May 4, 2026 www.paloalto.gov/budget
FY 2027 PROPOSED
OPERATING AND
CAPITAL BUDGETS
1 • Balanced budget utilizing multi-
year strategies to navigate fiscal
challenges over several years
• Preserves most valued City
services, Council priorities, and
once in a generation investments
• Reflects staff’s hard look at all
services, service delivery
approaches and efficiencies, and
use of contracts as a starting
point for Council deliberations
2 OVERVIEW
Preserving valued city services
Community Centers, teen center, Palo Alto Junior
Museum & Zoo, parks, playgrounds, open space
preserves remain open and maintained
Police & Fire response to all priority emergency
calls, ensuring health and safety, and implementing
single-role EMS
Five libraries will remain open with a single day
closure of Children’s library
Ensure health and safety measures are addressed
on our streets, sidewalks, and trees
Utility services - water, electric, gas, wastewater, and sewer services will continue including key
investments and maintenance
Support the Development Center and planning
requests, building permits, and code enforcement
Manage traffic signals maintenance and timing and
youth education through safe routes to school
www.paloalto.gov/budget
• Budget Conversations & Calendar
• City Vision & Council Priorities
• Economic Outlook & Budget Highlights
• Citywide Budget Overview
• General Fund Budget Overview
• Capital Budget and 5-Year Capital Improvement Program • Utility Funds
• Finance Committee & Community Conversations
AGENDA
3 BUDGET CONVERSATIONS & CALENDAR
4 MAY 4 MAY 5 & 6 MAY 11 MAY 19 JUNE 15
Finance Committee
Budget Workshops:
Review the proposed
budgets and recommend
amendment(s)
Study Session City Council:
Finance Committee check-
in with the City Council
City Council: FY 2027
Proposed Budget Overview:
Discuss guidance for Finance
Committee colleagues
City Council Budget
Adoption:
Adopt Operating & Capital
budgets (as amended by
the Finance Committee)
Finance Committee Budget Wrap-up:
Based on the input from the May
budget meetings, recommend final
adjustment(s) to proposed budgets
for Council adoption
www.paloalto.gov/CouncilPriorities 5
Vision
The government of the City of Palo
Alto exists to promote and sustain a
superior quality of life in Palo Alto. In
partnership with our community, our
goal is to deliver cost-effective services
in a personal, responsive and
innovative manner.
CITY VISION AND COUNCIL PRIORITIES
www.paloalto.gov/budget
• Operating budget totals $1.05 billion (1.9% increase), with General Fund totals $310.98 million (1.1% decrease)
• Capital budget totals $313.6 million in FY 2027 and $1.20 billion over the five-year Capital Improvement Program (CIP)
• Multi-year strategy to solve projected General Fund $17.1 million (or 5.5%) budget deficit.
• Continues the FY 2026 budget reductions.
• Projects Budget Stabilization Reserve between 17.4% to 18%. 6 PROPOSED BUDGET OVERVIEW
Expenditure reductions - $6.8M:
• Streamlines administration and modernizes technology, and realigns cost allocations to reduce reliance on the General Fund
• Relinquishes one-time encumbrance funding with thorough review and reduces ongoing contract appropriations via inter-departmental support. • Proposes a net decrease of 22.25 FTE (2.0%) citywide through vacancy management and potential reassignment of staff in impacted positions, largely avoided layoffs.
CITYWIDE BUDGET STRATEGIES – General Fund
7 Revenue enhancements - $1.7M:
• New and/or increased fees and rates.
• Maximizes investment income with updated policy and portfolio management. • Audit revenue collections and diversify sources to ensure fiscal resilience and maximize existing resources.
• Fosters economic development
Use of one-time funding - $2.6M: Utilizes funds to bridge the shortfall and maintain service continuity for community and senior programming. • Measure B, SUMC Dev. Agreement ($2.4M), Hamiton Ave Benefit Fund ($0.2M) • Does not use Budget Stabilization Reserve (BSR); however projects balance below target of 18.5%
Capital Investments - $1.5 M: Reduces base transfer by $1.5M as part of a broader structural realignment to align capital outlays with ongoing revenue capacity. Total transfer to the Capital Improvement Fund - $34.5M in FY 2027 (including a $14.6M Base and $15.5M TOT).
Pension Cost & Liability - $4.5 M: Proactively manages pension: Section 115 Trust disbursement to CalPERS for ADP ($20M) and ADC ($6M). Council leadership and employee contributions through labor contracts address these costs and liabilities.
