CITY COUNCIL
Regular Meeting
Monday, June 08, 2026
Council Chambers & Hybrid
5:30 PM
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
76,
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 June 08, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
CALL TO ORDER
SPECIAL ORDERS OF THE DAY (5:30 - 5:40 PM)
1. Proclamation Expressing Appreciation to Daniel Bergen Upon Retirement
2. Proclamation Expressing Appreciation to Julie Weiss Upon Retirement
AGENDA CHANGES, ADDITIONS AND DELETIONS
PUBLIC COMMENT (5:40 - 6:10 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 (6:10 - 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.
3. Adoption of a Resolution Calling for a General Municipal Election to be held on November 3, 2026; CEQA Status – Not a Project
4. Recommendation from the Council Appointed Officers Committee to City Council to approve the FY26 Council Appointed Officers annual evaluation process timeline, the modified CAO self-evaluation questions and Council interview questions for the annual evaluation process - CEQA: Not a Project
5. Accept the City of Palo Alto Utility Reserves Advisory Report and Public Safety Staffing and Overtime Audit as recommended by the Policy & Services Committee. CEQA Status:
Not a Project.
6. Approval of the City of Palo Alto's Permanent Water Use Ordinance. CEQA Status:
Exempt under CEQA Guidelines Sections 15307 and 15308.
2 June 08, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
7. Approval of Purchase Order C27197380 with Optiv Security, Utilizing a State of California Department of General Services Software Licensing Program (SLP) SLP-24-70-0184Z Contract, to Procure Varonis Systems for a Three-Year Term with an Annual Amount of $154,043 for a Total Not-To-Exceed Amount of $462,129. CEQA Status - exempt under CEQA regulation § 15061(b)(3).
8. Approval of Construction Contract C26197221 with Valentine Corporation in an Amount Not-to-Exceed $503,990 and Authorization for the City Manager or Their Designee to Negotiate and Execute Change Orders for Related Additional but Unforeseen Work that May Develop During the Project up to a Not-to-Exceed Amount of $50,399, for the Guardrail Repair Project, Capital Improvement Program Project PE-86070; CEQA Status – Exempt under Section 15301(c) and 15301(d)
9. Approval of Professional Services Contract Number C27196575 with Presidio Systems, Inc. in the Amount Not-to-Exceed $938,452 for Closed-Circuit Television (CCTV) Sanitary Sewer Pipeline Inspection for a Period of Three Years; CEQA Status – Not a Project Under CEQA Guidelines Section 15378.
10. Approval of Amendment No. 1 with Eight Professional Services Contracts for IT On-Call Services: Contract C26193247A INSPYR Solutions, C26193247B with AgreeYa Solutions, C26193247C with TechLink Systems, C26193247D with Compunnel Software Group, C26193247E with Progile Tech Inc, C26193247F with Omm IT Solutions, C26193247G with Infojini Inc, and C26193247H with California Creative Solutions Inc., to Increase the Not-to-Exceed Amount by $1.5 Million and Extend the Term through June 30, 2027; CEQA Status – Not a Project
11. QUASI-JUDICIAL. 405 Kipling Street [25PLN-00322] Approval of a Record of Land Use Action to Upgrade the Property Located at 405 Kipling Street From a Category 4 Resource on the Local Historic Inventory to a Category 2 Resource. CEQA Status: Not a Project Pursuant to Public Resources Code Section 21065.
12. QUASI-JUDICIAL. 3980 El Camino Real (Buena Vista) [26PLN-00090]: Request for a Final Map to Subdivide a Single, 4.52-Acre Parcel into Two Parcels. The Subdivision would Facilitate Renovation of the Buena Vista Mobile Home Park as well as Future Construction of a 100% Affordable Apartment Building on the Resulting Parcels (24PLN- 00041). A Tentative Map was Previously Approved on August 12, 2024. CEQA Status:
Not a Project.
3 June 08, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
CITY MANAGER COMMENTS (6:25 - 6:35 PM)
ACTION ITEMS (Item 13: 6:35 - 7:35 PM; Item 14: 7:50 - 8:35 PM; Item 15: 8:35 - 10:05 PM) Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished Business and Council Matters.
13. PUBLIC HEARING: Adopt a Resolution Adopting the 2025 Urban Water Management Plan and a Resolution Adopting the 2025 Water Shortage Contingency Plan. CEQA Status: Exempt under Water Code Sec. 10652.
BREAK (15 MINUTES)
14. Adopt an Ordinance and Resolution Calling an Election and Placing a ½ Cent (0.5%) Transactions and Use Tax Measure on the November 3, 2026 Ballot; and a Resolution Adopting Advisory Spending Guidelines for the Use of the Proceeds if the Measure Passes to Support Improving the Cubberley Community Center; CEQA Status - Not a Project.
Late Packet Report Added
15. San Antonio Road Area Plan Core Scenario and Transportation Analysis Work Plan. CEQA Status: Exempt under CEQA Guidelines Section 15262.
CLOSED SESSION (10:05 - 10:50 PM)
16. CONFERENCE WITH CITY ATTORNEY-POTENTIAL LITIGATION
Subject: Potential exposure to litigation
Authority: Government Code Section 54956.9(d)(2)
Number of potential cases: 1, as Defendant.
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.
439 Lincoln Avenue [26BLD-00812]: Notice of Demolition Application for a Significant Building within the Professorville Historic District
B.
Monthly Investment Report - April 2026 (Unaudited)
4 June 08, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
C.
Status Report from the Oversized Vehicles (OSV) Ad Hoc Committee; CEQA Status - Not a Project.
OTHER INFORMATION
Standing Committee Meetings this week
Policy & Services Committee June 9, 2026
Climate Action & Sustainability Committee June 12, 2026
Public Comment Letters
Schedule of Meetings
SUPPLEMENTAL AGENDA ITEMS
14. Adopt an Ordinance and Resolution Calling an Election and Placing a ½ Cent (0.5%) Transactions and Use Tax Measure on the November 3, 2026 Ballot; and a Resolution Adopting Advisory Spending Guidelines for the Use of the Proceeds if the Measure Passes to Support Improving the Cubberley Community Center; CEQA Status - Not a Project.
Late Packet Report Added
5 June 08, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
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. ◦
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4. Spoken
public
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agendized
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use
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When
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When
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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.
6 June 08, 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.
7 June 08, 2026
Materials submitted after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas
.
City Council
Staff Report
From: City Manager
Report Type: SPECIAL ORDERS OF THE DAY
Lead Department: Library
Meeting Date: June 8, 2026
Report #:2604-6265
TITLE
Proclamation Expressing Appreciation to Daniel Bergen Upon Retirement
ATTACHMENTS
Attachment A: Retirement Proclamation of Appreciation for Daniel (Dan) Bergen APPROVED BY:
Gayathri Kanth, Library Director
Item 1
Item 1 Staff Report
Item 1: Staff Report
Pg.
1 Packet Pg. 8 of 320
EXPRESSING APPRECIATION TO DANIEL (DAN) BERGEN UPON HIS
RETIREMENT
WHEREAS, Dan Bergen joined the City of Palo Alto in 2002 and has dedicated 24 years to serving the community through his career in the Library Services Department; and
WHEREAS, Dan skillfully managed the Mitchell Park Library staff work schedule, balancing library tasks and ensuring that staff provided a variety of services, and was an active participant on the Library’s Branch Leadership Team; and
WHEREAS, Dan has tirelessly committed himself to circulating library materials, contributing to a team that moves more than one million materials annually between Library branches and directly into customers’ hands; and
WHEREAS, Dan wrote and hosted lively, engaging trivia competitions as the resident Quizmaster for the Library’s annual Volunteer Appreciation Luncheon over the past several years; and
WHEREAS, Dan created and presented a number of history-related library programs, sharing his passion with the public and building rapport with loyal library users who appreciated his positive, engaging, and good -natured approach to community service; and
WHEREAS, through every challenge of the last 24 years, Dan has contributed his invaluable insight and considerable expertise to help create a stronger Library Department.
NOW, THEREFORE, I, Vicki Veenker, Mayor of the City of Palo Alto on behalf of the entire City Council do hereby recognize Dan Bergen for his dedication and excellent service rendered to the City.
Presented: June 8, 2026
APPROVED:
______________________
Mayor Vicki Veenker
______________________ ______________________
Vice Mayor Greer Stone Councilmember Pat Burt
______________________ ______________________
Councilmember Ed Lauing Councilmember George Lu
______________________ ______________________
Councilmember Julie Lythcott-Haims
Councilmember Keith Reckdahl
ATTEST:
______________________
City Clerk
APPROVED AS TO FORM:
______________________ ______________________
City Manager City Attorney
Proclamation
Item 1
Attachment A - Retirement
Proclamation of Appreciation for
Daniel (Dan) Bergen
Item 1: Staff Report
Pg.
2 Packet Pg. 9 of 320
City Council
Staff Report
From: City Manager
Report Type: SPECIAL ORDERS OF THE DAY
Lead Department: Public Works
Meeting Date: June 8, 2026
Report #:2605-6326
TITLE
Proclamation Expressing Appreciation to Julie Weiss Upon Retirement
ATTACHMENTS
Attachment A: Retirement Proclamation of Appreciation for Julie Weiss APPROVED BY:
Brad Eggleston, Director Public Works/City Engineer
Item 2
Item 2 Staff Report
Item 2: Staff Report
Pg.
1 Packet Pg. 10 of 320
EXPRESSING APPRECIATION TO JULIE WEISS
UPON HER RETIREMENT
WHEREAS, Julie Weiss joined the City of Palo in 1993 as an employee in the Zero Waste team, was promoted in 2000 as an Environmental Specialist in the City of Palo Alto’s Public Works Watershed Protection Program, to Policy and Public Education Manager in 2016, and ultimately to Watershed Protection Manager in 2021; and
WHEREAS, Julie developed the City’s Integrated Pest Management Policy, coordinated the City’s Integrated Pest Management, or IPM Program, and collaborated across City departments to reduce pesticide use and promote less-toxic alternatives which resulted in the California Department of Pesticide Regulation twice acknowledging the City of Palo Alto as an IPM Innovator; and
WHEREAS, Julie developed the City’s Green Purchasing Policy and efforts that aligned the City’s environmental policies and goals with its purchasing practices; and
WHEREAS, Julie expanded plastic reduction ordinances in 2013 and 2015 to eliminate single-use plastics bags, and plastic foam foodware at all retailers and food service establishments, elements of which were among the first in the nation; and WHEREAS, Julie managed the 2013 landscaping redesign at the Regional Water Quality Control Plant which improved the screening of the wastewater treatment plant, enhanced public access with improved paths and interpretive signs, and improved habitat and native plants; and
WHEREAS, Julie developed the City’s Sea Level Rise Adaptation Policy, led the subsequent development of the Sea Level Rise Vulnerability Assessment, and initiated early sea level rise adaptation planning efforts in collaboration with several City departments; and
WHEREAS, Julie actively participated in the Bay Area Clean Water Agencies Bay Area Pollution Prevention Group and was instrumental in spearheading outreach to veterinarians and the community to reduce pesticides entering wastewater from flea and tick products; and
WHEREAS, Julie co-led and subsequently updated the City’s 2020 Tobacco Retail Permit Ordinance that aligned the City with Santa Clara County’s effort to prohibit the sale and distribution of all electronic cigarettes and flavored tobacco products to decrease tobacco-related litter, the number of people exposed to second-hand smoke, and the ability of youths to access tobacco products within the City; and
WHEREAS, Julie Weiss completed 32 years of dedicated service to the City of Palo Alto’s Environmental Services Division.
NOW, THEREFORE, I, Vicki Veenker, Mayor of the City of Palo Alto, on behalf of the entire City Council do hereby recognize Julie Weiss for her years of dedicated service.
PRESENTED: June 8, 2026
APPROVED:
______________________
Mayor Vicki Veenker
______________________ ______________________
Vice Mayor Greer Stone Councilmember Pat Burt
______________________ ______________________
Councilmember George Lu Councilmember Julie Lythcott-Haims
______________________ ______________________
Councilmember Keith Reckdahl
Councilmember Ed Lauing
ATTEST:
______________________
City Clerk
APPROVED AS TO FORM:
______________________ ______________________
City Manager City Attorney
Proclamation
Item 2
Attachment A - Retirement
Proclamation of Appreciation for Julie
Weiss
Item 2: Staff Report
Pg.
2 Packet Pg. 11 of 320
City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: City Clerk
Meeting Date: June 8, 2026
Report #:2604-6299
TITLE
Adoption of a Resolution Calling for a General Municipal Election to be held on November 3, 2026; CEQA Status – Not a Project
RECOMMENDATION
Staff recommends that the City Council:
1. Adopt the attached Resolution calling for a General Municipal Election for three City Councilmember seats for November 3, 2026, authorizing consolidation of the election, and contracting for election services with Santa Clara County Registrar of Voters (ROV), and
2. Direct the City Clerk to use the Secretary of State’s randomized alphabet drawing to determine the order of candidates’ names on the ballot.
BACKGROUND
Attached is a Resolution calling for a General Municipal Election for three City Councilmember seats on November 3, 2026, requesting the services of Santa Clara County Registrar of Voters (ROV), and requesting consolidation of the General Municipal Election with any other election called for this jurisdiction for this date.
The terms of the following Councilmembers expire on December 31, 2026 and will be on the November ballot: Ed Lauing, Julie Lythcott-Haims, and Vicki Veenker. All three Councilmembers have each served one full term and are eligible to seek re-election on the November 3, 2026 ballot.
The Palo Alto Charter requires that the order of candidates’ names on the ballot be determined by lot1. The City Clerk recommends that the City Council continue prior practice and direct that the Charter requirement be implemented by using the randomized alphabet drawing conducted 1 Palo Alto Charter, Article VII, Section 3: https://codelibrary.amlegal.com/codes/paloalto/latest/paloalto_ca/0-0- 0-59473
Item 3
Item 3 Staff Report
Item 3: Staff Report
Pg.
1 Packet Pg. 12 of 320
by the California Secretary of State to determine the order in which candidates appear on the ballot.
The attached resolution provides that a tie vote (upon the canvass of returns or after a recount) be resolved by lot, which is the default procedure under state law. If the City Council prefers, it may direct staff to revise the attached resolution to provide that a tie be resolved through a special run-off election to be held not less than 40 or more than 125 days after the certification of the tie vote.
FISCAL/RESOURCE IMPACT
The estimated cost of the November 3, 2026 election including the three City Councilmember seats and translation into several languages is approximately $216,192 as provided by the Santa Clara County ROV. The proposed FY 2027 Budget currently includes funding of $200,000 for councilmember election costs.
