actual work to install the gates began. As a result, additional construction contingency is required to close out the project.
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In addition to bypass system rental costs, additional restoration work outside the RWQCP is required including trail restoration from the East Bayshore Road entrance to Byxbee Park and along the JIS alignment next to Byxbee Park hill. The total estimated cost for the trail restoration work is $125,000.
FISCAL/RESOURCE IMPACT
The Joint Intercepting Sewer Rehabilitation (Phase 1) Project (WQ-24000) is a cost-shared capital improvement project among the four primary partner agencies — Palo Alto, Mountain View, Los Altos, and Los Altos Hills— based on previously approved cost- sharing percentages, as shown in Table A-1 of Attachment A.
Expenses for bypass pumping required inside the RWQCP to complete the work at JB-0 are allocated across all six partner agencies— Palo Alto, Mountain View, Los Altos, Los Altos Hills, Stanford University, and East Palo Alto Sanitary District—because the RWQCP uses the JIS to convey plant-wide internal return flows to the headworks (Table A-2 of Attachment A). Palo Alto’s share of these expenses inside the RWQCP is estimated to be approximately 36%, and the other five agencies’ share is approximately 64%.
Therefore, Palo Alto’s share of the recommended increase in construction contingency is approximately $288,000 (36%) of the $800,000 (Table A-3 of Attachment A). While a decrease in the Wastewater Treatment Fund reserve is recommended to support the increased contingency, the reserve will be replenished with revenue from the partners for their 64% share of costs during a true-up in the next fiscal year. Palo Alto’s overall share of the entire Project— including work both inside and outside the RWQCP— is approximately $3,429,000, or 26%, reflecting the combination of cost allocation methodologies applied to different components of the Project. Tables A-2 and A-3 in Attachment A provide detailed breakdowns of the bypass expenses inside the RWQCP and the updated not-to-exceed project costs by partner agency.
The recommendations in this report will increase the authorized contract contingency with SAK and authorize one or more change orders to the contract. Should additional funding be required beyond the amount authorized by this action, it would be subject to City Council approval through a future budget appropriation process.
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STAKEHOLDER ENGAGEMENT
This Project is part of the RWQCP’s major capital improvement program funded by the City of Palo Alto and its five partners. The five partner agencies are regularly consulted regarding both the need for and the progress of wastewater treatment capital work. With respect to Palo Alto itself, the open meetings on the budget process serve as the main vehicle for engaging the community on both new projects such as this and associated rate impacts. Staff also responded to public inquiries throughout the Project’s duration.
In addition, staff has coordinated with the Community Services Department and other Public Works Department staff to coordinate construction activities, bypass pumping, access, and trail detours in the park and at the closed landfill. The Byxbee Park trail restoration effort concluded on December 22, 2025.
ENVIRONMENTAL REVIEW
Council action on this item is exempt from review under the California Environmental Quality Act (CEQA) under CEQA Guidelines Section 15301, subsection (b) as it involves the repair and maintenance of an existing publicly-owned utility used to provide sewerage treatment services with no expansion on the existing facility.
ATTACHMENTS
Attachment A: Partner Agencies Cost Share Summary for Construction (Revised December 2025)
APPROVED BY:
Brad Eggleston, Director Public Works/City Engineer
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Attachment A ‐ Partner Agencies Cost Share Summary for Construction Phase (Revised December 2025) Agency Initial Estimated Project
Cost (2023)
Estimated Cost
Oct 2025
Fixed Cost Share
%
Current Project
Increase Cost
Estimated Cost
December 2025
City of Mountain View $4,398,734 $4,808,985 62.50% $0 $4,809,000 City of Palo Alto $1,283,727 $1,403,454 18.24% $0 $1,403,000 City of Los Altos $1,055,696 $1,154,156 15.00% $0 $1,154,000 Town of Los Altos Hills $299,818 $327,780 4.26% $0 $328,000 Subtotal: $7,037,975 $7,694,376 100.00% $0 $7,694,000
Agency Initial Estimated Project
Cost in (2023)
Estimated Cost
Oct 2025
Est. Cost
Share %
Current Project
Increase Cost
Estimated Cost
December 2025
City of Mountain View $760,885 $1,917,000 41.50% $332,000 $2,249,000 City of Palo Alto $663,379 $1,738,000 36.01% $288,080 $2,026,000 City of Los Altos $206,393 $504,000 7.94% $63,520 $568,000 Town of Los Altos Hills $38,699 $97,000 2.02% $16,160 $113,000 East Palo Alto Sanitary District $104,904 $268,000 5.78% $46,240 $314,000 Stanford University $122,736 $310,000 6.75% $54,000 $364,000 Subtotal: $1,896,995 $4,834,000 100.00% $800,000 $5,634,000 Agency Initial Estimated Project
Cost (2023)
Estimated Cost
Oct 2025
Overall Increase
Cost Share %
Current Project
Increase Cost
Estimated Cost Oct
2025
City of Mountain View $5,159,619 $6,726,000 41.50% $332,000 $7,058,000 City of Palo Alto $1,947,106 $3,141,000 36.01% $288,080 $3,429,000 City of Los Altos $1,262,089 $1,658,000 7.94% $63,520 $1,722,000 Town of Los Altos Hills $338,516 $425,000 2.02% $16,160 $441,000 East Palo Alto Sanitary District $104,904 $268,000 5.78% $46,240 $314,000 Stanford University $122,736 $310,000 6.75% $54,000 $364,000 Total, Not‐to‐Exceed: $8,934,970 $12,528,000 100.00% $800,000 $13,328,000 Table A‐3: Not‐to‐Exceed Cost for Partners during Construction (Sum of Table A‐1 and A‐2) Table A‐1: Project Costs during Construction (Less Bypass Pumping Inside The Plant) Table A‐2: Cost for Bypass Pumping during Construction inside The Plant Item 5
Attachment A - Partner
Agencies Cost Share
Summary for Construction
(Revised December 2025)
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Community Services
Meeting Date: February 9, 2026
Report #:2511-5572
TITLE
Approval of Amendment No. 1. of the Future Talent of Silicon Valley dba First Tee - Silicon Valley (Contract S25192927) Facility Use Agreement to Extend the Term for Three Years to February 2029; CEQA status – not a project.
RECOMMENDATION
Approve of Amendment No. 1 to extend the Facility Use Agreement between the City of Palo Alto and First Tee – Silicon Valley for use of the Youth Practice Area at Baylands Golf Links for an additional three-years, with one optional two-year renewal.