CITYWIDE BUDGET STRATEGIES – General Fund
8 CHALLENGES, RISKS & ASSUMPTIONS
9 • Property Tax
• Sales Tax
• Doc Tsfr Tax (DTT)
• Economic Uncertainty
• Tariffs/
Inflation
• Supply Chain
Disruption
• State/ Federal
Policy
• New
Legislative
Updates
• Maintain 5% vacancy
assumption
• Strategic
investments in core services & Council
priorities
• Budget
Stabilization
Reserve
• Prefund
Liabilities
• Infrastructure
Investments
REVENUES EXPENDITURES RISK MITIGATIONCHALLENGES
ALL FUNDS SOURCES & EXPENSES
10 FY 2027 Sources $1.05 Billion FY 2027 Expenses $1.05 Billion Allocated Charges,
7.4%
Contract Services, 7.6%
Debt Service, 2.2%
Facilities &
Equipment, 0.1%
General
Expense,
2.2%
Rents &
Leases,
1.5%
Salary &
Benefits,
29.6%
Supplies &
Material, 1.0%
Utility
Purchase,
20.7%
Capital
Improvement
Program,
25.4%
Net Transfers, 2.4%
Business Tax, 0.7%
Charges for
Services,
4.7%
Charges to
Other Funds,
1.5%
Documentary
Transfer Tax,
0.9%
From Other
Agencies,
4.3%
Net Sales,
50.4%
Other
Revenue,
16.4%
Other
Ta xes
and
Fines,
0.1%
Permits and
Licenses,
1.4%
Property Taxes,
7.9%
Rental Income, 1.7%
Return on
Investments, 1.5%
Sales Taxes, 3.3%
Transient Occupancy Tax,
3.1%
Utility
Users
Ta x,
2.3%
HISTORICAL FULL-TIME STAFFING COMPARISON
11 -
200
400
600
800
1,000
1,200
Citywide Total FTE General Fund FTE
Great Recession
Pandemic
1,088 FTE Citywide
591 FTE GF
-22.5 FTE all funds
FTE
GENERAL FUND SOURCES & EXPENSESE
12 FY 2027 GF Revenues $310.98 Million FY 2027 GF Expenses $310.98 Million Business Tax,
2.2%
Charges for
Services,
14.8%Charges to
Other Funds,
4.8%
Documentary
Transfer Tax,
2.9%
From Other
Agencies, 0.5%
Other
Revenue, 0.7%
Other Taxes
and Fines,
0.3%
Permits and
Licenses,
4.0%Property
Ta xes, 24.6%
Rental
Income, 5.2%
Return on
Investments,
1.5%
Sales Taxes,
10.8%
Transient
Occupancy
Ta x, 10.2%
Utility Users
Ta x, 7.4%
Operating
Transfers-In,
10.7%
Use of
Reserves, -
0.5%
Allocated
Charges,
10.2%
Contract
Services,
10.1%
Facilities &
Equipment,
0.2%
General
Expense,
3.0%
Rents &
Leases,
0.6%Salary &
Benefits,
61.7%
Supplies &
Material,
1.2%
Transfer to
Infrastructure
, 11.1%
Operating
Transfers-
Out, 1.8%
MULTI-YEAR GENERAL FUND BALANCING
• Current service level and revenue portfolio
• Disciplined ongoing costs with limited one-time funds use, including ADC in FY27 to FY30 • BSR within range of 15% to 20% but projected to decline to bottom of range (15%) 13 PROJECTIONS ($ million) FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
GENRAL FUND
Revenue $ 310.98 $ 318.69 $ 329.12 $ 341.75 $ 353.94 Expense $ 309.40 $ 319.83 $ 333.93 $ 339.13 $ 344.74 Transfers (designated revenues) $ 1.59 $ (0.03) $ (2.16) $ 1.29 $ 1.51 Projected Surplus/(Deficit) $ 0.00 $ (1.12) $ (2.65) $ 1.33 $ 7.68
BUDGET STABILIZATION RESERVE
BSR projected balance $ 53.70* $ 52.58 $ 49.93 $ 51.26 $ 58.94 15%, 18.5%, 20% 17.4% 16.4% 15.0% 15.1% 17.1%
BSR @18.5% - Policy Target $ 57.24 $ 59.17 $ 61.78 $ 62.74 $ 63.78 Delta to 18.5% $ (3.54) $ (6.59) $ (11.85) $ (11.48) $ (4.84) *Sales Tax prior year adjustment may be more favorable increasing BSR by $2 M to $55.7 M or 18% 14 GENERAL FUND REVENUES – MAJOR TAXES
$47 $51
$57 $59 $63 $66 $69 $72 $76
$37
$31 $29 $33
$37 $37 $35
$27
$33
$26
$19
$5
$17
$25 $28 $29 $29
$31
$16 $16
$15
$16 $19 $19 $20 $21 $23
$7 $7 $11 $12
$6
$7 $8 $9 $9
$5 $6 $7 $7 $0
$10
$20
$30
$40
$50
$60
$70
$80
2019
Actual
2020
Actual
2021
Actual
2022
Actual
2023
Actual
2024
Actual
2025
Actual
2026
Adjust
2027
Budget
MILLIONS
Property Tax Sales Tax TOT UUT DDT Business Tax
46%
FY 2027 PROPOSED BUDGET INVESTMENTS
15 Internal Support & Administration CSA
• Proactively funds long-term liabilities with funds reserved for real property investments.