Table 1: Summary of Election Costs (from ROV)
Ballot Item Estimated Cost
City Councilmember Seats $ 193,632
Candidate Statements (est. 6 candidate statements) $ 22,560 Estimated Total $216,192
On May 18, 2026, the City Council directed staff to pursue a ballot measure for a ½ cent sales tax in the November 2026 election. This item is on the Council’s agenda for June 8, 2026. Placing this sales tax measure on the ballot is estimated to cost an additional $100,293 and is funded by the General Fund Real Property Investment Reserve.
Assuming the City Councilmember seats and the potential ½ cent sales tax measure, estimated election costs will total $316,485.
The Santa Clara County Board of Supervisors is expected to consider an updated fee schedule in June, and the Registrar of Voters will update the cost estimated to reflect the increased fees should the Board approve the new schedule. Assuming costs would increase, budget amendments in FY 2027 may be necessary and would be brought forward later.
ENVIRONMENTAL REVIEW
The attached Resolution is not a project under section 15378(b)(5) of the California Environmental Quality Act Guidelines (administrative activities that will not result in direct or indirect physical changes in the environment).
ATTACHMENTS
Attachment A: Resolution Calling for a General Municipal Election on November 3, 2026 APPROVED BY:
Mahealani Ah Yun, City Clerk
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1 Resolution No. ____
Resolution of the Council of the City of Palo Alto Calling a General Municipal Election of Three Council Member Seats, Requesting the Services of the Registrar of Voters, and Requesting the Consolidation of the General Municipal Election with the Statewide General Election to Be Held in Santa Clara County on November 3, 2026
R E C I T A L S
A. Article III, Section 3, of the Palo Alto City Charter requires that a general municipal for election of council members be held on the first Tuesday after the first Monday in November of each even-numbered year, that is, November 3, 2026; and B. Pursuant to Section 1001 of the Elections Code of the State of California, a statewide general election is scheduled to be held on Tuesday, November 3, 2026; elections in other cities, certain school districts and special districts in Santa Clara County are also scheduled to be held on that date; and
C. Under Part 3 of Division 10 of the Elections Code, beginning at Section 10400, and Education Code Section 5342, elections called by various governing bodies may be partially or completely consolidated and held on the same day as a statewide election, upon order of the City Council.
NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Call of Election. A statewide general election is called for the City of Palo Alto to be held on Tuesday, November 3, 2026, for the purpose of electing three (3) council members for full terms (four years), each of whom shall be an elector and shall have been a resident of the City of Palo Alto for at least thirty days next preceding the final filing date for nomination papers for such office.
Title of
Office
Length of
Term
Number
of Seats
Type of
Seats
Council
Member
4-year
full-term
3 At-Large
SECTION 2. Request to Consolidate. Pursuant to Section 10403 of the Elections Code of the State of California, the Council of the City of Palo Alto requests the governing body of the state and any other political subdivision, or any officers otherwise authorized by law, to partially or completely consolidate such elections and the City Council consents to such consolidation. The Council acknowledges that the election will be held and conducted according to procedures in the Elections Code, including Section 10418.
SECTION 3. Request for County Services. Under Section 10002 of the California Elections Code, the Council of the City of Palo Alto requests the Board of Supervisors of Santa Clara County to permit the Registrar of Voters to render services to the City of Palo Alto relating to the Item 3
Attachment A - Resolution
Calling for a General
Municipal Election on
November 3, 2026
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2 conduct of Palo Alto’s general municipal election which is called to be held on Tuesday, November 3, 2026, and shall reimburse the county for the costs incurred by the County of Santa Clara Registrar of Voters in conducting the general municipal election for the City of Palo Alto.
The City requests the County of Santa Clara Board of Supervisors permit the County of Santa Clara Registrar of Voters to prepare the City’s election materials. The election services to be performed shall include the preparation, printing and mailing of official ballots and county voter information guides; the establishment of precincts, election ballots, return mail envelopes, ballot drop boxes, vote centers, election officers, and producing such publications as are required by law in connection therewith; the furnishing of ballots, envelopes, and other necessary supplies and materials for voting places; the canvassing of the returns of the election; the furnishing of the results of such canvassing to the City Clerk; and, the performance of other election services as may be requested by the City Clerk.
SECTION 4. Consolidation of Measures. The Council of the City of Palo Alto requests the Board of Supervisors of Santa Clara County to include on the ballots and sample ballots all qualified measures submitted by the City Council to be ratified by the qualified electors of the City of Palo Alto.
SECTION 5. Manner of Election. That the City Council of the City of Palo Alto requests the Board of Supervisors of the County of Santa Clara to hold and conduct the consolidated general election in the manner prescribed in Section 10418 of the Elections Code of the State of California, and to further provide that the Registrar of Voters canvass the returns of the municipal election. The County of Santa Clara is hereby authorized to certify the returns of the municipal election.
SECTION 6. Candidate Statement of Qualifications. Pursuant to Section 13307 of the Elections Code of the State of California, each candidate for elective office may prepare a candidate’s statement. The candidates' statements of qualifications may include the name, age and occupation of the candidate and a brief description of no more than 200 words of the candidate’s education and qualifications expressed by the candidate. The cost of printing, translating and distributing said statements shall be borne by the City of Palo Alto.
SECTION 7. Tie Votes. Pursuant to Section 15651 of the Elections Code of the State of California, in the event two or more persons receive an equal and the highest number of votes for any office, the City Council shall summon the candidates who received the tie votes, whether upon the canvass of returns or upon recount, to appear before it and shall determine the tie by lot.
SECTION 8. Duties of City Clerk. Except as otherwise provided herein, the Palo Alto City Clerk shall do all things required by law to effectuate the November 3, 2026, general municipal election, including but not limited to causing the posting, publication and printing of all notices or other election materials under the requirements of the Charter of the City of Palo Alto and the California Elections and Government Codes.
SECTION 9. Contract Authority. Subject to approval of the Board of Supervisors of Santa Clara County, the City Clerk may engage the services of the Registrar of Voters of the County of Santa Clara to aid in the conduct of the November 3, 2026, election including canvassing the returns of that election. The Palo Alto Director of Administrative Services shall pay the cost of Item 3
Attachment A - Resolution
Calling for a General
Municipal Election on
November 3, 2026
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3 contracted services provided that no payment shall be made for services which the Registrar of Voters is otherwise required by law to perform.
SECTION 10. Transmittal of Resolution. The City Clerk shall submit a certified copy of this resolution to the Board of Supervisors of the County of Santa Clara.
SECTION 11. CEQA. The Council finds that this resolution does not constitute a project subject to the California Environmental Quality Act under Public Resources Code section 21065 or CEQA Guidelines section 15378.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST: APPROVED:
_____________________________ ____________________________ City Clerk Mayor
APPROVED AS TO FORM:
_____________________________ ____________________________ Assistant City Attorney City Manager
____________________________
Director of Administrative Services
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Calling for a General
Municipal Election on
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Human Resources
Meeting Date: June 8, 2026
Report #:2605-6421
TITLE
Recommendation from the Council Appointed Officers Committee to City Council to approve the FY26 Council Appointed Officers annual evaluation process timeline, the modified CAO self- evaluation questions and Council interview questions for the annual evaluation process - CEQA:
Not a Project
RECOMMENDATION
The Council Appointed Officers (CAO) Committee recommends approval of the FY 2026 CAO annual evaluation process timeline, the modified CAO self-evaluation questions and Council interview questions for the annual evaluation process.
BACKGROUND
The City Manager, City Attorney, City Auditor and City Clerk are appointed directly by the City Council and, as such, are reviewed by the City Council on an annual basis in accordance with their individual employment agreements. The City Auditor is also appointed directly by the City Council however the City contracts for internal auditing services with Baker Tilly under the terms of the contract. Such review is necessary for Council members to ensure the efficiency of the appointed offices, to provide general feedback on their performance, to set goals for the coming year, and to identify areas of improvement. It is also necessary to review compensation to ensure that the positions are paid appropriately in comparison to the market and their performances. Given that a need exists for objectivity and facilitation as well as the time commitment in meeting with seven City Council members, the four CAO’s, and the CAO Committee, the use of an outside consultant increases efficiency.
Following the FY25 CAO evaluation process, the CAO Committee debriefed on December 10, 2025 with MRG consultant with Dan Rich and issues such as the following were raised:
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Are any changes to the CAO self-evaluation prompts or Council interview questions appropriate?
Should the structure of the closed session evaluation with each appointee be altered? Should the timing and process be altered for the City Auditor? How can the Council calendar year priorities be better aligned with the appointee fiscal year goals?
The CAO Committee discussed these changes and asked the consultant to propose modification based on the discussion. No action was taken.
The CAO Committee launched the FY26 CAO evaluation process with a meeting on May 13, 2026. The CAO Committee reviewed the proposed process timeline, the updated CAO self- prompts and Council interview questions.
ANALYSIS
Attached is the proposed timeline for the FY26 CAO evaluation process which was discussed with the CAO Committee including confirmation that a key goal will be to compress the process so that appointees can integrate Council feedback into their workplans more timely than in past two years. It was also suggested to schedule closed session evaluations in September on non- Council meeting nights in order to expedite the evaluation reviews. No changes to the FY26 proposed timeline were recommended.
Next, the CAO Committee reviewed the proposed changes to the CAO self-evaluation prompts and Council interview questions and discussed the modifications presented by Dan Rich. It was pointed out that the City Auditor evaluation could be skipped for the FY26 evaluation process as the City Auditor’s workplan is in progress and already has been reviewed by Council and the feedback provided in last year’s evaluation would be incorporated into her FY 26-27 workplan. Key feedback was provided by the CAO Committee and some Council questions were fine-tuned, including changes to the City Attorney Council interview questions given his recent appointment as City Attorney in March 2026. Attached are the revisions to the Appointee Self-Prompts as well as each Appointee Council interview questions.
In addition, there was a brief discussion regarding KPI’s and the Committee decided it was best to have the Appointees in their Self-Evaluation Prompts, self-identify potential KPI’s that would be appropriate for their roles and suggested goals, in light of Council’s priorities for the calendar year. This approach will be discussed during the Appointee Evaluations for Council’s consideration.
The CAO Committee voted unanimously to recommend to the City Council approval of the proposed FY26 CAO evaluation process timeline, the amended Appointee Self-Evaluation Prompts and Appointee Council Interview Questions as modified by the CAO Committee.
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FISCAL/RESOURCE IMPACT
Funding for the annual CAO performance evaluation facilitation services is budgeted in the Office of the City Clerk operating budget. Additional resources are not needed to support the process at this time.
STAKEHOLDER ENGAGEMENT
Public comment was available during the Committee deliberations on May 14, 2026.
ENVIRONMENTAL REVIEW
Not a Project
ATTACHMENTS
Attachment A: FY26 CAO evaluation timeline
Attachment B: CAO Self-eval prompts
Attachment C: Council interview questions
APPROVED BY:
Sandra Blanch, Human Resources Director
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P. O. Box 561, Wilton, CA 95693 916-261-7547 www.Solutions-MRG.com
PALO ALTO 25-26 CAO EVALUATIONS – TIMELINE
Date Action
May 14
CAO Committee meeting to review/finalize process (timeline and questions for CAO’s and Council to respond to)
Late May MRG consultant send CAO’s brief update on the tentative 2026 Evaluation process Early June
(8) Consent Item to full Council on process/timeline
Early June Process, timeline and self-evaluation prompts distributed to CAOs; Sandra sends to Council
July 10 CAO’s self-evaluations due
July 16 MRG sends Mayor & City Council self-evaluations and interview questions in advance of individual meetings
July 21 –
August 13
MRG to conduct interviews with Council to gather their input and experiences with the appointees (zoom or in person)
Sept. 3 MRG distributes draft performance evaluations, goals, salary info to Council
September
Closed Sessions (special meeting date/times):
Review of draft evaluations – week of Sept 7
City Manager – week of Sept 21
City Attorney, City Clerk and compensation for all – week of Sept 28
Mid Sept.
Final evaluations distributed to Council and CAO’s (after first closed session)
Early Oct. Following approval, MRG routes final docs via DocuSign for signature Mid Oct. Schedule debrief conversations with CAO’s
Council approval of amended Employment Agreements for CAOs Early Nov CAO Committee to meet and debrief on the process
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5/20/26
QUESTIONS TO DRIVE THE PALO ALTO CAO EVALUATION PROCESS –
Council would like the appointed officials to respond to some specific questions in the self- evaluation, which will help focus the Council interviews and final evaluation:
a. What do you consider your key achievements in the last fiscal year, including as called out in Council-identified priorities and the specific goals identified in your most recent performance evaluation (performance against goals, including KPI’s as appropriate)?
b. What do you see as areas of concern or vulnerability (to include organization- wide and/or department-specific comments, but not personnel-specific). c. How are your direct reports performing? (for example: productivity, morale, collaboration, communication, recruitment, etc.).
d. What are the trends you see from your vantage point and expertise that the City needs to be thinking about (regional, state, national, etc. issues that impact the City)?
e. What is your characterization of the effectiveness and quality of Appointed Official/Elected Official relationships (availability, responsiveness, communication, open mindedness, etc.). What could both sides do to improve the relationship?
f. What are your suggested priorities for the coming year, and how would you measure their success (draft KPIs)?
g. What do you need from the Council in the next fiscal year and beyond to be successful?
h. What else would you like to share with the Council?
i. Please provide an update on the “Areas of Development” from last year. j. What are your observations on the organization’s fiscal health (strengths and risks). For CM only
k. For the City Attorney: Please modify as appropriate given your short tenure and no formal goals established. And add: What are your observations and ideas so far on the organization, your department – it’s staffing and structure, and the significant legal issues currently or potentially facing the City.
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CITY OF PALO ALTO
CITY MANAGER 2026 EVALUATION – COUNCIL INTERVIEW QUESTIONS
1. Based on your observations and his self-evaluation, what do you see as the top 2-3 personal strengths and organizational achievements of City Manager from the past year?
2. How did the City Manager do on achieving Council’s priority goals and his Council adopted priorities for FY 25-26? Please be as specific as possible.
3. Does the City Manager have areas for development that should be addressed to help him grow in this role?
4. Does the organization face vulnerabilities or challenges that you can see and would like the City Manager to be aware of?
5. How does the City Manager and his staff provide the elected officials with the support needed to govern effectively (availability, responsiveness, communication, etc.)?
6. Please share your perception of the City Manager’s leadership and how it effectively meets the needs of the organization and community (such as: vision, leading others, partnering, decisiveness/consensus decision making, developing a team, managing conflict, leveraging resources, etc.). Provide specific examples as possible.