EXECUTIVE SUMMARY
First Tee - Silicon Valley (FTSV) is a nonprofit youth development organization that uses golf as a platform to teach life skills, character development, and resilience to children and teens. Since October 2024, the City of Palo Alto (City) has partnered with FTSV under a short-term facility use agreement at Baylands Golf Links. Approval of the attached three-year Facility Use Agreement extension, with an optional two-year renewal, will provide program continuity, support equitable youth access to golf, and allow FTSV to pursue fundraising for capital improvements to the Youth Practice Area, while the City continues longer-term planning efforts related to the driving range and netting infrastructure.
BACKGROUND
FTSV’s mission is to enable youth to build strength of character that empowers them through a lifetime of new challenges. By integrating the game of golf with a structured life-skills curriculum, FTSV provides active learning experiences that promote confidence, resilience, and positive decision-making. Programs are designed to be inclusive and accessible to youth of diverse backgrounds, with affordability options for families experiencing financial hardship.
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On August 27, 20241, staff provided the Parks and Recreation Commission with an update on preliminary discussions with FTSV regarding a potential long-term partnership at Baylands Golf Links. In October 2024, the City executed a short-term Facility Use Agreement with FTSV, providing access to the Youth Practice Area through February 2026. This interim agreement was approved by the City Manager in alignment with procurement policies and procedures. This is a single source contract partnering with a local agency to provide these services, in alignment with the City’s recreation, equity, and community benefit goals. The services are not transactional, as they rely on established program models, curriculum, trained staff, and long- standing integration with the City’s golf facility and operations.
Staff subsequently provided an update as part of the Baylands Golf Links Report at the Parks and Recreation Commission meeting on May 27, 20252. Since that time, staff have continued coordination with FTSV, including meetings with the golf course operator, site visits, and discussions related to program access, site logistics, and potential capital investment.
ANALYSIS
FTSV has expressed interest in fundraising for capital improvements to the Youth Practice Area, such as completion of a natural turf youth practice area and perimeter netting improvements along Embarcadero Road. The ability to pursue fundraising and donor commitments is contingent on securing longer-term site access through a City-approved Facility Use Agreement.
In parallel, the City has re-engaged the National Golf Foundation to complete a Second Deck Feasibility Study for the Baylands Golf Links driving range. A ball-trajectory study is anticipated to be completed by February 2026 and will inform both safety considerations and the feasibility analysis. The study will evaluate the potential for a double deck driving range and include a financial pro forma based on current market conditions. The completed feasibility study is expected to be presented to the Parks and Recreation Commission in early 2026.
Given the expiration of the interim agreement in February 2026, staff is bringing forward this three-year agreement for City Council approval, with an optional two-year renewal that would require future City Council action, to ensure program continuity for youth participants while longer-term planning and capital decisions continue.
Related Capital Project
The FY 2026 Capital Improvement Program includes Project PG-18000, Golf Course Net and Artificial Turf Replacement, with a remaining budget of $770,000. Sequencing of the net replacement project, the Second Deck Feasibility Study, and coordination with First Tee – Silicon Valley is critical, as each effort is independent but directly influences the others. Staff is 1 Parks and Recreation Commission, August 27, 2024, Agenda Item #4, https://www.paloalto.gov/City- Hall/Boards-Commissions/Parks-and-Recreation-Commission 2 Parks and REcreation Commission, May 27, 2025, Agenda Item #4, SR #2505-4703, https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16896 Item 6
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continuing coordinated progress on this multi-faceted planning effort. Approval of this three- year extension with an optional two-year renewal will not restrict the City Council and staff’s multi-faceted planning and potential capital investments.
FISCAL/RESOURCE IMPACT
Approval of Amendment No. 1 results in continued annual revenue of $17,280 to the General Fund (Fund 102), totaling $51,840 over the three-year term. There are no additional appropriations required for this action, as the maintenance of the golf course facility, including turf management and irrigation is an existing fixed cost within the Community Services Department’s operating budget. The City provides no direct cash subsidy to the First Tee of FTSV, and the nominal incremental operational costs associated with FTSV’s specific use of the facility are partially offset by the annual revenue fee, ensuring the City receives compensation for the use of the facility in alignment with cost recovery goals for youth programs.
STAKEHOLDER ENGAGEMENT
Staff has engaged with internal and external stakeholders throughout the development of the proposed Facility Use Agreement with FTSV. Updates on discussions and potential partnership opportunities were provided to the Parks and Recreation Commission on August 27, 2024, and May 27, 2025, with an additional informational update included as part of the Commission’s November 25, 20255, meeting. These updates focused on program access, operational considerations, and alignment with broader planning efforts at Baylands Golf Links.
In parallel, staff conducted ongoing coordination with FTSV and the Baylands Golf Links operator beginning in 2024. This included meetings and site visits to review program operations, scheduling, safety considerations, and site logistics to ensure compatibility with existing golf course operations. Additional public outreach is not proposed at this time, as the action before City Council is limited to approval of a Facility Use Agreement and does not involve physical site changes or capital construction.
ENVIRONMENTAL REVIEW
The proposed action is not a project under the California Environmental Quality Act (CEQA), as it involves a facility use agreement with no physical changes to the site at this time.
ATTACHMENTS
Attachment A: The City of Palo Alto and the Future Talent of Silicon Valley dba First Tee – Silicon Valley Contract S25192927 Amendment No. 1
APPROVED BY: Kristen O'Kane, Community Services Director 5 Parks and Recreation Commission, November 25, 2025, Agenda Item #5, SR #2511-5439, https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=17529 Item 6
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AMENDMENT NO. 1 TO CONTRACT NO. S25192927
BETWEEN THE CITY OF PALO ALTO AND
THE FUTURE TALENT OF SILICON VALLEY dba FIRST TEE – SILICON VALLEY
This Amendment No. 1 (this “Amendment”) to Contract No. S25192927 (the “Contract” as defined below) is entered into as of February 10, 2026, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and THE FUTURE TALENT OF SILICON VALLEY dba FIRST TEE – SILICON VALLEY, a California non-profit, located at 2797 Park Ave. Suite 205, Santa Clara, CA 95050 (“CONTRACTOR ”). CITY and CONTRACTOR are referred to collectively as the “Parties” in this Amendment.
R E C I T A L S
A. The Contract (as defined below) was entered into by and between the Parties hereto for the provision of Youth Golf Programs, as detailed therein.
B. The Parties now wish to amend the Contract to extend the term an additional three years from February 28, 2026, to February 28, 2029 with the ability to extend the Contract for an additional two years (for a total of five years) . During this period, the Parties will discuss and negotiate a more robust agreement regarding First Tee’s improvement and use of the City’s golf facilities.
NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the Parties agree:
SECTION 1. Definitions. The following definitions shall apply to this Amendment:
a. Contract . The term “Contract” shall mean Contract No. S25192927 between CONSULTANT and CITY, dated October 18, 2024.
b. Other Terms . Capitalized terms used and not defined in this Amendment shall have the meanings assigned to such terms in the Contract.
SECTION 2. Section “TERM” of the Contract is hereby amended to read as follows:
TERM: THE SERVICES FURNISHED UNDER THIS AGREEMENT SHALL COMMENCE ON OCTOBER 18, 2024 AND SHALL BE COMPLETED ON OR BEFORE FEBRUARY 28, 2029. THE PARTIES MAY, UPON MUTUAL AGREEMENT, EXTEND THE TERM FOR AN ADDITIONAL TWO YEARS (e.g.
THROUGH FEBRUARY 28, 2031) OR ANY OTHER DURATION BY AMENDING THIS AGREEMENT IN WRITING.
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SECTION 3. The following exhibit(s) to the Contract is/are hereby amended or added, as indicated below, to read as set forth in the attachment(s) to this Amendment, which is/are hereby incorporated in full into this Amendment and into the Contract by this reference:
a. Exhibit “B” entitled “SCHEDULE OF PERFORMANCE”, AMENDED, REPLACES PREVIOUS.
b. Exhibit “C” entitled “COMPENSATION” AMENDED, REPLACES PREVIOUS.
SECTION 4. Legal Effect. Except as modified by this Amendment, all other provisions of the Contract, including any exhibits thereto, shall remain in full force and effect.
SECTION 5. Incorporation of Recitals . The recitals set forth above are terms of this Amendment and are fully incorporated herein by this reference.
SIGNATURES OF THE PARTIES
IN WITNESS WHEREOF, the Parties have by their duly authorized representatives executed this Amendment effective as of the date first above written.
CITY OF PALO ALTO
City Manager
APPROVED AS TO FORM:
City Attorney or designee
THE FUTURE TALENT OF SILICON
VALLEY dba FIRST TEE – SILICON
VALLEY
Officer 1
By:
Name:
Title:
Officer 2
By:
Name:
Title:
Attachments :
EXHIBIT B: EXHIBIT B SCHEDULE OF PERFORMANCE, AMENDMENT NO. 1 (AMENDED, REPLACES
PREVIOUS)
EXHIBIT C: COMPENSATION SCHEDULE , AMENDMENT NO. 1 (AMENDED, REPLACES PREVIOUS) Docusign Envelope ID: 804152DF-C116-4A76-B1E2-F7111144A644 George Maxe
President & CEO
Victor Arrañaga, Jr
Board Chair
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EXHIBIT B
SCHEDULE OF PERFORMANCE
(AMENDED, REPLACES PREVIOUS)
City shall provide the following spaces on a quarterly basis for the Contractor’s youth golf classes and development as follows:
Schedule:
▪ The annual schedule must align with all First Tee Silicon Valley locations. ▪ 4 Seasons per Calendar Year. (Spring, Summer, Fall, Winter) ▪ 8 Weeks per Season.
▪ Programs are to be scheduled Tuesday through Friday of each week (4 days per week). ▪ 3pm Set-Up or 2pm in Winter.
▪ Class Times are to be held from 4:30pm to 6pm or 3:30pm to 5pm in the Winter Season. ▪ Take-Down times are 6pm to 6:30pm or 5pm to 5:30pm in the Winter Season.
Classes:
▪ 2 Classes to be offered per day during the scheduled seasons at the agreed upon time. ▪ A maximum of 16 participants per class for a total maximum of 32 participants.
Practice Locations: – Locations to be mutually agreed upon by the City and Contractor. ▪ 4 Driving Range Bays will be accessible during the Spring, Summer, and Fall seasons. 8 Driving Range Bays will be accessible in Winter season. ▪ Areas of use include 1/3 of the Large Putting Green, 1/2 Chipping Green, or <100 Yard Point of Youth Practice Area
Golf Course Use:
▪ Six Tee Times will be scheduled from 4:30pm to 5:20pm on programmed days through the Spring, Summer, and Fall seasons. There will be no Tee Times scheduled in the Winter Season.
▪ The first and sixth Tee Times will be utilized as mandatory buffer zones during the scheduled use.
▪ Playing only golf course holes one to four.
Notwithstanding the schedule above, the spaces shall be unavailable during scheduled maintenance or emergency repairs .
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EXHIBIT C
COMPENSATION SCHEDULE, AMENDMENT NO. 1
(AMENDED, REPLACES PREVIOUS)
A. COMPENSATION FOR CITY SPACES
For use of the agreed upon City spaces through February 28, 2029, the Contractor shall pay the City’s Golf Course Operator* the following fees:
▪ $5,376.00 Total per Season = $576.00 participant fee + $4,800.00 green fee ▪ $1,152.00 Total Winter Season Only = $576.00 x 2 participant fee
B. PAYMENT SCHEDULE
During the period through February 28, 2029, Contractor shall pay City ’s Golf Course Operator* in four installments per year due on the following dates corresponding to Spring 2026 through Winter 2029 seasons:
a. Within 30 days from end of Fall season – $5,376.00
b. Within 30 days from end of Winter season – $1,152.00 c. Within 30 days from end of Spring season – $5,376.00 d. Within 30 days from end of Summer season – $5,376.00
C. FEES FOR OTHER USES
If the Contractor uses a City facility for any purpose other than a mutually agreed upon and scheduled class under this agreement, the Contractor shall pay all applicable fees to City (or Golf Course Operator, as specified by City) .
D. PAYMENT PROCEDURES
For all payments remitted to City’s Golf Course Operator, Contractor shall provide a proof of payment to City within 14 days of remittance.
*The City’s Golf Course Operator is OB Sports Golf Management (Baylands), LLC as of January 1, 2026. Should the City no longer contract with OB Sports to operate the City’s golf course used in this Agreement by Contractor, Contractor shall pay City directly, or upon mutual agreement between City and Contractor, any successor Golf Course Operator.
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Public Works
Meeting Date: February 9, 2026
Report #:2510-5322
TITLE
Approval of Amendment No. 3 to Contract No. S23187281 with Urban Planning Partners, Inc. in the Amount of $52,409, Increasing the Not-to-Exceed Amount to $137,409 and Extending the Contract Term Through December 31, 2027 to Create Standalone Pre-Approved Parklet Plans as Part of the California Avenue Streetscape Update PL-23000; CEQA Status – Categorically Exempt under CEQA Guidelines Section 15301 and 15304(e)
RECOMMENDATION
Staff recommends that the City Council approve and authorize the City Manager or their designee to execute Amendment No. 3 to Contract No. S23187281 with Urban Planning Partners, Inc. to create standalone pre-approved parklet plans as part of the California Avenue Streetscape Update PL-23000, in an amount not-to-exceed $52,409, and extend the contract term through December 31, 2027. This amendment results in a revised total not-to-exceed amount of $137,409.