• Streamlines administration and support the continued rollout of modernized financial and budget management systems to enhance internal controls, improve reporting accuracy.
• Supports organizational resilience with talent recruitment and workforce engagement initiatives.
• Includes positive work environment initiatives in professional development, career advancement/ continuity planning,
wellness and belonging.
• Provides leadership and support for implementation of Council Priority projects
FY 2027 PROPOSED BUDGET REDUCTIONS
16 Internal Support & Administration CSA
• Eliminates 5.25 full-time equivalent (FTE) positions
• Eliminates vacant 3 management and administrative
positions in Administrative Services, 1 management
position within Information Technology, and 1.25 FTE in Human Resources. Likely leads to longer business cycle
times and delayed responsiveness in the near term while systems adapt.
• Reduces non-personnel administrative expenditures
including specialized training, travel, and supply budgets across the CSA.
FY 2027 PROPOSED BUDGET INVESTMENTS
17 Community & Library Services CSA
• Funds HSRAP , $200k for allcove and YCS, Environmental Volunteers, and Neighbors Abroad ongoing; additional nonprofit support levels will be discussed at Finance Committee.
• Advances the Cubberley community center concept plan and continue pre-existing appropriations.
• Maintains seven-day-a-week library services at the Mitchell Park and Rinconada.
• Advances staffing plan at 429 Bryant teen & community center.
FY 2027 PROPOSED BUDGET REDUCTIONS
18 Community & Library Services CSA
• Eliminates 6.00 FTE positions | Add 1.00 FTE
• Reduces Children’s Library by 1-day to five days per week, mitigated through enhanced youth services at Rinconada
Library.
• Eliminates vacant positions, including a Senior Librarian, Library Associates, and a Program Assistant, paired with cross training to staff.
• Eliminates parks maintenance lead.
• Realigns field maintenance staff to City-owned parks, reduces contracts due to PAUSD agreement termination.
• Adds 1.0 FTE for 429 Bryant teen & community center.
FY 2027 PROPOSED BUDGET INVESTMENTS
19 Planning & Transportation CSA
• Manages Community Development Block Grant (CDBG) and
Below Market Rate (BMR) Housing Programs and fund with
limited special revenues.
• Leverages Measure K funding for the Comprehensive Area Plan along the San Antonio Road corridor to establish a vision for land use, housing, mobility, urban design, and community services that supports cohesive mixed-use
neighborhood development.
• Leverages Measure B funding for Safe Routes to School.
FY 2027 PROPOSED BUDGET REDUCTIONS
20 Planning & Transportation CSA
• Eliminates 3 FTE planners for General Fund savings -
narrows focus to state-mandated housing objectives, such as Housing Element implementation and deferral of non-
mandated zoning updates and additional neighborhood
area plans. Impacts cycle times and delays Council
priorities.
• Eliminates Palo Alto Link service and pursues voucher program.
• Allocates CIP and Measure B funding for eligible staffing.
FY 2027 PROPOSED BUDGET INVESTMENTS
21 Infrastructure & Environment CSA
• Continues commitment to complete 2014 Council Infrastructure Plan projects, while maintaining investment in existing essential infrastructure • Makes generational investments in the City’s electric distribution system to provide additional capacity necessary for building and vehicle electrification.
• Advances a multi-year commitment to S/CAP local carbon reduction targets by funding Business Electrification Technical Assistance and Commercial Heat Pump programs.
• Sustains enhanced cleaning and pressure washing in the University and California Avenue corridors to keep business districts vibrant and welcoming.
• Aligns internal support allocations within PWD and Utilities that support ongoing operations.