7. Is there any feedback (positive or constructive) you would like to provide about the operation of departments?
8. How well does the City Manager anticipate issues and think strategically to address trends and long-term issues?
9. Are there any additional comments or suggestions that you would like to add concerning the City Manager’s performance over the past year?
10. What do you think the top 2-3 issues the CM should specifically focus on as priorities for FY 26-27 and beyond?
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CITY OF PALO ALTO
CITY ATTORNEY 2026 EVALUATION – COUNCIL INTERVIEW QUESTIONS
1. How satisfied are you with the verbal and written analysis, as well as advice, provided by the City Attorney regarding topic such as active litigation, settlements and pending risk issues?
a. Are you satisfied with the work of outside Counsel retained by the City Attorney?
2. What are the top 2-3 strengths and/or achievements of the City Attorney since he started that should be highlighted?
3. How did the City Attorney do on supporting achievement of Council’s priority goals for FY 25-26? Please be as specific as possible.
4. Does the City Attorney have any areas for development that you think he should work?
5. Does the organization face legal vulnerabilities or challenges that you can see? How well has the City Attorney done so far in spotting or bringing forward those or other challenges?
6. How well does the City Attorney spot and anticipate issues; does he think strategically to address trends and long-term issues?
7. Is there any feedback (positive or constructive) you would like to provide about the operation of the CA department?
8. Are there any additional comments or suggestions that you would like to add concerning the City Attorney’s performance since he began?
9. What do you think are the top 2-3 issues the City Attorney should focus on as priorities for FY 26-27 and beyond?
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CITY OF PALO ALTO
CITY CLERK 2026 EVALUATION – COUNCIL INTERVIEW QUESTIONS
1. What do you see as the top 2-3 personal strengths and professional achievements of the City Clerk from the past year?
2. How did the City Clerk do in furthering Council priority goals as related to her position and her individual goals for FY25-26 (from last year’s evaluation)?
3. How does the City Clerk provide the elected officials with the support needed to govern effectively (availability, responsiveness, communication, meeting management, etc.)?
4. Please share your perception of the City Clerk’s leadership and how it effectively meets the needs of the Council and her team. Provide specific examples as possible.
5. What is your perception of the Clerk’s interaction with, and responsiveness to, the public?
6. Does the City Clerk have areas for development that should be addressed to help her in this role?
7. How well does the City Clerk anticipate issues and think strategically to address trends and long- term issues? Are there innovations you are looking for in the Clerk’s office?
8. Is there any feedback (positive or constructive) you would like to provide about the operation of the Clerk’s department?
9. Are there any additional comments or suggestions that you would like to add concerning the City Clerk’s performance over the past year?
10. What do you think are the top 2-3 issues the City Clerk should specifically focus on as priorities for FY 26-27 and beyond?
5/20/26
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: City Auditor
Meeting Date: June 8, 2026
Report #:2605-6353
TITLE
Accept the City of Palo Alto Utility Reserves Advisory Report and Public Safety Staffing and Overtime Audit as recommended by the Policy & Services Committee. CEQA Status: Not a Project.
RECOMMENDATION
The Policy & Services Committee (P&S) and the Office of the City Auditor recommend City Council accept the results of one advisory project and one audit:
1. City of Palo Alto Utility Reserves Advisory Project (Attachment A, P&S recommended accepting results on April 14, 2026), and
2. Public Safety Staffing and Overtime Audit (Attachment B, P&S recommended accepting results on May 12, 2026)
BACKGROUND
Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), performs a citywide risk assessment each year that evaluates a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of these assessments is to identify and prioritize risks to develop each year’s annual audit plan.
During the FY2024 risk assessment, the OCA identified public safety (Police and Fire Departments) staffing and overtime as potential areas of risk and this audit topic was included in the FY2025 Annual Audit Plan approved by Council. OCA identified the City’s utility reserves as a potential area of risk during the FY2025 risk assessment and included this topic as an advisory project in the FY2026 Annual Audit Plan approved by Council.
In accordance with our agreement with the City, Baker Tilly Advisory is required to execute the Annual Audit Plan each year which consists of specific, approved task orders. Task Orders approved by the Council are executed by the P& S Committee Chair as the Project Manager for the Baker Tilly Contract as stipulated in the contract terms.
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ANALYSIS
City of Palo Alto Utility Reserves Advisory Project
P&S unanimously approved the results of the City of Palo Alto Utility Reserves Advisory Project on April 14, 2026. Discussion centered on developing a plan to steadily and sustainably increase reserves and management will be bringing a more comprehensive plan for addressing the findings in the fall of 2026 to the City’s Utility Advisory Commission and the Finance Committee.
The objective of the Utility Reserves Advisory Project was to assess and benchmark the City’s current utilities reserves and identify best practices related to reserve policies, structures, and levels.
The City’s utility reserve funds play a critical role in maintaining financial stability, supporting emergency response, and funding long-term capital needs. Our assessment noted that some reserve policies – particularly for the Wastewater Treatment, Refuse, and Stormwater utilities – are outdated and not fully aligned with more recently updated policies across other utilities. In addition, we noted that the current structure includes multiple reserve funds with varying guideline levels which can be administratively complex, requiring staff to track multiple reserve funds against minimum, target, and maximum levels. In a few cases, such as the Electric Special Projects Reserve, additional clarification on the purpose of the reserve could further improve understanding, consistency and minimize the potential for overlap.
The City remains in compliance with its bond covenants and maintains strong creditworthiness, but there are opportunities for reserve policies to more directly reference bond requirements and credit considerations to enhance alignment and transparency. Some existing bond-related reserve requirements are more complex than current market standards, though these are expected to phase out as outstanding bonds mature or are refinanced.
From an operational standpoint, many of the City’s practices align with industry standards, particularly regarding capital improvement (CIP) reserves. The report identifies opportunities to further strengthen consistency across utilities, including consideration of operating reserves where they are not currently in place and refinements to how capital reserve targets are defined. Compared to peer agencies, the City’s reserve policies are somewhat more detailed, while other communities often use more streamlined approaches with fewer reserve categories and simplified guidelines.
The report outlines several opportunities to update and refine reserve policies to improve clarity, consistency, and ease of administration. These include aligning older policies with current practices, clarifying the purpose of certain reserve funds, and refining guideline levels— particularly for rate stabilization and capital reserves. Overall, these enhancements are intended to support continued strong financial management while improving transparency and usability of the reserve framework.
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Please see Attachment A for a more detailed discussion of our observations and recommendations and management response.
Public Safety Staffing and Overtime Audit
P&S unanimously approved the results of the Public Safety Staffing and Overtime Audit on May 12, 2026. Discussion centered on the adequacy of budgeted staffing positions versus filled staffing positions. Both the Police and Fire Departments have significantly exceeded overtime budgets in recent year to maintain minimum staffing levels. Filling new fire fighter and sworn police officer positions requires months of training followed by a probationary period which can take up to 24 months.
The objective of the Public Safety Staffing and Overtime Audit was to determine if sworn personnel at the Palo Alto Police and Fire Departments are effectively and efficiently staffed including the use of overtime.
Findings for the Police Department noted that staffing levels may be insufficient to meet operational demands with the department relying heavily on overtime to maintain minimum staffing levels. The audit also noted that the department does not fully use workforce data to monitor staff sustainability and risk. Police academy success rates are not tracked and overtime is not considered when evaluating safety-related incidents. Finally, the audit identified inconsistent and manual tracking of overtime hours which could cause the department to make staffing decisions based on inaccurate data.
There was one primary finding for the Fire Department. While the City has added fire resources in recent years, overtime use remains a concern with most overtime use being used to meet minimum staffing requirements. The audit also found that while some key performance metrics are being met, staffing challenges may have impacted other response times and violation follow up. However, management implemented structural changes which reduced the amount of forced overtime with positive feedback from staff.
Key recommendations for both departments include strengthening workforce planning and hiring pipeline management to account for attrition and long training timelines, improving the monitoring of overtime and workforce sustainability, and improving budget transparency and operational efficiencies by better aligning budgets with historical trends and continuing process improvements.
FISCAL/RESOURCE IMPACT
The City Auditor’s Office is aware of ongoing budget constraints which may impact recommendation implementation and timelines.
CPAU Reserves Advisory Project: The timeline and resource needs for implementation of management’s action plan are identified by management within their attached response to the Item 5
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report (Attachment B). Implementation to change reserve levels would have rate impacts and staff recommend spending the coming year in advance of FY2028 rate setting to evaluate policy changes based on this research.
Public Safety Staffing and Overtime Audit: The timeline and resource needs for implementation of management’s corrective action plans are identified by management within the attached report.
STAKEHOLDER ENGAGEMENT
The OCA would like to thank the City of Palo Alto Utilities, Administrative Services, City Manager, Police and Fire Departments in conducting these audits and working to identify and implement corrective actions.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because contracting for auditing services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).
ATTACHMENTS
Attachment A: City of Palo Alto Utilities Advisory Report Attachment B: Public Safety Staffing and Overtime Audit APPROVED BY:
Kate Murdock, City Auditor
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1 City of Palo Alto
Office of the City Auditor
City of Palo Alto Utility Reserves Advisory Report
March 27, 2026
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Contents
Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms.
EXECUTIVE SUMMARY .................................................................................................. 1 PURPOSE OF THE ASSESSMENT ........................................................................................................ 1 REPORT HIGHLIGHTS ............................................................................................................................... 1 INTRODUCTION ............................................................................................................... 7 OBJECTIVE ................................................................................................................................................... 7 OVERVIEW .................................................................................................................................................... 7 SCOPE AND PROCEDURES ................................................................................................................... 7 DETAILED ANALYSIS ..................................................................................................... 8
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1 Executive Summary
Purpose of the Assessment
Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City or Palo Alto ), conducted a City of Palo Alto Utilities (CPAU) Advisory Project based on approved Task Order 4.38 as part of the City’s Fiscal Year (FY) 2026 Audit Plan. The purpose of this project was to assess CPAU's Reserve policies and benchmark them against peer agencies.
Report Highlights
Overview of
Current
Reserves:
(Page 9)
Consistency
w/ Regulatory
Reserve
Margin
Requirements:
(Page 16)
Overview of Current Reserve Funds and Reserve Policies
Utility reserve funds provide a safety net for municipal utilities and can help agencies stabilize rates, respond to emergencies and plan for capital improvements, while ensuring the utility remains credit worthy and financially healthy.
• Current reserve policies contain multiple prescribed transfer rules that require the tracking of reserve funds to minimum, target, and maximum levels resulting in significant administrative burden.
• Reserve funds and policies for the Wastewater Treatment Utility, Refuse Utility, and Stormwater Utility date back to the early 1990s and are no longer aligned with other utilities reserve policies which were updated in June 16, 2025.
The Electric Special Projects Reserve appears to serve similar purposes with the CIP Reserves. As such, additional clarity on the intended use of these funds may be necessary.
Consistency with Regulatory Reserve Margin Requirements Policies
The City’s bond covenants contain specific reserve requirements for the outstanding Water Revenue Bonds, 2009 Series A (2009 Bonds) and the Utility Revenue Refunding Bonds, 2011 Series A (2011 Bonds)(collectively, Utility Bonds). Relevant cash reserve credit rating targets from S&P and Moody’s are also discussed in this section of the report.
• Both the Rate Covenant and Available Reserves Covenants are monitored and tracked by the Administrative Services Department. Current utility reserve policies do not specifically address the Rate Covenants or Available Reserve Covenants made by the City in the official statements and legal documents for the outstanding 2009 and 2011 bonds. According to the latest Ratings Affirmation from S&P on the outstanding 2011 and 2009 bonds, Palo Alto is in compliance with the Rate and Available Reserves Covenants. The City could consider referencing these documents in its reserve policies.
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2 EXECUTIVE SUMMARY
Operational /
Industry Best
Practices:
(Page 20)
• When determining credit ratings, rating agencies ultimately rate a utility based on a holistic financial profile. Rating agencies outline cash reserve targets as a guideline and is one of the many differing levels of creditworthiness. While the current reserve policies do not include cash reserve targets that correspond to the amounts laid out in credit agency rating guidelines, an important factor to consider is maintaining sufficient cash reserves to maintain credit ratings for the City’s utilities. • The outstanding 2009 and 2011 Bonds contain an overly burdensome reserve requirement covenant that is not a market standard, particularly for high-grade utility credits. The reserve requirement for the 2009 and 2011 Bonds require that the Electric Fund, the Gas Fund, and the Water Fund be combined for an Available Reserves Test. With future issuances, City Utilities can remove this Available Reserves Test form its covenants.
The 2011 Bonds mature in June 2026. Refunding the 2009 Bonds is being evaluated by the City. Once both Utility Bonds are defeased, City Utilities will no longer have to consider compliance to the Available Reserves Test separate from its reserve policies.
Operational / Industry Best Practices
This section of the report includes information on common best practices for operational reserves and capital improvement reserves from the Government Finance Officers Association (GFOA) and best practices that Baker Tilly employs when working with Utility clients.
• Current operations reserve fund policies are in alignment with the GFOA’s recommendations for operating reserves, however, the Wastewater Treatment Utility, Refuse Utility and Stormwater Utility do not currently have operations reserve funds. Wastewater Treatment Utility is currently working with a consultant to review their reserves.
• Current reserve policies for the City’s CIP reserve funds specify a maximum reserve guideline level that is equivalent to one-year of average capital improvements. In Baker Tilly’s experience, one-year of average capital improvements is the amount most frequently used as a target level of reserves in a CIP reserve fund. We consider this a best practice as setting aside one-year worth of capital improvement expenditures allows for the ongoing replacement of necessary infrastructure. It should be noted that when determining the one-year average capital improvement amount, Baker Tilly recommends that reappropriations and commitments (and the funds set aside for them) should not be considered. • While Baker Tilly considers one-year of average capital improvements a best practice CIP reserve level, GFOA recommends that capital reserve level development should be designed to best serve the particular needs of a given organization. As such, an amount less than our Item 5
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recommendation could be considered. Alternatively, another approach to determining a CIP reserve fund guideline level could be to maintain one- year or a percentage of one-year of depreciation expense in reserve balances.
• The current CIP reserve fund policy does not make a distinction between budgeted CIP expenses to be funded by cash or CIP expenses to be funded by Bonds or other funding sources. The best practice for this reserve policy would be to separate those two types of CIP expenses, and craft reserve guideline levels based on CIP expenses to be funded by cash. This ensures that reserve fund amounts in a given year are not artificially inflated due to large projects that will be funded through other funding sources.