BACKGROUND
The City Council authorized funding for this contract on March 13, 2023, to assist with implementation of the On-Going Parklet Program.1 Public Works Engineering Services selected Urban Planning Partners and issued contract S23187281 in the amount of $85,000 on June 26, 2023, with a contract term through June 30, 2024. Since that time, staff has issued contract amendments No. 1 and 2 to administratively extend the contract term through December 31, 2025, and to add Syncopated Architecture, Inc. as a subconsultant to assist with the pre- approved parklet designs. Urban Planning Partners aided in the development of the Ongoing Parklet Program, developing the Ongoing Parklet Standards and the administration of the parklet program and outdoor dining, in general. In addition, they have provided resources to 1 City Council, March 13, 2023; Agenda Item #6 SR #2301-088 https://portal.laserfiche.com/Portal/DocView.aspx?id=65258&repo=r-704298fc
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supplement Public Works Engineering Services staffing to provide guidance on pre-approved parklet designs on an as-needed basis.
ANALYSIS
On June 17, 2025, Council gave direction to staff to work with the Architectural Review Board (ARB) to develop design recommendations, standards, and an approval process for parklets that support all-weather, year-round dining on car-free California Avenue, which is designated as a “Community Street” holding weekly Farmers Markets and other community events.3 Staff has been meeting with California Avenue merchants and an ARB adhoc monthly to review revisions to the outdoor activation guidelines. This feedback has reshaped the outdoor activation designs, adapting the current Ongoing Parklet Program (build for streets with consistent vehicular access) for the closed portion of California Avenue – particularly the structural requirements. Businesses that choose to build a parklet will be required to submit an encroachment permit application and will have the option to design a custom parklet or use a pre-approved parklet design for a streamlined review process.
Upon completion of stakeholder review by the ARB adhoc and merchants, this amendment with Urban Planning Partners’ will expand their scope of services to allow for the design and modification of the pre-approved parklet designs, creating a second set of designs specifically for the California Avenue Outdoor Activation. This amendment also extends the contract term through December 31, 2027. This is the most expeditious service provider as UPP drafted the original Ongoing Parklet Program designs and therefore can more easily adjust the existing body of work. The pre-approved design work is expected to seek Council approval in the second quarter of calendar year 2026. The extension through 2027 is for assistance with any issues that may come up during implementation.
FISCAL/RESOURCE IMPACT
Funding for the contract amendment recommended in this report is available in the Fiscal Year 2026 Adopted Capital Improvement Program California Avenue Streetscape Update project (PL- 23000).
STAKEHOLDER ENGAGEMENT
From September to December 2025, stakeholder engagement conducted by staff has focused on working with California Avenue merchants and an ARB Ad Hoc committee to advance Council’s June 17 direction to develop standards for parklets that support year-round all- weather outdoor dining on California Avenue. Staff has met with merchants and the ARB ad hoc committee monthly to progress the work. This contract amendment will enable the consultant to modify the citywide pre-approved parklet plans, as directed by staff and informed by ARB 3 City Council, June 17, 2024; Agenda Item #17 SR #2506-4786 https://portal.laserfiche.com/Portal/DocView.aspx?id=188974&repo=r-704298fc Item 7
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review, to ensure responsiveness to stakeholder feedback and the unique car-free environment of California Avenue.
ENVIRONMENTAL REVIEW
The parklet program project is categorically exempt under California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, Section 15304 (e) (Class 4. Minor Alterations to Land) because the project entails only minor public alterations in the condition of land and having noneligible or no permanent effect on the environment. Similarly, CEQA Guidelines, Section 15301(Existing Facilities) would apply, as it would involve the operation, permitting, or minor alteration of existing public facilities or topographical features, involving negligible or no expansion of existing or former use.
ATTACHMENTS
Attachment A: S23187281 Urban Planning Partners – Amendment No. 3 APPROVED BY:
Brad Eggleston, Director Public Works/City Engineer
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AMENDMENT NO. 3 TO CONTRACT NO. S23187281
BETWEEN THE CITY OF PALO ALTO AND
URBAN PLANNING PARTNERS, INC.
This Amendment No. 3 (this “Amendment”) to Contract No. 23187281 (the “Contract” as defined below) is entered into as of December 31, 2025, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and URBAN PLANNING PARTNERS, INC. a California Corporation, located at 388 17th Street, Suite 230, Oakland, CA 94612 (“CONSULTANT”).
CITY and CONSULTANT are referred to collectively as the “Parties” in this Amendment.
R E C I T A L S
A. The Contract (as defined below) was entered into by and between the Parties hereto for the provision of professional services in connection with the implementation of the On-going Parklet Program (Project), as detailed therein.
B. The Parties now wish to amend the Contract in order to extend the term of the Agreement.
NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the Parties agree:
SECTION 1. Definitions. The following definitions shall apply to this Amendment:
a. Contract. The term “Contract” shall mean Contract No. 23187281 between CONSULTANT and CITY, dated June 26, 2023, as amended by:
Amendment No.1, dated April 25, 2024
Amendment No.2, dated December 31, 2024
b. Other Terms. Capitalized terms used and not defined in this Amendment shall have the meanings assigned to such terms in the Contract.
SECTION 2. Section 2 “TERM” of the Contract is hereby amended to read as follows: “ T he T e r m of the Agreement shall be from the date of its full execution through December 31, 202 7 unless terminated earlier pursuant to Section 19 of this Agreement.”
SECTION 3. Section 12 “SUBCONTRACTING” of the Contract is hereby amended to add the following as an authorized subcontractor:
REI Build Up
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SECTION 4. The following exhibit(s) to the Contract is/are hereby amended or added, as indicated below, to read as set forth in the attachment(s) to this Amendment, which is/are hereby incorporated in full into this Amendment and into the Contract by this reference:
a. Exhibit “A” entitled “ SCOPE OF SERVICES, AMENDMENT NO. 3 ”, ADDED / AMENDED, REPLACES PREVIOUS.
b. Exhibit “B” entitled “SCHEDULE OF PERFORMANCE, AMENDMENT NO. 3”, AMENDED, REPLACES PREVIOUS.
c. Exhibit “C” entitled “ COMPENSATION, AMENDMENT NO. 3 ”, ADDED / AMENDED, REPLACES PREVIOUS.
SECTION 4. Legal Effect. Except as modified by this Amendment, all other provisions of the Contract, including any exhibits thereto, shall remain in full force and effect.