FY 2027 PROPOSED BUDGET REDUCTIONS
22 Infrastructure & Environment CSA
• Eliminates 10.00 FTE | Freezes 3.00 FTE | Adds 3.00 FTEs • Eliminates 5.00 management and technical roles in Public Works and 5.00 Utilities Meter Readers following the
successful citywide rollout of Advanced Meter Infrastructure (AMI).
• Freezes 3.00 vacant roles in the Utilities Fiber Enterprise to properly manage expenditures while the program develops. • Adds 3.00 FTE for expanding demand at RWQCP .
• Reduces janitorial and tree trimming contracts while still maintaining essential hygiene standards and monitoring the health and safety of the City's urban forest canopy.
FY 2027 PROPOSED BUDGET INVESTMENTS
23 Public Safety CSA
• Funds track crossing monitors through Feb. 2027
• Preserves expansion of emergency medical services with the 12-hour peak medic unit.
• Continues funding one PERT clinician.
• Fully operationalizes the Public Safety Building (PSB). • Funds Fire Station 4 Replacement Project.
• Continues funding technology, equipment and fleet to ensure reliable emergency response.
FY 2027 PROPOSED BUDGET REDUCTIONS
24 Public Safety CSA
• Eliminates 3.00 FTE | Freezes 3.00 FTE | Adds 1.00 FTE • Freezes 1 Sergeant - Civilianizes shift scheduling to Admin Assistant and redistributes event management to other 13 Sergeants • Freezes vacant EMS Manager and Firefighter Trainee positions to prioritize customer-facing delivery and implementation of 12-hour peak medic unit.
• Eliminates vacant Community Service Officer and two Firefighter Trainee positions.
• Reduces crossing guard contract from 33 to 29 locations; locations not designated on the High Injury Network.
• Procures diesel fire engines instead of electric models in the upcoming cycle to reduce near-term capital costs.
CAPITAL IMPROVEMENT PROGRAM (CIP) –
OVERVIEW 5-YR PLAN
25 Capital
Improvement
Funds $392.5M
(111 Projects)
Enterprise
Funds
$758.4M
(91 Projects)
Internal Service
Funds $30.3M
(15 Projects)
2027-2031 CIP PLANNED FUNDING
BY FUND TYPE ($1.2 BILLION)
Capital
Improvement
Funds
111 Projects
51.2%
Enterprise
Funds
91 Projects
Internal Service
Funds
15 Projects
2027-2031 CIP PLANNED PROJECTS
BY FUND TYPE (217 PROJECTS)
5-Year CIP: Quiet Zone Improvements, Elwell Court and Development Center Office Space Relocation, Natural Grass Fields, and Water System Master Plan
CAPITAL IMPROVEMENT PROGRAM (CIP) –
OVERVIEW 5-YR PLAN
26 Complete in FY 27: Mitchell Park Library Repair, Hamilton Ave System Upgrades, Newell Rd Bridge Replacement
OTHER FUNDS
FY 2026 Adopted FY 2027 Proposed
Electric 6% 6%**
Gas 12%* 9% **
Water 10% 8%
Wastewater 20% 16%
Refuse 0% 3%
Storm Drain 2% 3%
Monthly Bill Amount $441.50 $477.80
Monthly Bill Change 9%*
$37.80
8%
$36.30
Additional actions
included in the
Proposed Budget
address non-General
Fund activities
including but not
limited to:
• Parking Funds
• Utility rate changes
to the right
27 *Rates reflect rate change update in February 2026 due Cost of Service Analysis (COSA). **On 4/21 Finance Committee recommendation Electric from 6.0% to 4.5%, Gas split 2:1 vote The community is encouraged to join the budget
conversations:
• Finance Committee Budget Hearings:
May 5 at 9:00 A.M.
May 6 at 9:00 A.M.
May 19 at 1:00 P .M. – Wrap-up
• City Council Budget Discussion:
May 11 at 4:30 P .M.
• City Council Budget Adoption:
June 15 at 5:30 P .M.
All meeting details listed at https://www.paloalto.gov/budget
JOIN THE BUDGET CONVERSATION
28 • Provide general guidance to Finance
Committee colleagues for their upcoming
detailed work reviewing the budget
documents
• Clarify understanding of budget process,
materials, and the City Council and
Finance Committee roles
Budget and meeting details listed at All
meeting details listed at
https://www.paloalto.gov/budget
COUNCIL DISCUSSION
29 Thank You.
May 4, 2026 www.paloalto.gov/budget