Local Economy Specific Reserves Through Benchmarking Comparables
This assessment benchmarked reserve policies from the Roseville, Santa Clara, Healdsburg and Pasadena cities, as well as, San Jose Energy CCA (collectively, the “benchmarked communities”) and compares their policies to CPAU’s reserve policies.
• Rate stabilization reserve funds for the City’s Electric, Water, and Wastewater Collection Utilities do not contain formally established guideline reserve levels while most benchmarked communities specify varying target levels.
• Operation and maintenance reserve funds for the City’s Electric, Water, and Wastewater Collection Utilities have more prescriptive guidelines reserve levels through the establishment of minimum, target, and maximum guideline levels compared to the benchmarked communities.
The benchmark communities, with just one exception used only minimum guideline levels for the operation and maintenance reserve funds. The minimum guideline levels were most typically based on a specified amount of days operating expenses.
• Note that when analyzing operating reserves vs. rate stabilization reserves, Baker Tilly specifically compared Palo Alto’s rate stabilization reserve fund policies to only rate stabilization reserve fund policies for the Benchmark Communities, and Palo Alto’s operation reserve fund policies to operation reserve fund policies for the Benchmark Communities. • The Benchmark Communities typically have some or all of the three commonly established reserve funds that Palo Alto Utilities with updated reserve policies have, which are the rate stabilization reserve, the operations and maintenance reserve, and the CIP reserve. • The City’s Electric, Water, and Wastewater Collection Utilities have set minimum and maximum guideline levels for the capital replacement and improvement reserve funds, while all other benchmark communities with Item 5
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capital replacement and improvement reserve funds only had target guideline levels.
• In general, the reserve policies for CPAU are more detailed and cumbersome than the policies of the benchmarked communities. CPAU has more funds established to hold cash reserves and its policies are more detailed in terms of guideline levels and sources and uses of those reserve funds when compared to others.
Reserve Tracking – Key Observations
This section of the report examines the current requirements and processes for tracking reserves.
• Utility Management tracks reserves on an annual basis in conjunction with the development of each individual Utility’s Financial Plan. A reserve tracking policy with guidance included to report instances when reserve fund balances do not meet guideline levels to Council may provide more assurance that reserve targets are being met throughout the year and equip the Council with better information to make financial decisions than the current reporting process.
Key Recommendations
1. Update Dated Policies - the Wastewater Treatment, Refuse, and Stormwater Utilities’ operations, rate stabilization, and CIP reserve funds policies should be updated to align with similar reserve policy guidelines in other CPAU utilities. When updating, management should consider the need for the existing reserve funds in these Utilities that are not common across other CPAU utilities, including the Emergency Plant Replacement Reserve Fund, the Notes and Loans Reserve Fund for the Wastewater Treatment Utility, and the Landfill Corrective Action and Geng Road Reserve funds for the Refuse Utility. If no longer necessary, these funds should be closed out and the money transferred to other funds in place.
2. Do not eliminate any of the current reserve funds in place – With the exception of the utilities with dated policies mentioned above, all City Utilities have in common three reserve funds: operations, rate stabilization, and CIP reserve funds. Baker Tilly views maintaining each of these reserve funds as a best practice. Additionally, as shown in the Benchmarking Comparables section of the report, many of the Benchmark Communities share these same common reserve funds in their utilities. Specifically, the City of Roseville Water and wastewater utilities, the City of Santa Clara electric utility, and the San Jose clean energy electric utility all have both rate stabilization and operation Item 5
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and maintenance reserve funds. The City of Healdsburg water and wastewater utilities have operation and maintenance, rate stabilization, and capital improvement reserve funds. What’s more, all Benchmark communities utilities that were reviewed had at least one of the three of these reserve funds.
Palo Alto Utilities reserve funds separate from the three commonly shared reserve funds are in place for specifically defined and valid purposes and should remain in place until those purposes are accomplished or are no longer applicable.
3. Clarify CIP Reserve Fund Language – the Electric Special Project Reserve within the Electric Utility is distinct from the CIP Reserve Fund. While both of these funds are purposed for capital projects clarity on intended use of funds is recommended.
4. Consider adjustment to CIP Reserve Fund Guideline Levels – Consider adjustment to CIP Reserve guideline levels to align with Baker Tilly’s recommendation to maintain in the CIP reserve fund 20% of 60 months of budgeted CIP expenses or alternatively, one-year of depreciation expense in the CIP reserve fund. CIP expenses should only include those intended to be funded by Utility cash and not those projects intended to be funded by bonds or other outside sources of funding.
5. Adjust Rate Stabilization Reserve Policy to align with Bond Covenants and Benchmark Communities – Consider establishing:
• Minimum guideline levels in the Rate Stabilization Reserve Funds for the Electric, Gas, and Water Utilities to ensure reserve balances meet or exceed the current Available Reserves Bond Covenants. Note: Staff is evaluating refunding of the 2009 Bonds and a normal payoff of the 2011 Bonds in June 2026, which would eliminate the need to make a change to these minimum guideline levels due to this Bond Covenant. • Target guideline levels for these funds for the Electric, Gas and Water Utilities should be at the higher of the minimum guideline level required by the Available Reserve Bond Covenants or a specified percentage of the total operating revenues or operating expenses in the current fiscal year so that the Rate Stabilization Reserve could hold funds in excess of the amount dictated by bond covenants to be used for its defined purposes. • The rate stabilization fund for Utilities without the Available Reserve Bond Covenants in place (Wastewater Collection, Wastewater Treatment, Refuse, and Stormwater) should have a target guideline level based on a specified percentage of total operating revenues or operating expenses in the current fiscal year.
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• For reference, the benchmarked community rate stabilization fund targets varied between 10 to 65% of either revenues or expenses. The larger the percentage selected, the more reserve funds would be available to stabilize future rate increases. The percentage of operating revenues or expenses to be used as a target guideline level should be determined by Utility Management based on the amount desired to be held in the fund to help stabilize future rate increases.
• Revising wording in the policy from “If there are funds in the Rate Stabilization Reserve at the end of any fiscal year, any subsequent Utility Financial Plan must result in withdrawal of all funds from this Reserve by the end of the Financial Planning Period.” to “If a Utility Financial Plan proposes a rate increase, the funds in the Rate Stabilization Reserve Fund in excess of the target amounts must be drawn down to offset the proposed rate increase.”
6. Formalize Reserve Tracking – Develop a reserve tracking policy with reporting requirements to City Council on a regular basis. The policy could include a schedule prepared for each Utility showing the current reserve fund balances compared to the amount that should be held in those funds based on established guideline levels, as well as an explanation of how those guideline levels are calculated and the reserve funds are used based on the relevant Utility’s reserve policies.
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Objective The purpose of this assessment was to assess and benchmark the City’s current Utilities Reserves Policies.
Overview The detailed report includes five sections: Overview of Current Reserve Funds and Reserve Policies, Compliance with Regulatory Reserve Margin Requirements, Operational/Industry Best Practices, Local Economy Specific Reserves Through Benchmarking Comparables, and Reserve Tracking. These sections include the information obtained through our research and outline our thought process in developing the proposed recommendations for adjustments to the City's current Utility Reserve Policies.
Scope and
Procedures
The OCA performed the following procedures:
• Gathered all relevant information on the Utility Reserve Policies currently in place; • Interviewed Utility personnel to gain a comprehensive understanding of these policies;
• Researched applicable information on Utility reserve policies, operational & industry best practices;
• Researched reserve policies for comparable communities to provide benchmarking information regarding the reserve funds;
• Analyzed and outlined observations regarding the current Utility Reserve Policies against best practices, and
• Developed recommendations for decision makers to consider for updating the current Utility Reserve Policies.
The OCA greatly appreciates the support of the CPAU and Administrative Services Department in conducting this assessment.
Thank you!
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Detailed Analysis
Overview of Current Reserve Funds and Reserve Policies
Utility reserve funds provide a safety net for municipal utilities and can help an agency stabilize rates, respond to emergencies and plan for capital improvements, while ensuring the utility remains credit worthy and financially healthy. This section of the report to provides a detailed overview of the current reserve funds and reserve policies for each of the City’s Utilities. Below is a chart that provides a listing of all the reserve funds in place and whether those reserve funds are in place in the individual utility listed at the top of each column. Utilities not listed in this chart were not analyzed as a part of this engagement. The remainder of this section provides the details of these reserve funds and their associated policies categorized by the reserve funds that are common across all utilities and the reserve funds that are unique to specific utilities.
Current Reserve Funds in Place for the Utility?
Electric Gas Wastewater
Collection Water Wastewater
Treatment Refuse Stormwater
Operations Yes Yes Yes Yes No No No
Rate Stabilization Yes Yes Yes Yes Yes Yes Yes
CIP Reserves Yes Yes Yes Yes No No No
Electric Special Projects Yes No No No No No No
Underground Loan Yes No No No No No No
Hydroelectric Stabilization Yes No No No No No No
Electrification Reserve Yes No No No No No No
Public Benefits Yes No No No No No No
Low Carbon Fuel Standard Yes No No No No No No
Cap and Trade Program Yes Yes No No No No No
Emergency Plant Replacement No No No No Yes No No
Landfill Corrective Action Reserve No No No No No Yes No Geng Road Reserve No No No No No Yes No
Notes and Loans No No No No Yes No No
Reserve Funds included in all Utilities
Unless otherwise noted, guideline levels for reserve funds are based on the reserves management practices document for each utility.
Rate Stabilization
The purpose of the Rate Stabilization Reserve Fund is to manage the trajectory of future year rate increases. Withdrawal of funds from Rate Stabilization Reserves requires action by the City Council. If there are funds at the end of any fiscal year, any subsequent Financial Plan must result in the withdrawal of all funds from the Reserves by the end of the Financial Planning Period. The Council may approve exceptions to this requirement, when proposed by staff to provide greater rate stabilization to customers.
City of Palo Alto ACFR FYE June 30, 2025 (Page 112)
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Rate Stabilization Reserves for Wastewater Treatment and Refuse have set Minimum, Target, and Maximum Levels, which are defined as a % of sales revenue. There is only a Target Level for Stormwater.
Guideline Levels
Wastewater
Treatment (1)
Refuse (1)
Stormwater (2)
Minimum 15% 10% N/A
Target 22.5% 15% $500,000
Maximum 30% 20% N/A
(1) % of sales revenue. Levels found in City Council CMR:263:3 from May 6, 1993
(2) Target Level found in City Council CMR:320:0 from May 24, 1990
Rate Stabilization Reserves for Electric, Gas, Wastewater Collection and Water do not have set Minimum, Target and Maximum Levels.
Reserve Funds unique to specific utilities
Operations
The purpose of the Operations Reserve Fund is to manage normal variations in costs and as a reserve for contingencies. The Operations Reserve Fund is found within the Electric Utility, Gas Utility, Wastewater Collection Utility, and Water Utility.
The Minimum, Target, and Maximum level of reserves for the Electric, Gas, Wastewater Collection, and Water Utilities are defined by the number of days of expenses that should be covered. Based on the current reserve policies, these guideline levels are as follows:
Guideline Levels
Electric
Supply (1)
Electric
Distribution (2)
Gas (3)
Wastewater
Collection (4)
Water (5)
Minimum 60 60 60 60 60
Target 90 90 90 105 90
Maximum 120 120 120 150 120
(1) Days of Electric Supply Fund O&M and Commodity Expense (2) Days of Electric Distribution Fund O&M Expense
(3) Days of Gas O&M and Commodity Expense
(4) Days of Wastewater Collection O&M and Commodity Expense (5) Days of Water O&M and Commodity Expense
Electric Utility Reserves Management Practices, Gas Utility Reserves Management Practices, Wastewater Collection Utility Reserves Management Practices, Water Utility Reserves Management Practices, City Council CMR:320:0, City Council CMR:263:3 Item 5
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Based upon policy, it should be noted that if, at the end of any fiscal year, the funds remaining in the Operations Reserves are lower than the minimum level set forth above, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered within six months of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its minimum level by the end of the following fiscal year. In addition, staff may present an alternative plan that takes longer than one year to replenish the reserve.
The policy also states that if, at the end of any fiscal year, either Operations Reserve is higher or lower than the target level, any Financial Plan for a Utility shall be designed to return Operations Reserves to their target levels by the end of the forecast period considered in the Financial Plan.
Also, based upon policy, if at any time the Operations Reserve reaches its maximum level, no funds may be added to this Reserve. Any further increase in that fund's Fund Balance shall be automatically included in the Unassigned Reserves.
CIP Reserves
The purpose of the CIP Reserve Fund is to manage cash flow for capital projects and to act as a reserve for capital contingencies such as overage amounts for a project. The CIP Reserve Fund is found within the Electric Utility, Gas Utility, Wastewater Collection Utility, and Water Utility.
The Minimum and Maximum Level guidelines are the same for Electric, Gas, Wastewater Collection, and Water for the CIP Reserves Fund.
Guideline Levels
Minimum 20% of the maximum CIP Reserve guideline level
Maximum Average annual (12 month) CIP budget, for 48 months of budgeted CIP expenses
These guideline levels are calculated for each fiscal year of the Financial Planning Period and approved by Council resolution.
Based upon policy, it should be noted that if, at the end of any fiscal year, the minimum guideline is not met, staff shall present a plan to the City Council to replenish the reserve. The plan shall be delivered by the end of the following fiscal year, and shall, at a minimum result in the reserve reaching its minimum level by the end of the next fiscal year.
Electric Utility Reserves Management Practices, Gas Utility Reserves Management Practices, Wastewater Collection Utility Reserves Management Practices, Water Utility Reserves Management Practices, City Council CMR:320:0, City Council CMR:263:3 Item 5
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Also, based upon policy, it should be noted that if, at any time, the CIP Reserve reaches its maximum level, no funds may be added to this reserve. If there are funds in this reserve in excess of the maximum level staff must propose to transfer these funds to another reserve or return them to ratepayers in the next Financial Plan. Staff may also seek Council approval to hold funds in this reserve in excess of the maximum level, if they are held for a specific future purpose related to the CIP.
Electric Special Projects
The purpose of the Electric Special Projects (ESP) Reserve Fund is to fund projects that benefit electric rate payers. The Electric Special Projects Reserve Fund is found within the Electric Utility.
The Electric Special Projects Reserve Fund will be managed in accordance with the policies set forth in Resolution 9206 (Resolution of the Council of the City of Palo Alto Approving Renaming the Calaveras Reserve to the Electric Special Project Reserve and Adoption of Electric Special Project Reserve Guidelines) which was passed in 2011.
Below are the Electric Special Projects (ESP) Reserve Fund guidelines set forth in Resolution 9206:
• The purpose of the ESP Reserve is to fund projects that benefit electric ratepayers.