SECTION 5. Incorporation of Recitals . The recitals set forth above are terms of this Amendment and are fully incorporated herein by this reference.
(SIGNATURE BLOCK FOLLOWS ON THE NEXT PAGE.)
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SIGNATURES OF THE PARTIES
IN WITNESS WHEREOF, the Parties have by their duly authorized representatives executed this Amendment effective as of the date first above written.
CITY OF PALO ALTO
_____________________________
City Manager or designee
APPROVED AS TO FORM:
_____________________________
City Attorney or designee
URBAN PLANNING PARTNERS, INC.
Officer 1
By: _____________________________
Name: Lynette Dias
Title: President
Officer 2
By: _____________________________
Name: Carla Violet
Title: Associate Principal
Attachments:
EXHIBIT A “SCOPE OF SERVICES, AMENDMENT NO. 3” (AMENDED, REPLACES PREVIOUS)
EXHIBIT B “SCHEDULE OF PERFORMANCE, AMENDMENT NO. 3” (AMENDED, REPLACES
PREVIOUS)
EXHIBIT C “COMPENSATION, AMENDMENT NO. 3” (AMENDED, REPLACES PREVIOUS)
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EXHIBIT A
SCOPE OF SERVICES
(AMENDED, REPLACES PREVIOUS)
CONSULTANT shall provide the Services detailed in this Exhibit A, entitled “SCOPE OF SERVICES”.
The scope of work for the CONSULTANT is to assist City staff in the oversight, implementation, and management of the Permanent Parklet Program. CONSULTANT services shall consist of the following tasks:
TASK 1 – Temporary Parklet Program Assistance (Completed) TASK 2 – Permanent Parklet Program Set-up (Completed)
TASK 3 – Application Review (Completed)
TASK 4 – Confirmation of Design Requirements for California Avenue TASK 5 – Architectural Modifications to Construction Shop Drawings TASK 6 – Structural Analysis and Documentation
TASK 7 – Meetings and Coordination
TASK 1: Temporary Parklet Program Assistance (Completed) CONSULTANT shall assist City staff with ongoing temporary parklet program administration until the permanent program starts. This includes communication with permittees, permit review, and enforcement.
TASK 2: Permanent Parklet Program Set-up (Completed)
CONSULTANT will develop and establish a Project Review Process including preparation of an application checklist, completeness letter template and additional documents as necessary to streamline program administration.
TASK 3: Application Review (Completed)
CONSULTANT will collect parklet applications and manage the permit review process by reviewing applications for completeness, directing applications to City departments as needed, and coordinating with the applicant and issuing completeness letters and permit licenses. In addition, the CONSULTANT will assist with outreach and enforcement by serving as the point of contact for applicants/permit holders who have questions, and members of the public who have questions or complaints and will coordinate with City staff as needed.
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TASK 4: Confirmation of Design Requirements for California Avenue Meet with staff, review the design requirements memo, and staff’s mark-up-of proposed modifications to the pre-approved parklet plans , to identify modifications to the pre-approved parklet shop drawings to conform to the Cal Ave context and council direction.
Deliverable: Final mark-up of the ongoing parklet pre-approved parklet plans with all modifications needed. Mark-up to include sketch concepts that address car-free environment and year-round weather protection.
Task 5: Architectural Modifications to Construction Shop Drawings Modify the existing pre-approved parklet design plans to conform to design requirements confirmed in Task 1. This includes:
• Increasing the openness and visibility of dining from the central accessway by reducing or adjusting the amount of structure supporting the roof, or modifying railings, guardrails, and screens;
• Adding removable or retractable screens, panels, louvers and other weather control features to balance weather protection and transparency; • Ensuring compatibility with universal design and accessibility site concepts with access potentially from both the sidewalk and roadway.
Task 6: Structural Analysis and Documentation
• Provide structural design and engineering calculations for reduced load requirements for a car-free environment and update structural drawings. • Identify California Building Code (CBC) and ASCE 7 provisions for non-building structures that apply to both pre-approved and custom parklets;
• Identify feasible structural options for custom parklets that avoid attachment to the roadway or sidewalk, yet provide overhead structure for year round weather protection.
Task 7: Meetings and Coordination
• Coordinate with City staff (Planning, Public Works, Building, Fire) for review and approval of adapted designs. Address technical questions or revisions resulting from review cycles.
• Participate in up to five project meetings with City staff
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EXHIBIT B
SCHEDULE OF PERFORMANCE, AMENDMENT NO. 3
(AMENDED, REPLACES PREVIOUS)
CONSULTANT shall perform the Services to complete each milestone within the number of days/weeks specified below. The time to complete each milestone may be increased or decreased by mutual written agreement of the Project Managers for CONSULTANT and CITY so long as all work is completed within the term of the Agreement. CONSULTANT shall provide a detailed schedule of work consistent with the schedule below within 2 weeks of receipt of the notice to proceed (“NTP”) from the CITY.
Milestones
Completion
Number of Days/Weeks (as specified below)
from NTP
Task 1 – Temporary Parklet Program Assistance Completed Task 2 – Permanent Parklet Program Set- up Completed
Task 3 – Application Review Completed
Task 4 – Confirmation of Design Requirements 2 Weeks
Task 5 – Architectural Modifications to Construction
Shop Drawings
2 Weeks
Task 6 – Structural Analysis and Documentation 2 Weeks
Task 7 – Meetings and Coordination 2 Weeks
Optional Schedule of Performance Provision for On-Call or Additional Services Agreements. (This provision only applies if checked and only applies to on-call agreements per Section 1 or agreements with Additional Services per Section 4.)
The schedule of performance shall be as provided in the approved Task Order, as detailed in Section 1 (Scope of Services) in the case of on-call Services, or as detailed in Section 4 in the case of Additional Services, provided in all cases that the schedule of performance shall fall within the term as provided in Section 2 (Term) of this Agreement.
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EXHIBIT C
COMPENSATION
(AMENDED, REPLACES PREVIOUS)
CITY agrees to compensate CONSULTANT for Services performed in accordance with the terms and conditions of this Agreement, and as set forth in the budget schedule below.
Compensation shall be calculated based on the rate schedule attached as Exhibit C-1 up to the not to exceed budget amount for each task set forth below.
CITY’s Project Manager may approve in writing the transfer of budget amounts between any of the tasks or categories listed below, provided that the total compensation for the Services, including any specified reimbursable expenses, and the total compensation for Additional Services (if any, per Section 4 of the Agreement) do not exceed the amounts set forth in Section 4 of this Agreement.
CONSULTANT agrees to complete all Services, any specified reimbursable expenses, and Additional Services (if any, per Section 4), within this/these amount(s). Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth in this Agreement shall be at no cost to the CITY.