• The ESP Reserve Funds must be used for projects of significant impact. • Projects proposed for funding must demonstrate a need and value to electric ratepayers. The projects must have verifiable value and must not be speculative, or high-risk in nature.
• Projects proposed for funding must be substantial in size, requiring funding of at least $1 million.
• Set a goal to commit funds by the end of FY 2025.
• Any uncommitted funds remaining at the end of FY 2030 will be transferred to the Electric Supply Operations Reserve and the ESP Reserve will be closed.
Underground Loan
The purpose of the Underground Loan Reserve Fund is to fund a reserve for principal payments of outstanding Underground Loan(s). The Underground Loan Reserve Fund is found within the Electric Utility.
Based upon policy, it should be noted that, at the end of each fiscal year, the Underground Loan Reserve will be adjusted by the principal payments made against outstanding underground loans. There are no set Minimum, Target and Maximum Levels.
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Hydroelectric Stabilization Reserve
The purpose of the Hydroelectric Stabilization Reserve Fund is to manage the supply cost impacts with variations in generation from hydroelectric resources. The Hydroelectric Stabilization Reserve Fund is found within the Electric Utility.
Based upon policy, it should be noted that, near the end of each fiscal year, staff will determine the actual and expected hydro output for that fiscal year, compare that to the long-term average annual output level, and multiply the difference by the average of the monthly round-the-clock forward market prices for each month of the current fiscal year for the projected hydro output.
Staff is authorized to transfer the amount calculated for the projected hydro output (described above) from the Operations Reserve to the Hydroelectric Stabilization Reserve for hydro output deviations above long-term average levels, or transfer this amount from the Hydroelectric Stabilization Reserve to the Operations Reserve for hydro output deviations below long-term average levels.
The level of the Hydroelectric Stabilization Reserve after the transfers described above shall be the basis for staff's determination, with Council approval, of whether to implement the Hydro Rate Adjuster (Electric Rate E-HRA) for the following fiscal year.
For the Hydroelectric Stabilization Reserve Fund there are set Minimum, Target and Maximum Levels.
Guideline
Levels
Minimum $3 million
Target $19 million
Maximum $35 million
Electrification Reserve
The purpose of the Electrification Reserve Fund is to track funding of City buildings, appliance and vehicle electrification projects and programs, including development and implementation costs and associated financial incentives, loans and rebates for participating customers. The Electrification Reserve Fund is found within the Electric Utility.
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Based upon policy, the Electrification Reserve may be funded by any lawful source of funds available for such programs, including new or ongoing utility revenues derived from customer participation. The Electrification Reserve balance shall be annually adjusted based on the net of revenues and expenses associated with the City's building appliance and vehicle electrification projects and programs using this reserve.
Public Benefits
The purpose of the Public Benefits Reserve Fund is to track unspent Public Benefits Revenues. The Public Benefits Reserve Fund is found within the Electric Utility.
Based upon policy, the Public Benefits Reserve Fund will be increased by the amount of unspent Public Benefits Revenues remaining at the end of each fiscal year. Expenditure of these funds requires actions by the City Council.
Low Carbon Fuel Standard
The purpose of the Low Carbon Fuel Standard (LCFS) Reserve Fund is to track the revenues earned via the sale of Low Carbon Fuel Credits allocated by the California Air Resources Board to the City, as well as expenses incurred, in accordance with California's Low Carbon Fuel Standard Program. The Low Carbon Fuel Standard Reserve Fund is found within the Electric Utility.
Based upon policy, at the end of each fiscal year, the Low Carbon Fuel Standard Reserve will be adjusted by the net of revenues and expenses associated with California's Low Carbon Fuel Standard program
Cap and Trade Program
The purpose of the Cap-and-Trade Program Reserve Fund is to track unspent or unallocated revenues from the sale of carbon allowances freely allocated by the California Air Resources Board to the Electric Utility and Gas Utility, under the State's Cap and Trade Program. The Cap-and-Trade Program Reserve Fund is found within the Electric Utility and Gas Utility.
Based upon policy, funds in this reserve are managed in accordance with the City's Policy on the Use of Freely Allocated Allowances under the State's Cap and Trade Program, adopted by Council Resolution 9487 in January 2015. At the end of each fiscal year, the Cap-and-Trade Program Reserve will be adjusted by the net of revenues and expenses associated with the Cap-and-Trade program.
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Emergency Plant Replacement
The purpose of the Emergency Plant Replacement Reserve Fund is to manage cash flow for replacement or emergency repairs of damaged equipment. Reserves in this fund are to be used on the most expensive pieces of equipment which, if lost, would interrupt Wastewater Treatment activity. The Emergency Plant Replacement Reserve Fund is found within the Wastewater Treatment Utility.
Based upon policy, uses of funds in this reserve require special appropriation by the Council.
For the Emergency Plant Replacement Reserve Fund there are set Minimum and Maximum Levels.
Guideline Levels (1)
Minimum 5% of annual increase in the net book value of fixed assets Maximum 5% of total net book value of fixed assets
(1) Levels are found in City Council CMR:320:0 from May 24, 1990
Notes and Loans
The purpose of the Notes and Loans Reserve Fund is to manage cash flow reserves for any outstanding Notes and Loans. The Notes and Loans Reserve Fund is found within the Wastewater Treatment Utility. There are no set Minimum, Target, and Maximum Levels explicitly stated in the policies as required amounts are established in the respective loan agreements.
Landfill Corrective Action Reserve
The purpose of the Landfill Corrective Action Reserve Fund is to manage cash flow reserves for any costs of closure/post closure maintenance and corrective action for the respective facilities to protect the environment. The Landfill Corrective Action Reserve is found within the Refuse Utility. There are no set Minimum, Target, and Maximum Levels.
Geng Road Reserve
The purpose of the Geng Road Reserve is to manage cash flow reserves for any costs associated with Geng Road. The Geng Road Reserve is found within the Refuse Utility. There are no set Minimum, Target, and Maximum Levels.
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Overview of Current Reserve Funds and Reserve Policies Observations
Observation #1
Based on the information discussed within the Reserve Funds included in all Utilities category, and the Reserve Funds that are unique to specific Utilities category, current reserve policies result in significant administrative burden through multiple prescribed transfer rules and the necessary tracking of reserve funds to minimum, target, and maximum levels. The policies for many reserve funds dictate that reserve funds money must be transferred into the fund if below the minimum level or out of the fund if above the maximum level. For example, this is a requirement for the Operations and Maintenance Reserve, CIP Reserve, and Hydroelectric Stabilization Reserve for the Electric Utility. This requirement necessitates tracking reserve funds to the specific minimum and maximum amounts and transferring funds accordingly.
Observation #2
The current reserve funds and policies for the Wastewater Treatment Utility, Refuse Utility, and Stormwater Utility are from May 24, 1990 and May 6, 1993 and are not up to date compared to the other Utilities. Reserve policies for the other utilities were updated June 16, 2025.
Observation #3
The purpose of the Electric Special Projects Reserve appears to be similar to the CIP Reserves, and the combination of the two reserves into just one, could assist in relieving the administrative burden of having two reserve funds within the Electric Utility that are for similar purposes.
Consistency With Regulatory Reserve Margin Requirements
Outstanding Bond Requirements
There are two series of publicly-sold utility bonds outstanding:
• $35,015,000 City of Palo Alto Water Revenue Bonds, 2009 Series A (Taxable Direct Payment Build America Bonds), which mature on June 1, 2035
• $17,225,000 City of Palo Alto Utility Revenue Refunding Bonds 2011 Series A, which mature on June 1, 2026
The 2009 Bonds are payable only from Net Revenues of the Water System. Proceeds of the 2009 Bonds funded a debt service reserve fund for the 2009 Bonds in the amount of $2,567,280. The City is required to maintain the debt service reserve fund while the 2009 Bonds remain outstanding.
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The 2011 Bonds were separated into sub-series, with 45% ($7,751,250) allocated to the Water System and 55% ($9,473,750) allocated to the Gas System. The Water System’s 2011 sub-series is payable only from Net Revenues of the Water System on a parity basis with the 2009 Bonds. The Gas System 2011 sub-series is payable only from Net Revenues of the Gas System. Proceeds of the 2011 Bonds funded a debt service reserve fund for the 2009 Bonds in the amount of $1,462,600. The City is required to maintain the debt service reserve fund the 2011 Bonds remain outstanding.
Rate Covenant
2009 Bonds. In the Indenture for the 2009 Bonds, the City covenanted to fix, prescribe, revise and collect Charges for the Water System during each Fiscal Year which (together with other funds transferred from stabilization reserve funds for the Water System, and which are lawfully available to the City for payment of any of the following amounts during such Fiscal Year) are at least sufficient, after making allowances for contingencies and error in the estimates, to pay the following amounts in the following order:
• All Maintenance and Operation Costs of the Water System estimated by the City to become due and payable in such Fiscal Year;
• the Debt Service;
• All other payments required for compliance with the Indenture and the instruments pursuant to which any Parity Bonds relating to the Water System shall have been issued; and
• All payments required to meet any other obligations of the City which are charges, liens, encumbrances upon or payable from the Gross Revenues of the Water System or the Net Revenues of the Water System.
In addition, the City covenanted to fix, prescribe, revise and collect Charges for the Water System during each Fiscal Year which, when added to the balance then on hand in Available Reserves for the Water System, are sufficient to yield Net Revenues of the Water System at least equal to one hundred twenty-five percent (125%) of the amounts payable under the preceding clause (a)(2) in such Fiscal Year for Bonds which have a lien on such Net Revenues.
2011 Bonds. In the Indenture for the 2011 Bonds, the City covenanted, separately for each of the Water System and the Gas System, to fix, prescribe, revise, and collect Charges for each System during each Fiscal Year which (together with other funds transferred from stabilization reserve funds for such System, and which are lawfully available to the City for payment of any of the following amounts during such Fiscal Year) are at least sufficient, after making allowances for contingencies and error in the estimates, to pay the following amounts in the following order:
• All Maintenance and Operation Costs of Such System estimated by the City to become due and payable in such Fiscal Year;
• The Debt Service on the Sub-Series of the 2011 Bonds issued for such System;
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• All other payments required for compliance with this Indenture and the instruments pursuant to which any Parity Bonds relating to such System shall have been issued; and
• All payments required to meet any other obligations of the City which are charges, liens, encumbrances upon or payable from the Gross Revenues of such System or the Net Revenues of such System.
In addition, the City covenanted for each of the Water System and the Gas System to fix, prescribe, revise, and collect Charges for such System during each Fiscal Year which, when added to the balance then on hand in Available Reserves for such System, are sufficient to yield Net Revenues of such System at least equal to one hundred twenty-five percent (125%) of Debt Service that is payable from Net Revenues of the such System.
Available Reserves
2009 Bonds. In the Indenture for the 2009 Bonds, the City covenanted to maintain the funds on hand in Available Reserves in an aggregate amount at least equal to five (5.0) times maximum annual debt service on all outstanding bonded indebtedness secured by Net Revenues of the Water, Gas or Electric Systems.
In addition, the City covenanted to transfer from Available Reserves, to the Water Revenue Fund, as needed, amounts sufficient to enable the City to pay all maintenance and operation costs of the Water System, and all debt service on the Bonds, when and as the same become due and payable.
The 2009 Indenture defines “Available Reserves” to mean funds held in the City’s:
(i) Rate Stabilization Reserve for the Water System,
(ii) Distribution Rate Stabilization Reserve for the Electric System, (iii) Distribution Rate Stabilization Reserve for the Gas System, (iv) Supply Rate Stabilization Reserve for the Electric System, (v) Supply Rate Stabilization Reserve for the Gas System, and (vi) the Electric System’s Calaveras-Stranded Costs Reserve. 2011 Bonds. In the Indenture for the 2011 Bonds, the City covenanted to maintain the funds on hand in Available Reserves (as defined above) in an aggregate amount at least equal to five (5.0) times maximum annual debt service on all outstanding bonded indebtedness secured by Net Revenues of the Water System and the Gas System.
Water Revenue Bonds, 2009 Series A, OS, Utility Revenue Refunding Bonds, 2011 Series A, OS Item 5
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In addition, the City covenanted to transfer from Available Reserves, to the Revenue Fund, as needed, amounts sufficient to enable the City to pay all Maintenance and Operation Costs of the applicable Water System or Gas System, and all Debt Service, when and as the same become due and payable.
The City covenanted in the 2011 Indenture that any depletion of the Available Reserves which causes the balance therein to fall below the required level shall be restored from Net Revenues of the System which caused such depletion to take place.
Application of the Available Reserves Requirement
As described above, the City covenanted in the Indentures for the 2009 Bonds and the 2011 Bonds to maintain in the Available Reserves an aggregate amount at least equal to five (5.0) times maximum annual debt service on all outstanding bonded indebtedness secured by Net Revenues of the Water, Gas or Electric Systems.
The Maximum Annual Debt Service on the 2009 and 2011 Bonds is $4,025,221.26.
There is no outstanding bonded indebtedness payable from the Electric System.
Five times the Maximum Annual Debt Service is $20,126,106.30. Consequently, the City is obligated to maintain $20,126,106.30 in the Available Reserves as long as the 2009 Bonds and the 2011 Bonds are outstanding.
The 2011 Bonds mature in 2026. The City intends to refinance the 2009 Bonds, if market conditions permit.
Water Revenue Bonds, 2009 Series A, OS, Utility Revenue Refunding Bonds, 2011 Series A, OS
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Credit Rating Reserve Targets
Standard & Poor's
Standard & Poor’s (S&P) has a methodology known as “S&P Criteria for U.S.
Municipal Water Sewer, and Solid Waste Utilities” that S&P applies for rating any water, sewer or solid waste utility nationally. S&P also has a methodology known as “S&P Criteria for U.S. Municipal Retail Electric and Gas Utilities” that S&P applies for rating any electric or gas utility nationally. More information about the S&P methodologies are provided below.
Standard & Poor's (S&P) issued a Global Ratings Affirmation for the outstanding Utility Revenue Refunding Bonds, 2011 Series A and Water Revenue Bonds, 2009 Series A, and affirmed its 'AAA' rating on the outstanding bonds and determined that the outlook is stable.
The outstanding bonds fall under the S&P Criteria for U.S. Municipal Water, Sewer, and Solid Waste Utilities, since they are backed by multiple Utility revenues.
For the S&P Criteria for U.S. Municipal Water, Sewer, and Solid Waste Utilities, Liquidity and Reserves have a 40% weighting when it comes to a rating.
Due to the significant weight of liquidity and the reserves on the overall rating criteria, An important factor in maintaining the City’s 'AAA' Rating is ensuring that their Water, Sewer, and Solid Waste Liquidity and Reserves meet the reserve balance category of Extremely Strong. Below is a table that lists the Liquidity and Reserves S&P criteria for U.S. Municipal Water, Sewer, and Solid Waste Utilities.
Days' Cash Available Reserves
Extremely Strong >150 >$75 million
Very Strong 90-150 $20 million - $75 million
Strong 60-90 $5 million - $20 million
Adequate 30-60 $1 million - $5 million
Vulnerable 15-30 $500,000 - $1 million
Highly Vulnerable <15 <$500,000
Water Revenue Bonds, 2009 Series A, OS
, Utility Revenue Refunding Bonds, 2011 Series A, OS, S&P Ratings Report from April 7, 2025, S&P Criteria | Governments | U.S. Public Finance: U.S. Municipal Water, Sewer, And Solid Waste Utilities: Methodology And Assumptions
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For the S&P Criteria for U.S. Municipal Retail Electric and Gas Utilities, Liquidity and Reserves have a 25% weighting when it comes to a rating. The City does not currently have outstanding debt that is rated using this criteria. Below is a table that lists the Liquidity and Reserves S&P Criteria for U.S. Municipal Retail Electric and Gas Utilities. The following table measures liquidity through a Days' Liquidity metric, which measures how many days the Utility can continue to operate and pay for its expenses using only its currently available cash on hand. If the City intends to issue rated electric or gas utility debt in the future, the available reserves for those utilities would be considered against the amounts listed in the table below to help determine the liquidity and reserves scoring component for a bond rating.
Total Days'
Liquidity
Available
Reserves
(million)
Extremely Strong =>270 =>$250
Very Strong 150-270 $100-$250
Strong 90-150 $50-$100
Adequate 45-90 $10-$50
Vulnerable 15-45 $2-$10
Highly Vulnerable <=15 <=$2
Moody's
Moody's issued a credit opinion on December 16, 2024 for the City of Palo Alto, the water system, and water and gas as a combined utility. The City's rating of 'Aaa' was determined to be stable, the water system's rating of 'Aa1' was determined to be stable, and the water and gas combined utility's rating of 'Aa2' was determined to stable.
The criteria Moody's utilizes for their ratings from the credit opinion is their rating methodology over US Municipal Utility Revenue Debt.
For Moody's US Municipal Utility Revenue Debt, Financial Strength has a 40% weighting when it comes to a rating. Of the 40% weighting, Annual Debt Service Coverage is 15%, Days Cash on Hand is 15%, and Debt to Operating Revenues is 10%. Below is a table that lists the Financial Strengths Moody's criteria for US Municipal Utility Revenue Debt.
S&P Criteria | Governments | U.S. Public Finance: U.S. Municipal Retail Electric And Gas Utilities:
Methodology And Assumptions, Moody's Rating Methodology: US Municipal Utility Revenue Debt Item 5
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Annual Debt
Service
Coverage
Days Cash
on Hand
Debt to Operating
Revenues
Aaa >2.00x >250 days <2.00x
Aa 2.00x > n >
1.70x
250 > n >
150
2.00x < n <
4.00x
A 1.70x > n >
1.25x
150 > n >
35 4.00x < n <
7.00x
Baa 1.25x > n >
1.00x 35 > n > 15 7.00x < n < 8.00x
Ba 1.00x > n >
0.70x 15 > n > 7 8.00x < n < 9.00x
B and
Below <0.70x <7 days >9.00x
Compliance With Regulatory Reserve Margin Requirements Observations
Observation #1
Current reserve policies do not specifically address the Rate Covenants or Available Reserve Covenants listed above as Outstanding Bond Requirements. These covenants were made by the City in the official statements and legal documents for the outstanding 2009 and 2011 bonds. The City could consider referencing these documents in its reserve policies.
• It is important to note that aaccording to the latest Ratings Affirmation from S&P on the outstanding 2011 and 2009 bonds, Palo Alto is in compliance with the Rate and Available Reserves Covenants
Observation #2
Current reserve policies do not specifically address relevant credit rating reserve targets. By formulating reserve policies that specify guideline levels for reserve funds with these credit rating reserve targets in mind, the City can better position itself to maintain its strong bond ratings.
Moody's Rating Methodology: US Municipal Utility Revenue Debt Item 5
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Operational/Industry Best Practices
Government Finance Officers Association (GFOA)
Operating Reserves
GFOA recommends, at a minimum, regardless of a governments size, to maintain operating reserves at no less than two months of regular operating revenues or regular operating expenditures. The choice of revenues or expenditures as a basis of comparison may be dictated by what is more predictable for the government's particular circumstances. GFOA also states that a government's particular situation often may require a level of operating reserves to be significantly in excess of the recommended minimum level of no less than two months of regular operating revenues or regular operating expenditures. An example of a particular situation could be a government that knows it is exposed to certain economical or climate risks with complex potential effects of them in the future.
GFOA also recommends that if the reserve balance falls below the government's policy level, there should be a solid plan to replenish it, and governments should seek to replenish the reserve balance within one to three years.
Capital Improvement Program Reserves
GFOA states that Capital Improvement Program Reserves may be used to proactively manage capital assets, for instance by annually setting aside 20% of a five-year asset's replacement costs so that funding is available when replacement is necessary.
Furthermore, the GFOA provides two examples of annual funding allocations/levels for a Capital Improvement Program Reserves, which are listed below.
• Maintain an ending balance equal to a dollar amount or a percentage of the five-year average of the entity's annual capital budget. (The actual dollar amount or percentage should be set based on the particular entity's capital needs and financial capabilities.)
• Baker Tilly considers maintaining 20%, which is the equivalent of one- year of average capital improvements, of the total capital anticipated to be funded with cash on hand in the five-year capital budget in CIP reserves as a best practice.
GFOA Fund Balance Guidelines for the General Fund, GFOA Strategies for Establishing Capital Asset Renewal and Replacement Reserve Policies
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• Annually contribute an amount based on a percentage of the annual depreciation of the entity's assets. Funding sources will vary and may includes transfers from the Operations Fund or one-time revenues. An entity may wish to consider initial funding levels for the first one to five years with a plan for increasing funding thereafter until the target funding level is achieved. In addition, organizations should consider the pros and cons of the level of reliance on one-time versus recurring revenues based upon the financial conditions of the jurisdiction and the goals of the reserve.
Additional Industry Best Practices
Capital Improvement Program Reserves
An additional best practice for the Capital Improvement Program Reserves it to have at least one year worth of depreciation expense in a fund for capital improvements. Note that a reserve target for a CIP fund would typically be based on either a percentage of average annual capital spending based on a CIP plan or based on depreciation expense amounts.
Operational/Industry Best Practices Observations
Observation #1
The City of Palo Alto's current reserve policies for its operations reserve funds are in alignment with the GFOA's recommendations for operating reserves. However, the Wastewater Treatment Utility, Refuse Utility, and Stormwater Utility do not currently have operations reserve funds.
Observation #2
The City of Palo Alto's current reserve policy for its CIP reserve funds outlines a maximum reserve guideline level that aligns with Baker Tilly’s recommendation for a target ending balance for a CIP reserve fund (approximately one-year of average capital improvement spending held in reserve). Current reserve policy outlines a minimum reserve guideline level that is 20% of this amount.
While Baker Tilly considers one-year of average capital improvements a best practice CIP reserve level, GFOA recommends that capital reserve level development should be designed to best serve the particular needs of a given organization. As such, an amount less than our recommendation could be considered. Alternatively, another approach to determining a CIP reserve fund guideline level could be to maintain one-year or a percentage of one-year of depreciation expense in reserve balances.
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Local Economy Specific Reserves Through Benchmarking Comparables
The purpose of this section is to provide an overview of the local economy specific reserves by benchmarking the reserve funds and reserve policies of communities comparable to the City of Palo Alto ("benchmark communities"). The benchmark communities that we researched are City of Roseville, City of Santa Clara, City of Healdsburg, City of Pasadena, and San Jose Clean Energy. Within this section, we list the reserve funds and the guideline cash reserve levels for the reserve funds from the benchmark communities and compare them to the City of Palo Alto's Utility reserve funds and reserve policies guidelines. This information is broken down into two sections; Reserve Funds Palo Alto Utilities Have and Reserve Funds Palo Alto Utilities Do Not Have. The chart below indicates for each comparable community what reserve funds they have (indicated by “Yes”) and do not have (indicated by “No”) for each of their utilities.
Benchmarking Comparables
City of Roseville City of Santa
Clara City of Healdsburg City of
Pasadena
San
Jose
Clean
Energy
Electric Water Waste
Water
Solid
Waste Electric Water Electric Water Waste
Water Electric Electric
Reserve Funds Palo Alto Utilities Have:
Rate
Stabilization Yes Yes Yes No Yes No No Yes Yes No Yes
Operations
and Maintenance No Yes Yes Yes Yes No Yes Yes Yes Yes Yes Capital
Replacement &
Improvement
No No No No No Yes Yes Yes Yes Yes No
System
Critical Failure No Yes Yes No No No No No No No No
Debt Service
Reserve Yes No No No No No No No No Yes No
Reserve Funds Palo Alto Utilities Do Not Have:
Debt Service
Coverage Ratio Yes No No No No No No No No No No
Days Cash on
Hand Yes No No No No No No No No No No
Fixed Cost
Coverage Yes No No No No No No No No No No
General Fund
Transfer No No No No No No No No No Yes No
Energy
Services Charge No No No No No No No No No Yes No
Transmission
Services Charge No No No No No No No No No Yes No
Contingency
Reserve No No No No No No No No No Yes No
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Reserve Funds Palo Alto Utilities Have
Rate Stabilization
As noted in the overview of current reserve funds and reserve policies section, the City of Palo Alto has a rate stabilization reserve fund for each of its utilities. The current City reserve policies outline the guideline levels for rate stabilization reserves as follows:
Table 1 - Palo Alto Rate Stabilization Fund
Guideline Levels
Wastewater
Treatment (1)
Refuse (1)
Stormwater (2)
Minimum 15% 10% N/A
Target 22.5% 15% $500,000
Maximum 30% 20% N/A
(1) % of sales revenue. Levels found in City Council CMR:263:3 from May 6, 1993
(2) Target Level found in City Council CMR:320:0 from May 24, 1990
Rate Stabilization Reserves for Electric, Gas, Wastewater Collection and Water do not have set Minimum, Target and Maximum Levels.
Similar to Palo Alto, many of the benchmark communities researched had rate stabilization reserve funds for their utilities. The guideline levels of reserves outlined in the benchmark communities reserve policies for the rate stabilization reserve funds were as follows:
City of Roseville Electric
Table 2 - Roseville Electric Rate Stabilization Fund
Guideline Levels
Minimum 40% of operating expenses
Target 65% of operating expenses
Maximum 90% of operating expenses
City of Roseville Water and Wastewater
Table 3 - Roseville Water and Wastewater Rate Stabilization Fund
City of Roseville Financial Policies (Pages 106-108 and 118-120)
50% of operating expenses or roughly 180 Days' Cash
Target
Guideline Level
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City of Santa Clara Electric
Based upon research, it is determined that the City of Santa Clara Electric Utility has an Electric Rate Stabilization Reserve Fund with a balance as of May 31, 2025 of $70,000,000; however, we were unable to track down guideline levels for their Electric Rate Stabilization Reserve Fund. When calculating $70,000,000 divided by the City of Santa Clara's Electric Utility Fiscal Year 2024-2025 adopted budget for Electric Utility Operating Expenses of $649,513,582, the reserve balance comes out to approximately 10.78% of budgeted Electric Utility Operating Expenses.
City of Healdsburg Water and Wastewater
Table 4 - Healdsburg Water and Wastewater Rate Stabilization Fund
San Jose Clean Energy
Table 5 - San Jose Clean Energy Rate Stabilization Fund
Comparison to City of Palo Alto Electric
Table 6 - Electric Rate Stabilization Fund Guideline Reserve Levels Comparison Guideline Levels
City of
Palo Alto
Electric
City of Roseville
Electric
City of
Santa Clara
Electric (1)
San Jose Clean Energy
Minimum N/A 40% of operating
expenses N/A N/A
Target N/A 65% of operating
expenses
10.78% of
operating
expenses
25% of total operating and
non-operating revenues
in the current fiscal year.
Maximum N/A 90% of operating
expenses N/A N/A
(1) Based on current reserve balance as no reserve policy was found.
There are no set Minimum, Target and Maximum Levels for City of Palo Alto Electric.
City of Santa Clara Financial Status Report as of May 31, 2025 (Pages 23-24), City of Healdsburg Ordinance No. 1240, San Jose Clean Energy Financial Reserves Policy $1,000,000
Target
Guideline Level
25% of the total operating and non-operating revenues in the current fiscal year.
Target
Guideline Level
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Comparison to City of Palo Alto Water
Table 7 - Water Rate Stabilization Fund Guideline Reserve Levels Comparison
Guideline Levels
City of Palo
Alto Water City of Roseville Water
City of
Healdsburg
Water
Minimum N/A N/A N/A
Target N/A 50% of operating expenses or
roughly 180 Days' Cash $1,000,000
Maximum N/A N/A N/A
There are no set Minimum, Target and Maximum Levels for City of Palo Alto Water.
Comparison to City of Palo Alto Wastewater
Table 8 - Wastewater Rate Stabilization Fund Guideline Reserve Levels Comparison Guideline Levels
City of
Palo Alto
Wastewater
Collection
City of
Palo Alto
Wastewater
Treatment (1)
City of
Roseville
Wastewater
City of
Healdsburg
Wastewater
Minimum N/A 15% N/A N/A
Target N/A 22.5% 50% of operating
expenses or roughly
180 Days' Cash
$1,000,000
Maximum N/A 30% N/A N/A
(1) % of sales revenue. Levels found in City Council CMR:263:3 from May 6, 1993
There are no set Minimum, Target and Maximum Levels for City of Palo Alto Wastewater Collection.
Also, it should be noted that the Gas, Refuse and Stormwater Systems for the City of Palo Alto all had rate stabilization reserve funds as well, but as none of the benchmark communities had rate stabilization reserve funds for these utilities, no charts are shown for them.
Rate Stabilization Observations
Observation #1
The City of Palo Alto Electric Utility does not have a set minimum, target, or maximum guideline level. For the benchmark communities, the City of Roseville Electric has a minimum, target, or maximum guideline level found in Table 2, our calculation for City of Santa Clara Electric of 10.78% of operating expenses is assumed to be the target guideline level, and San Jose Clean Energy only has a target guideline level found in Table 5. Table 6 shows these benchmark communities reserve guideline levels compared to the City of Palo Alto's Electric Utility.