BUDGET SCHEDULE
TASK NOT TO EXCEED AMOUNT
Task 1:
Temporary Parklet Program Assistance (Completed)
$7,850
Task 2:
Permanent Parklet Program Set-up (Completed)
$11,775
Task 3:
Application Review (Completed)
$58,625
Task 4:
Confirmation Design Requirements
$19,815
Task 5:
Architectural Modifications to Construction Shop Drawings $13,325
Task 6:
Structural Analysis and Documentation
$9,951
Task 7:
Meetings and Coordination
$9,318
Additional Services (if any, per Section 4) $6,750
Maximum Total Compensation $137,409
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REIMBURSABLE EXPENSES
CONSULTANT’S ordinary business expenses, such as administrative, overhead, administrative support time/overtime, information systems, software and hardware, photocopying, telecommunications (telephone, internet), in-house printing, insurance and other ordinary business expenses, are included within the scope of payment for Services and are not reimbursable expenses hereunder.
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Fire
Meeting Date: February 9, 2026
Report #:2601-5798
TITLE
Approval of Four Professional Services Contracts C26194180A-D, with Interwest Consulting Group, Inc, TRB and Associates, Inc., Atlas Environmental and West Coast Code Consultants, Inc. in the Aggregate Total Not-to-Exceed amount of $1,438,800 for On-Call Fire Code, and Hazardous Material Related Services, Inspection, Plan Review and Environmental Consultation over a three- year term; CEQA status: not a project.
RECOMMENDATION
Staff recommends that City Council approve and authorize the City Manager or designee to execute the following four contracts to provide on-call inspection, plan review, and environmental consultation services for a term of three years and an aggregate total amount not- to-exceed $1,438,800. Four Professional Services Contracts include: C26194180A with Atlas Environmental; C26194180B with Interwest Consulting Group, Inc.; C26194180C with TRB and Associates, Inc.; and C26194180D with West Coast Code Consultants, Inc.
BACKGROUND
The Fire Prevention Bureau utilizes on-call professional service providers to access specialized project expertise and efficiently process applications related to development activities. In June 2020, the City Council approved six contracts dedicated to on-call inspection and plan review services for all Development Services including Fire Code, Hazardous Material related services, plan review and environmental consultation, amounting to $6 million over a span of four-and-a- half years. At that time, the Fire Prevention Bureau operated under Development Services.
However, a staffing study conducted in September 2023 resulted in the Bureau's reintegration into the Fire Department. This transition necessitated the establishment of separate contracts for plan check services for the Fire Prevention Bureau. With the on-call contracts originally approved in 2020 expiring on December 31, 2024, the City extended these contracts and initiated a Request for Proposals (RFP) to maintain uninterrupted service into 2025. This recommended Fire Department contract reflects Fire-specific services only such as expert plan review, inspection and environmental consultation; Fire Prevention’s actual third-party plan review costs were $550,000 (FY23), $450,000 (FY24), and $470,000 (FY25), totaling $1.47 million over three years.
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The attached four contracts will continue Fire plan review and permitting services with the successful RFP respondents for the next three years, from January 2026 through December 2028.
ANALYSIS
The proposed on-call contracts have been developed to continue providing essential services while allowing flexibility in project assignments based on expertise and availability. Fire internal staff capacity remains an ongoing consideration. As future needs are evaluated through the annual budget process, opportunities will be explored to reduce reliance on consultants by increasing in-house staff capacity.
Procurement Process
On May 29, 2025, a Request for Proposals (RFP) for On-Call Fire and Hazmat Plan Review and Environmental Consultation Services was posted on OpenGov, the City’s eProcurement portal, as a multi-award RFP. The proposal period was 21 calendar days and resulted in five proposals of which four (4) service providers were determined to best support the City’s needs for inspection, plan review, and environmental consultation services over a three-year term.
Table 1 below summarizes the RFP process:
Table 1: Summary of Request for Proposal
Proposal Description On-Call Fire and Hazmat Plan Review and Environmental Consultation Services RFP No. 194180
Proposed Length of Project 3 years
Number of Vendors Notified 3,573
Number of Proposal Packages Downloaded 38
Total Days to Respond to Proposal 21
Pre-Proposal Meeting No
Pre-Proposal Meeting Date N/A
Number of Proposals Received 5
Proposal Price Range – Hourly Rates Hourly rate ranging from $120-$185 Public Link to Solicitation https://procurement.opengov.com/portal/palo-alto- ca/projects/173507
The proposals were evaluated and determined to be responsive to the criteria identified in the RFP. Four proposers were selected because of the quality and effectiveness of their services, the experience of their staff, prior record of performance with the City, and their ability to provide future services. Each firm possesses the expertise to provide inspection and plan check services for fire, hazmat and/or environmental services; the on-call contracts provide the Fire Prevention Bureau with the flexibility needed to efficiently select the vendor best suited for any given project in a timely fashion. On-call providers allow the City to scale services up or down based on workload, staffing levels, technical expertise, and economic conditions. These resources also provide specialized expertise required for policy consideration as it relates to Council priorities.
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The scope of services includes inspection, plan review, and environmental consultation. Table 2 below summarizes each contractor’s services and contract amounts. Recommended contract amounts per service provider reflect the RFP evaluation rankings and anticipated workload allocation, with a primary provider receiving the majority of assignments and secondary/backup providers available to cover peak demand, schedule conflicts, and specialized or overflow needs.
Table 2: Contractor Services Summary
Contractor Service 3 Year Contract Total
Atlas Environmental Plan check and environmental consultation $ 748,800 Interwest Consulting Plan check and inspection services $ 75,000 TRB and Associates Plan check and inspection services $ 365,000 West Coast Code Consultants Plan check and inspection services $ 250,000 Total: $ 1,438,800
Contract Administration
Staff acknowledge the requested approval provides great flexibility and deference to the management of these professional services with staff. As such, rigorous administration of the contracts will be undertaken to ensure consistency and alignment with project goals. This is particularly important to mitigate the risk of inconsistent feedback to developers when multiple contractors are engaged. The following measures will be implemented:
• Assignment for Project Continuity: For large or complex projects, a single contractor will be assigned to handle all related tasks, ensuring continuity and consistency in feedback throughout the project's lifecycle.
• Standardized Guidance and Training: All contractors will receive standardized training materials, policies, and templates to use when providing feedback. • Quality Oversight: Staff will regularly review project communications and deliverables to ensure feedback provided by contractors aligns with City standards and expectations.