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Observation #2
The City of Palo Alto Water Utility does not have a set minimum, target, or maximum guideline level, while the City of Roseville Water and City of Healdsburg Water both have target guideline levels found in Table 3 and Table 4. Table 7 shows these benchmark communities reserve guideline levels compared to the City of Palo Alto's Water Utility.
Observation #3
The City of Palo Alto Wastewater Collection Utility does not have a set minimum, target, or maximum guideline level, while the City of Palo Alto Wastewater Treatment Utility does as shown in Table 1. The City of Roseville Wastewater and City of Healdsburg Wastewater both have target guideline levels found in Table 3 and Table 4. Table 8 shows these benchmark communities reserve guideline levels compared to the City of Palo Alto's Wastewater Collection Utility.
Operations and Maintenance
As noted in the overview of current reserve funds and reserve policies section, the City of Palo Alto has an operations reserve fund for its Electric Utility, Gas Utility, Wastewater Collection Utility, and Water Utility. The current City reserve policies outline the guideline levels for operations reserves are found in the below table.
Table 9 - Palo Alto Operations and Maintenance Fund
Guideline Levels
Electric Electric Wastewater
Supply (1) Distribution (2) Gas (3) Collection (4) Water (5)
Minimum 60 60 60 60 60
Target 90 90 90 105 90
Maximum 120 120 120 150 120
(1) Days of Electric Supply Fund O&M and Commodity Expense (2) Days of Electric Distribution Fund O&M Expense
(3) Days of Gas O&M and Commodity Expense
(4) Days of Wastewater Collection O&M and Commodity Expense (5) Days of Water O&M and Commodity Expense
City of Roseville Water
Table 10 - Roseville Water Operations and Maintenance Fund
City of Roseville Financial Policies (Pages 118-120)
Minimum 90 days' cash worth of operating expenses.
Guideline Level
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City of Roseville Wastewater
Table 11 - Roseville Wastewater Operations and Maintenance Fund
City of Roseville Solid Waste
Table12 - Roseville Solid Waste Operations and Maintenance Fund
City of Santa Clara Electric
Based upon research, it is determined that the City of Santa Clara Electric Utility has an Operations and Maintenance Reserve Fund with a balance as of May 31, 2025 of $257,000,000; however, we were unable to track down guideline levels for their Electric Operations and Maintenance Reserve Fund. When calculating $257,000,000 divided by the City of Santa Clara's Electric Utility Fiscal Year 2024-2025 adopted budget for Electric Utility Operating Expenses of $649,513,582, the reserve balance comes out to approximately 39.57% of budgeted Electric Utility Operating Expenses, or 145 days of operating expenses.
City of Healdsburg Electric
Table 13 - Healdsburg Electric Operations and Maintenance Fund
City of Healdsburg Water
Table 14 - Healdsburg Water Operations and Maintenance Fund
City of Healdsburg Wastewater
Table 15 - Healdsburg Wastewater Operations and Maintenance Fund
City of Roseville Financial Policies (Pages 118-120), City of Santa Clara Financial Status Report as of May 31, 2025 (Pages 23-24), City of Healdsburg Ordinance No. 1240, City of Healdsburg Biennial Budget (Page 70) Minimum 90 days' cash worth of operating expenses.
Guideline Level
Minimum 90 days' cash worth of operating expenses.
Guideline Level
183 days of operating expenses
Minimum
Guideline Level
92 days of operating expenses
Minimu
Guideline Level
92 days of operating expenses
Minimum
Guideline Level
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City of Pasadena Electric
Table 16 - Pasadena Electric Operations and Maintenance Fund Guideline Levels
Minimum 60 days of operating expenses
Target 90 days of operating expenses
San Jose Clean Energy
Table 17 - San Jose Clean Energy Operations and Maintenance Fund
Comparison to City of Palo Alto Water
Table 18 - Water Operations and Maintenance Fund Guideline Reserve Levels Comparison
Guideline Levels
City of Palo Alto
Water (1)
City of Roseville
Water
City of Healdsburg
Water
Minimum 60 days of operating
expenses.
90 days' cash worth
of operating
expenses.
92 days of operating
expenses.
Target 90 days of operating
expenses.
N/A N/A
Maximum 120 days of operating
expenses.
N/A N/A
(1) Defined in the reserve policy as Water O&M and Commodity Expense
City of Pasadena Code of Ordinances 13.04.175, San Jose Clean Energy Financial Reserves Policy 180 days liquidity on hand
Minimum
Guideline Level
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Comparison to City of Palo Alto Wastewater Collection
Table 19 - Wastewater Operations and Maintenance Fund Guideline Reserve Levels Comparison
Guideline Levels
City of Palo Alto
Wastewater Collection
(1)
City of Roseville
Wastewater
City of Healdsburg
Wastewater
Minimum 60 days of operating
expenses.
90 days' cash worth
of operating
expenses.
92 days of operating
expenses.
Target 105 days of operating
expenses.
N/A N/A
Maximum 150 days of operating
expenses.
N/A N/A
(1) Defined in the reserve policy as Wastewater Collection O&M and Commodity Expense
Comparison to City of Palo Alto Electric
Table 20 - Electric Operations and Maintenance Fund Guideline Reserve Levels Comparison
Guideline Levels
City of Palo
Alto Electric
Supply (1)
City of Palo
Alto
Electric
Distribution (2)
City of Santa
Clara
Electric
City of
Healdsburg
Electric
City of
Pasadena
Electric
San
Jose
Clean
Energy
Minimum
60 days of
operating
expenses
60 days of
operating
expenses.
N/A
183 days of
operating
expenses
60 days of
operating
expenses
180
days
liquidity
on
hand
Target
90 days of
operating
expenses.
90 days of
operating
expenses.
145 days of
operating
expenses
N/A
90 days of
operating
expenses
N/A
Maximum
120 days of
operating
expenses
120 days of
operating
expenses
N/A N/A N/A N/A
(1) Defined in the reserve policy as Electric Supply Fund O&M and Commodity Expense (2) Defined in the reserve policy as Electric Distribution Fund O&M Expense
Also, it should be noted that the Gas System for the City of Palo Alto had operations and maintenance reserve fund as well, but as none of the benchmark communities had operations and maintenance reserve funds for Gas, no charts are shown for it.
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Operations and Maintenance Observations
Observation #1
As shown in Tables 18 and 19, the City of Palo Alto Water Utility and Wastewater Collection Utility both have a set minimum, target, and maximum guideline levels, while the City of Roseville and City of Healdsburg Water and Wastewater Utilities only have minimum guideline levels. While the City of Palo Alto's minimum guideline levels for both utilities are lower than the City of Roseville or the City of Healdsburg Water and Wastewater Utilities, Palo Alto's maximum guideline levels are higher than the minimum guideline levels for the City of Roseville and City of Healdsburg Water and Wastewater Utilities.
Observation #2
As shown in Table 20, the City of Palo Alto Electric Utility has set minimum, target, and maximum guideline levels for Electric Supply and Electric Distribution, while City of Healdsburg Electric and San Jose Clean Energy only have a minimum guideline level, City of Pasadena Electric has both a minimum and target guideline levels, and while the City of Santa Clara Electric does not have specified guideline levels, we have listed their current balance expressed as days operating expenses as their target guideline level.
Based on these guideline levels of reserves, the City of Palo Alto Electric Utility minimum and target guideline levels are the same as the City of Pasadena Electric, but the minimum and target guideline levels are lower than any minimum or target guideline levels for City of Santa Clara Electric, City of Healdsburg Electric, and San Jose Clean Energy. The City of Palo Alto Electric Utility maximum guideline level is lower than City of Healdsburg Electric and San Jose Clean Energy minimum guideline levels, and the Santa Clara Electric target guideline level. See Table 20.
Capital Replacement & Improvement
As noted in the overview of current reserve funds and reserve policies section, the City of Palo Alto has a CIP reserve fund for its Electric Utility, Gas Utility, Wastewater Collection Utility, and Water Utility. The current City reserve policies outline the guideline levels for CIP reserves as follows:
Table 21 - Palo Alto Capital Replacement & Improvement Fund Guideline Levels
Minimum 20% of the maximum CIP Reserve guideline level
Maximum Average annual (12 month) CIP budget, for 48 months of budgeted CIP expenses
City of Santa Clara Water
Based upon research, it is determined that the City of Santa Clara Water has a Capital Replacement & Improvement Reserve Fund with a balance as of May 31, 2025 of $303,090; however, we were unable to track down guideline levels for their Water Capital Replacement & Improvement Reserve Fund.
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City of Healdsburg Electric
Table 22 - Healdsburg Electric Capital Replacement & Improvement Fund
City of Healdsburg Water
Table 23 - Healdsburg Water Capital Replacement & Improvement Fund
City of Healdsburg Wastewater
Table 24 - Healdsburg Wastewater Capital Replacement & Improvement Fund
City of Pasadena Electric
Table 25 - Pasadena Electric Capital Replacement & Improvement Fund
Comparison to City of Palo Alto Electric
Table 26 - Electric Capital Replacement & Improvement Fund Guideline Reserve Levels Comparison
Guideline Levels
City of
Palo Alto
Electric
City of
Healdsburg
Electric
City of
Pasadena
Electric
Minimum 20% of the maximum CIP
Reserve guideline level
N/A N/A
Target N/A $4,000,000 One year of budgeted
capital expenditures
Maximum Average annual (12 month) CIP
budget, for 48 months of
budgeted CIP expenses
N/A N/A
City of Santa Clara Financial Status Report as of May 31, 2025 (Pages 23-24), City of Healdsburg Ordinance No. 1240, City of Healdsburg Biennial Budget (Pages 66 and 69-70) One year of budgeted capital expenditures
Target
Guideline Level
$1,000,000
Target
Guideline Level
$1,000,000
Target
Guideline Level
$4,000,000
Target
Guideline Level
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Comparison to City of Palo Alto Water
Table 27 - Water Capital Replacement & Improvement Fund Guideline Reserve Levels Comparison
Guideline Levels
City of
Palo Alto
Water
City of
Healdsburg
Water
Minimum 20% of the maximum CIP Reserve guideline level N/A Target N/A $1,000,000
Maximum Average annual (12 month) CIP budget, for 48
months of budgeted CIP expenses
N/A
Table 28 - Wastewater Capital Replacement & Improvement Fund Guideline Reserve Levels Comparison
Guideline Levels
City of
Palo Alto
Wastewater Collection
City of
Healdsburg
Wastewater
Minimum 20% of the maximum CIP Reserve guideline level N/A Target N/A $1,000,000
Maximum Average annual (12 month) CIP budget, for 48
months of budgeted CIP expenses
N/A
Also, it should be noted that the Gas System for the City of Palo Alto had capital replacement & improvement reserve fund as well, but as none of the benchmark communities had capital replacement & improvement reserve funds for Gas, no charts are shown for it.
Capital Replacement & Improvement Observations
Observation #1
The City of Palo Alto Electric, Water, and Wastewater Collection Utilities have set minimum and maximum guideline levels for the capital replacement & improvement reserve funds, while all other benchmark communities that had utilities with capital replacement & improvement reserve funds only had target guideline levels. See Tables 26 - 28 for the comparisons between Palo Alto and the benchmark communities for each of these Utilities.
System Critical Failure
As noted in the overview of current reserve funds and reserve policies section, the City of Palo Alto has an Emergency Plant Replacement reserve fund for its Wastewater Treatment Utility. The current City reserve policies outline the guideline levels for Emergency Plant Replacement reserves as follows:
Table 29 - Palo Alto Wastewater Treatment System Critical Failure Fund Guideline Levels (1)
Minimum 5% of annual increase in the net book value of fixed assets Maximum 5% of total net book value of fixed assets
(1) Levels are found in City Council CMR:320:0
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City of Roseville Water
Table 30 - Roseville Water System Critical Failure Fund
City of Roseville Wastewater
Table 31 - Roseville Wastewater System Critical Failure Fund
System Critical Failure Observations
Observation #1
The City of Palo Alto Wastewater Treatment Utility has set minimum and maximum guideline levels for the emergency plant replacement reserve, while the City of Roseville Water and Wastewater Utilities only had minimum guideline levels. See Table 29, Table 30, Table 31.
Debt Service Reserve
City of Roseville Electric
Table 35 - Roseville Electric Debt Service Reserve Fund
City of Pasadena Electric
Table 36 - Pasadena Electric Debt Service Reserve Fund
Reserve Funds Palo Alto Utilities Do Not Have
Debt Service Coverage
City of Roseville Electric
Table 32 - Roseville Electric Debt Service Coverage Ratio
City of Roseville Financial Policies (Page 118-120), City of Pasadena Code of Ordinances 13.04.175 Minimum 1% - 2% of the Capital Assets belonging to the Water Utility Guideline Level
Minimum 1% - 2% of the Capital Assets belonging to the Wastewater Utility Guideline Level
Minimum 2.0x annual debt service payments
Guideline Level
Minimum Maintain a fully funded debt service reserve as required by bond covenants.
Guideline Level
Minimum Maintain a reserve equivalent to one year of debt service payments for outstanding bond or credit obligations.
Guideline Level
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Days Cash on Hand
City of Roseville Electric
Table 33 - Roseville Electric Days Cash on Hand Fund
City of Roseville Electric
Table 34 - Roseville Electric Fixed Cost Coverage
General Fund Transfer
City of Pasadena Electric
Table 37 - Pasadena Electric General Fund Transfer
Energy Services Charge
City of Pasadena Electric
Table 38 - Pasadena Electric Energy Services Charge
Guideline Levels
Minimum 60 days of projected power supply costs
Target 90 days of projected power supply costs
Transmission Services Charge
City of Pasadena Electric
Table 39 - Pasadena Electric Transmission Services Charge Guideline Levels
Minimum 60 days of transmission services cost
Target 90 days of transmission services cost
City of Roseville Financial Policies (Page 106-108), City of Pasadena Code of Ordinances 13.04.175 Minimum 1.5x of annual fixed costs
Guideline Level
One year of the budgeted General Fund Transfer
Target
Guideline Level
Minimum >250 days
Guideline Level
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Contingency Reserve
City of Pasadena Electric
Table 40 - Pasadena Electric Contingency Reserve Fund
Guideline Levels
Minimum Sum of 60 days of operating expenses and 60 days of capital expenditures
Target Sum of 90 days of operating expenses and 90 days of capital expenditures
Local Economy Specific Reserves Through Benchmarking Comparables Observations
Observation #1
The Benchmark Communities typically have some or all of the three commonly established reserve funds that Palo Alto Utilities with updated reserve policies have, which are the rate stabilization reserve, the operations and maintenance reserve, and the CIP reserve.