As projects arise, staff will develop a Task Order scope of work issuing the project to the firm best suited to perform the work based on qualifications such as experience, subject area expertise, timeline, and cost. For ongoing management, staff oversee each on-call contract and the associated consultant work through several measures, including:
• Conducting resume reviews and interviews to match service provider staff to specific project requirements.
• Monitoring and verifying consultant timecards to ensure alignment with project deliverables including quality of work.
• Processing and auditing invoices to confirm appropriate allocation of funds and compliance with contract terms.
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• Any task orders over $75,000 will require approval by the Department director, and any over $100,000 will require approval by the City Manager or their designee.
FISCAL/RESOURCE IMPACT
Use of consultants for specific assistance is an efficient and effective use of resources, allowing the Fire Prevention Bureau to quickly access technical skills needed. The budget for these contracts is included in the Fire Department’s adopted budget. The use of contractors for planning and permit-related work is contingent on availability of funding in the Department’s approved budget, and no budget increase is required. No work will be assigned to consultants under these contracts unless there is sufficient operating budget to cover the costs. For Fiscal Year 2026 there is an annual budget of $487,000 for these service contracts.
STAKEHOLDER ENGAGEMENT
These on-call contracts support City Council priorities for Economic Development and housing by maintaining timely, predictable development permitting through access to specialized plan review and surge capacity beyond City staffing. The work includes expert review of fire and life safety systems and related building/system permits to verify Fire Code and Building Code compliance for new development, as well as Hazardous Materials plan check and environmental expertise to review code compliance and permits associated with the use and storage of hazardous materials, including on-call technical review of site mitigation and closure plans.
ENVIRONMENTAL REVIEW
Council action on this item is not a project under the California Environmental Quality Act (CEQA) because approval of these contracts is an administrative activity that will not result in direct or indirect physical changes to the environment. CEQA Guidelines Section 15378(b)(2); 15378(b)(5).
Applicant projects requiring these contracted services will undergo appropriate CEQA review in accordance with the City’s permit and plan review procedures.
ATTACHMENTS
Attachment A: Atlas Environmental Contract
Attachment B: Interwest Consulting Group Contract
Attachment C: TRB and Associates Contract
Attachment D: West Coast Code Consultants Contract
APPROVED BY:
Stephen Lindsey, Fire Chief
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Professional Services
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CITY OF PALO ALTO CONTRACT NO. C26194180A
AGREEMENT FOR PROFESSIONAL SERVICES
BETWEEN THE CITY OF PALO ALTO AND
ATLAS ENVIRONMENTAL CONSULTING, LLC
This Agreement for Professional Services (this “Agreement”) is entered into as of the 1st day of January, 2026 (the “Effective Date”), by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and ATLAS ENVIRONMENTAL CONSULTING, LLC, a California limited liability company , located at 607 Elmira Road, #311, Vacaville, CA 95687 (“CONSULTANT”).
The following recitals are a substantive portion of this Agreement and are fully incorporated herein by this reference:
RECITALS
A. CITY intends to issue a contract ( the “Project”) and desires to engage a consultant to provide permit processing, and plan check services for hazmat planning and hazmat environmental reviews in connection with the Project (the “Services”, as detailed more fully in Exhibit A).
B. CONSULTANT represents that it, its employees and subconsultants, if any, possess the necessary professional expertise, qualifications, and capability, and all required licenses and/or certifications to provide the Services.
C. CITY, in reliance on these representations , desires to engage CONSULTANT to provide the Services as more fully described in Exhibit A, entitled “SCOPE OF SERVICES”.
NOW, THEREFORE, in consideration of the recitals, covenants, terms, and conditions, in this Agreement, the parties agree as follows:
SECTION 1. SCOPE OF SERVICES. CONSULTANT shall perform the Services described in Exhibit A in accordance with the terms and conditions contained in this Agreement. The performance of all Services shall be to the reasonable satisfaction of CITY.
Optional On-Call Provision (This provision only applies if checked and only applies to on-call agreements.)
CITY may elect to, but is not required to, authorize on- call Services up to the maximum compensation amount set forth in Section 4 (Not to Exceed Compensation).
CONSULTANT shall provide on- call Services only by advanced, written authorization from CITY as detailed in this Section. On -call Services, if any, s hall be authorized by CITY, as needed, with a Task Order assigned and approved by CITY’s Project Manager, as identified in Section 13 (Project Management). Each Task Order shall be in substantially the same form as Exhibit A -1 entitled “PROFESSIONAL SERVICES TASK ORDER”.
Each Task Order shall contain a specific scope of s ervices, schedule of performance and maximum compensation amount, in accordance with the provisions of this Agreement.
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Compensation for on-call Services shall be specified by CITY in the Task Order, based on whichever is lowest: the compensation structure set forth in Exhibit C, the hourly rates set forth in Exhibit C-1, or a negotiated lump sum.
To accept a Task Order, CONSULTANT shall sign the Task Order and return it to CITY’s Project Manager within the time specified by the Project Manager, and upon authorization by CITY (defined as counter-signature by the CITY Project Manager), the fully exec uted Task Order shall become part of this Agreement. The cumulative total compensation due to CONSULTANT for all Task Orders issued under this Agreement shall not exceed the amount of compensation set forth in Section 4. CONSULTANT shall only be compensated for on -call Services performed under an authorized Task Order and only up to the maximum compensation amount set forth in Section 4. Performance of and payment for any on-call Services are subject to all requirements and restrictions in this Agreement.
SECTION 2. TERM.
The term of this Agreement shall be from the effective date of this agreement through December 31, 2028, unless terminated earlier pursuant to Section 19 (Termination) of this Agreement.
SECTION 3. SCHEDULE OF PERFORMANCE. Time is of the essence in the performance of Services under this Agreement. CONSULTANT shall complete the Services within the term of this Agreement and in accordance with the schedule set forth in Exhibit B, entitled “SCHEDULE OF PERFORMANCE”. Any Services for which times for performance are not specified in this Agreement shall be commenced and completed by CONSULTANT in a reasonably prompt and timely manner based upon the circumstances and direction communicated to the CONSULTANT.
CITY’s agreement to extend the term or the schedule for performance shall not preclude recovery of damages for delay if the extension is required due to the fault of CONSULTANT.
SECTION 4. NOT TO EXCEED COMPENSATION. The compensation to be paid to CONSULTANT for performance of the Services shall be based on the compensation structure detailed in Exhibit C, entitled “COMPENSATION,” including any reimbursable expenses specified therein, and the maximum total compensation shall not exceed Seven Hundred Forty- Eight Thousand Eight Hundred Dollars ($748,800.00). T he hourly schedule of rates , if applicable, is set out in Exhibit C-1, entitled “SCHEDULE OF RATES.” Any work performed or expenses incurred for which payment would result in a total exceeding the maximum compensation set forth in this Section 4 shall be at no cost to the CITY.
Optional Additional Services Provision (This provision applies only if checked and a not-to-exceed compensation amount for Additional Services is allocated below under this Section 4.)
In addition to the not-to-exceed compensation specified above, CITY has set aside the not- to-exceed compensation amount of D ollars ($ ) for the performance of Additional Services ( as defined below). The total compensation for performance of the Services, Additional Services and any reimbursable expenses specified in Exhibit C, shall not exceed Dollars ($ ) , as detailed in Exhibit C.
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“Additional Services” means any work that is determined by CITY to be necessary for the proper completion of the Project, but which is not included within the Scope of Services described at Exhibit A. CITY may elect to, but is not required to, authorize Additional Services up to the maximum amount of compensation set forth for Additional S ervices in this Section 4. CONSULTANT shall provide Additional Services only by advanced, written authorization from CITY as detailed in this Section . Additional Services, if any, shall be authorized by CITY with a Task Order assigned and authorized by CITY’s Project Manager, as identified in Section 13 (Project Management). Each Task Order shall be in substantially the same form as Exhibit A-1, entitled “PROFESSIONAL SERVICES TASK ORDER”. Each Task Order shall contain a specific scope of services, schedule of performance and maximum compensation amount, in accordance with the provisions of this Agreement. Compensation for Additional Services shall be specified by CITY in the Task Order, based on whichever is lowest: the compensation structure set forth in Exhibit C, the hourly rates set forth in Exhibit C-1, or a negotiated lump sum.
To accept a Task Order, CONSULTANT shall sign the Task Order and return it to CITY’s Project Manager within the time specified by the Project Manager, and upon authorization by CITY (defined as counter-signature by the CITY Project Manager), the fully exec uted Task Order shall become part of this Agreement. The cumulative total compensation to CONSULTANT for all Task Orders authorized under this Agreement shall not exceed the amount of compensation set forth for Additional Services in this Section 4 .
CONSULTANT shall only be compensated for Additional Services performed under an authorized Task Order and only up to the maximum amount of compensation set forth for Additional Services in this Section 4. Performance of and payment for any Additional Services are subject to all requirements and restrictions in this Agreement.
SECTION 5. INVOICES. In order to request payment, CONSULTANT shall submit monthly invoices to the CITY describing the S ervices performed and the applicable charges (including, if applicable, an identification of personnel who performed the Services, hours worked, hourly rates, and reimbursable expenses), based upon Exhibit C or, as applicable, CONSULTANT’s schedule of rates set forth in Exhibit C-1. If applicable, the invoice shall also describe the percentage of completion of each task. The information in CONSULTANT’s invoices shall be subject to verification by CITY. CONSULTANT shall send all invoices to CITY’s Project Manager at the address specified in Section 13 (Project Management) below. CITY will generally process and pay invoices within thirty (30) days of receipt of an acceptable invoice.
SECTION 6. QUALIFICATIONS/STANDARD OF CARE. All Services shall be performed by CONSULTANT or under CONSULTANT’s supervision. CONSULTANT represents that it , its employees and subcontractors, if any, possess the professional and technical personnel necessary to perform the Services required by this Agreement and that the personnel have sufficient skill and experience to perform the Services assigned to them. CONSULTANT represents that it, its employees and subcontractors, if any, have and shall maintain during the term of this Agreement all licenses, permits, qualifications, insurance and approvals of whatever nature that are legally required to perform the Services. All Services to be furnished by CONSULTANT under this A greement shall meet the professional standard and quality that prevail among professionals in the same discipline and of similar knowledge and skill engaged in related work throughout California under the same or similar circumstances.
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SECTION 7. COMPLIANCE WITH LAWS . CONSULTANT shall keep itself informed of and in compliance with all federal, state and local laws, ordinances, regulations, and orders that may affect in any manner the Project or the performance of the Services or those engaged to perform Services under this Agreement, as amended from time to time . CONSULTANT shall procure all permits and licenses, pay all charges and fees, and give all notices required by law in the performance of the Services.
SECTION 8. ERRORS/OMISSIONS. CONSULTANT is solely responsible for costs, including, but not limited to, increases in the cost of Services , arising from or caused by CONSULTANT’s errors and omissions, including, but not limited to, the costs of corrections such errors and omissions, any change order markup costs, or costs arising from delay caused by the errors and omissions or unreasonable delay in correcting the errors and omissions.
SECTION 9. COST ESTIMATES. If this Agreement pertains to the design of a public works project, CONSULTANT shall submit estimates of probable construction costs at each phase of design submittal. If the total estimated construction cost at any submittal exceeds the CITY’s stated construction budget by ten percent (10%) or more , CONSULTANT shall make recommendations to CITY for aligning the P roject design with the budget, incorporate CITY approved recommendations, and revise the design to meet the Project budget, at no additional cost to CITY.
SECTION 10. INDEPENDENT CONTRACTOR. CONSULTANT acknowledges and agrees that CONSULTANT and any agent or employee of CONSULTANT will act as and shall be deemed at all times to be an independent contractor and shall be wholly responsible for the manner in which CONSULTANT performs the S ervices requested by CITY under this Agreement.
CONSULTANT and any agent or employee of CONSULTANT will not have employee status with CITY, nor be entitled to participate in any plans, arrangements, or distributions by CITY pertaining to or in connection with any retirement, health or other benefits that CITY may offer its employees. CONSULTANT wi ll be responsible for all obligations and payments, whether imposed by federal, state or local law, including, but not limited to, FICA, income tax withholdings, workers’ compensation, unemployment compensation, insurance, and other similar responsibilities re lated to CONSULTANT’s performance of the S ervices, or any agent or employee of CONSULTANT providing same. Nothing in this Agreement shall be construed as creating an employment or agency relationship between CITY and CONSULTANT or any agent or employee of CONSULTANT. Any terms in this Agreement referring to direction from CITY shall be construed as providing for direction as to policy and the result of CONSULTANT ’s provision of the Services only, and not as to the means by which such a result is obtained.
SECTION 11. ASSIGNMENT . The parties agree that the expertise and experience of CONSULTANT are material considerations for this Agreement. CONSULTANT shall not assign or transfer any interest in this Agreement nor the performance of any of CONSULTANT’s obligations hereunder without the prior written approval of the C ity Manager. Any purported assignment made without the prior written approval of the City Manager will be void and without effect. Subject to the foregoing, the covenants, terms, conditions and provisions of this Agreement will apply to, and will bind, the heirs, successors, executors, administrators and assignees of the parties.
SECTION 12. SUBCONTRACTING.
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