Observation #2
Based upon the research of the City of Roseville, City of Santa Clara, City of Healdsburg, City of Pasadena, and San Jose Clean Energy Reserve Policies, it is determined that the City of Palo Alto's Reserve Policies are more cumbersome than the comparables identified. The City of Palo Alto Utilities Operations and Maintenance Reserve Funds include a minimum, target and maximum guideline level while the other benchmark communities only include a minimum and/or a target. The City of Palo Alto Utilities Capital Replacement and Improvement Reserve Funds also include a minimum, target, and maximum, while the other benchmark communities only include a target. Overall, the City of Palo Alto Utilities have not only more funds established to hold cash reserves, but their policies are more detailed in terms of guideline levels and sources and uses of those reserve funds compared to the other benchmark communities reserve policies.
Observation #3
While there are reserve funds that benchmark communities have in place that Palo Alto Utilities does not have in place, none of these reserve funds are vital or in line with industry best practices. In many cases, these reserve funds serve the same or a similar purpose as other reserve funds the benchmark communities and Palo Alto Utilities have in place. For example, the City of Roseville Electric days cash on hand reserve and fixed cost coverage reserve, and the City of Pasadena electric energy services charge and transmission services charge reserve funds serve a similar purpose to the operation and maintenance fund reserve for these Utilities. The City of Pasadena Contingency Reserve serves the same purpose as both the operation and maintenance reserve fund and the capital replacement and improvement reserve fund.
City of Pasadena Code of Ordinances 13.04.175
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Reserve Tracking
Reserve Tracking Requirements and Processes
Current Requirements for Tracking Palo Alto's Reserves
The Reserve Management Practices (policies) all state that they should be used when developing each individual Utility's Financial Plan.
Guideline levels included in the reserve policies that are not a fixed dollar amount are calculated for each fiscal year of the financial planning period for each individual Utility's Financial Plan.
Current Processes Being Performed for Tracking Palo Alto's Reserves Reserve targets are recalibrated annually to calculate the dollar amount planned to be held in reserve. The dollar amount for each reserve target calculated annually does not always represent the target outlined in the policy statement when the policy statement guideline levels are not fixed (for example, a guideline level based on number of days may not have a reserve target in a Financial Plan that matches this metric).
During the update of a Utility's Financial Plan, reserve policies are reviewed to determine if they need to be updated.
Reserve Tracking Observations
Observation #1
Reserve tracking appears to be done on an annual basis in conjunction with the development of each individual Utility's Financial Plan for Palo Alto. A reserve tracking policy with guidance included to report instances when reserve fund balances do not meet guideline levels to Council would provide more assurance that reserve targets are being met throughout the year and equip the Council with better information to make financial decisions than the current process being performed for reserve tracking.
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1 A
April 30, 2026
City of Palo Alto
Office of the City Auditor
Public Safety Staffing and Overtime
Audit
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Contents
Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms.
Executive Summary ............................................................................................................................ 1 Introduction ........................................................................................................................................ 7 Best Practices Overview ................................................................................................................... 11 Audit Results ..................................................................................................................................... 14 Palo Alto Police Department ............................................................................................................ 14 Palo Alto Fire Department ................................................................................................................ 30
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1 Executive Summary
Purpose of the Audit
Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted a Public Safety Staffing and Overtime (OT) Audit based on approved Task Order 4.33 as part of the City’s FY25 Audit Plan. The objective of this audit was to:
• Determine if sworn personnel at the Palo Alto Police Department (Police) and Palo Alto Fire Department (Fire) are effectively and efficiently staffed including use of OT. Please note that OT used by public safety dispatchers was assessed separately in 2025 and their use of OT was not considered as part of this audit.
Report Highlights
Palo Alto Police Department
Finding 1:
(Page 12)
Police staffing levels and workforce availability may be insufficient to meet operational demands.
Although the Police Department generally maintains minimum patrol staffing levels, overall staffing has not returned to pre-pandemic levels and, at times, a portion of the sworn workforce is unavailable for deployment due to injury leave or training assignments. As a result, the number of officers available for field operations may be lower than authorized staffing levels, placing additional strain on operations and limiting resources available for functions such as investigations. OCA also found that Police’s minimum staffing standards have not been formally reassessed in more than two decades, despite changes in service demand and crime trends. While PAPD has generally maintained stable response times, the absence of a recent staffing analysis makes it difficult to determine whether current staffing levels and deployment strategies remain appropriate.
Key Observations:
1. The Police Department has not returned to pre-pandemic staffing levels.
Average actual staffing declined by approximately 10 staff from FY2015– FY2019 to 139 FTEs in FY2024.
2. During FY25 and the beginning of FY26 approximately 20 employees were not deployable. During FY2025 and early FY2026, approximately 20 employees were unavailable for field deployment due to injury leave or training assignments.
3. Investigations have gone without resolution due to staffing constraints.
Staffing constraints have resulted in personnel being reassigned from investigations to patrol, leaving some cases uninvestigated.
4. Minimum staffing standards have not been evaluated in over two decades. While Police generally meets minimum staffing levels, the standards may not reflect current operational demands.
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2 EXECUTIVE SUMMARY
5. Police has not met response time goals but response times have slightly improved despite being understaffed. While Police has not met the performance measure of answering 90% of emergency calls within 6 minutes and 90% of urgent calls within 10 minutes, response times have been trending positively since FY2021.
Key Recommendations:
• Consider over-hiring for positions affected by long-term leave to maintain adequate deployable staffing levels and leverage normal attrition for balancing staffing levels if needed.
• Expand recruitment and retention efforts to address ongoing staffing shortages and strengthen the hiring pipeline.
• Conduct a comprehensive staffing analysis using data on workload, calls for service, response times, crime trends, and deployable personnel.
• Reassess minimum patrol staffing standards to ensure they reflect current service demands and operational needs.
Finding 2:
(Page 17)
Police relies heavily on OT to maintain minimum staffing levels.
Police sustained OT usage has largely been driven by staffing shortages and high vacancy levels. OT expenditures have consistently exceeded the City’s budget since 2015 and in recent years have been more than double the budgeted amount.
Analysis indicates a strong correlation between increased vacancy days and higher OT expenditures, demonstrating that OT is primarily being used to maintain minimum staffing levels rather than address temporary operational needs. While this approach enables the department to maintain service levels in the short term, heavy reliance on OT may create long-term operational and workforce risks, including employee fatigue, reduced morale, and potential impacts on safety and performance. A more strategic approach to budgeting, staffing, and workload distribution may help the City better manage OT and support sustainable police operations.
Key Observations:
• Vacancies are a primary driver of OT usage. Analysis of FY2015–FY2024 data shows a clear relationship between vacancy days and OT expenditures; as vacancies increase, OT usage rises to compensate for staffing gaps.
• Overtime use in CY2024 was largely driven by meeting minimum staffing levels. In 2024, approximately 81% of patrol OT was attributed to minimum staffing needs such as backfilling vacancies, early call-ins, and hold-over shifts.
• OT concentration suggests potential workload imbalances and burnout.
While 82% of employees recorded OT hours, the top 10 employees accounted for more than 25% of total OT, suggesting potential workload imbalances. Survey results show public safety employees report lower morale than the overall average of other City departments (though more than 50% Item 5
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rate morale as good or excellent), and staff indicated that OT levels are often higher than desired.
• OT is not assessed as part of reviewing Workers’ Compensation cases, vehicle crashes or use-of-force incidents. Although a direct causal relationship cannot be confirmed, increased OT and staff absences may contribute to a cycle where remaining employees work additional OT to maintain staffing levels.
The department and Independent Police Auditor review use-of-force incidents but do not assess whether officers involved were working OT, limiting opportunities to identify potential risk factors. Studies from oversight bodies in other cities indicate extended OT can increase the likelihood of complaints, workplace injuries, and use- of-force incidents.
Key Recommendations:
• Align OT budgets with operational needs. The City should reassess the PAPD’s OT budget to better reflect actual operational demands and historical spending trends, improving transparency and financial planning.
• Evaluate the balance between staffing levels and OT use. PAPD, in coordination with the City’s budget and human resources offices, should periodically analyze vacancy rates, workload demands, and service expectations to determine whether adjustments to staffing levels or OT practices are needed.
• Explore opportunities for civilianization. The department should evaluate whether certain administrative, technical, or support functions currently performed by sworn officers could be reassigned to civilian staff to reduce workload pressures and limit reliance on OT.
Finding 3:
(Page 23)
Police does not fully use workforce data to monitor staff sustainability and risk.
The Police Department does not consistently collect or analyze key workforce data that could help evaluate recruitment effectiveness, staffing sustainability, and potential operational risks associated with OT. In particular, the department does not formally track police academy success rates or probationary outcomes, limiting its ability to assess recruitment and training effectiveness or accurately forecast staffing needs. Additionally, OT hours are not currently considered when reviewing safety- related incidents such as workers’ compensation claims, police vehicle crashes, or use-of-force events. Strengthening workforce data collection and incorporating OT analysis into operational reviews would support more data-driven decision-making and help the department better manage staffing, performance, and officer well-being.
Key Observations:
• Police academy success rates are not currently tracked. PAPD does not maintain comprehensive data needed to evaluate recruitment outcomes, training success rates, or long-term staffing sustainability.
• Effects of OT are not considered in safety related incidents. The department does not analyze whether OT hours may be associated with Item 5
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workers’ compensation claims, employee injuries, mental health concerns, vehicle crashes, or use-of-force incidents.
Key Recommendations:
• Formally track police academy outcomes. PAPD should establish a process to monitor recruitment levels, academy completion rates, probationary success rates, and reasons for separation to better evaluate recruitment and training effectiveness and improve workforce planning.
• Analyze OT in safety incident reviews. PAPD should include OT hours as a factor when reviewing workers’ compensation claims, vehicle crashes, and use-of-force incidents to identify potential fatigue-related risks.
Finding 4:
(Page 32)
Inconsistent and manual OT tracking may cause Police to make staffing decisions based on inaccurate data.
The City’s internal processes for tracking, analyzing, and reporting OT within the Police department relies heavily on manual data entry and fragmented systems, which increases the risk of data inaccuracies and limits the City’s ability to effectively monitor OT usage. Inconsistent reporting methods, lack of automation, and discrepancies between internal reports reduce confidence in the data used to inform staffing and budgetary decisions. Additionally, limitations within the City’s timekeeping system and the absence of standardized OT categorization hinder the City’s ability to analyze the root causes of OT. Strengthening automation, improving data integration, and enhancing reporting practices would improve transparency, support better workforce planning, and help the City more effectively manage OT costs.
Key Observations:
• Timekeeping Systems Are Incompatible. Police’s scheduling systems cannot interface directly with the City's central timekeeping system. Data exports from departmental scheduling platforms do not share common identifiers or structures with City timecard records, making cross-system indexing unreliable and labor-intensive.
• Departmental Data Access Is Insufficient for Effective Overtime Management. Police receives limited payroll data from the City's central payroll function which is not easily reconciled against departmental overtime tracking efforts. The structural gap between what departments can see and what central systems produce limits the reliability and comparability of internal management reporting.
• The OMB Quarterly Public Safety OT Analysis Is Not Actionable at the Department Level. The Quarterly Public Safety OT Analysis produced by OMB presents overtime data in aggregated form and is effective at reporting broadly to the public but lacks the employee-level detail departments need to identify patterns, investigate anomalies, or intervene in overtime spending.
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• Previous audit findings remain unaddressed. Issues identified in the 2017 Continuous Monitoring Audit of OT1—including limited SAP data capture, non-standardized timecard notes, and inconsistent departmental tracking— continue to affect OT monitoring.
Key Recommendations:
• Revisit and assess prior audit recommendations from the 2017 OT audit, including developing a continuous monitoring system to analyze service demand, absences, vacancies, and policy requirements, have not been fully implemented to support management of OT costs.
• Improve OT data collection, system integration, and reporting, as well as exploring extending use of Telestaff, the OT tracking and monitoring system in use by the Fire department, to Police.
Palo Alto Fire Department
Finding 5:
(Page 25)
Fire has made steps to restoring deployed resources, but OT use remains a concern.
While Fire has recently increased deployed resources and restored some services across fire stations, challenges remain due to lengthy hiring and training timelines, vacancy-driven OT, and the need to ensure staffing and deployment align with increases in service demand. Continued workforce planning and improved monitoring of OT will be important to support sustainable operations and maintain service levels.
Key Observations:
• In recent years, the City has added Fire resources. In FY2025, 3.0 FTE were added to restore Fire Engine 62 from a two-person squad. In FY2026,
3.0 FTE Fire Captains were added to cross-staff Medic 64 with Fire Engine
64. In FY2026, 7.0 FTE were added to create a new Single Role Ambulance response division, by adding a 12-HR Peak Ambulance to the deployed resources.
• While Fire was meeting some KPIs, staffing challenges may have impacted other response times and violation follow-up. Fire has not consistently achieved its eight-minute fire response target. Staffing constraints may have affected timely follow-up on fire code violations.
• Most OT is used to meet minimum staffing requirements. Most OT is used to backfill vacancies, leave, and training absences. In addition, actual OT expenditures frequently exceed budgeted amounts suggesting OT has been used to compensate for staffing vacancies rather than as intended to manage schedules when firefighters are out for various types of leave.
• Fire implemented structural changes to reduce forced mandatory OT with positive feedback from staff. Adjustments to OT scheduling
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implemented in FY2023 have improved fairness and reduced forced OT hours.
Key Recommendations:
• Strengthen workforce planning and hiring pipeline management to account for attrition and long training timelines.
• Periodically evaluate staffing levels and deployment against service demand to ensure resources align with service demand.
• Improve OT monitoring and workforce sustainability to better manage fatigue and staffing risks.
• Improve budget transparency and operational efficiency by aligning budgets with historical trends and continuing process improvements.
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7 Introduction
2 https://pmc.ncbi.nlm.nih.gov/articles/PMC6617405/
Objective The objective of this audit was to determine if the City of Palo Alto’s Public Safety Departments (Fire and Police) are effectively and efficiently staffed including use of OT.
Background The OT and public safety staffing audit was initiated to evaluate whether the Palo Alto Police Department (Police) and Palo Alto Fire Department (Fire) are managing staffing and OT in an efficient, effective, and sustainable manner. The audit includes examining: the adequacy of current staffing levels relative to service demands; scheduling practices and how workloads are distributed; the policies and controls in place for authorizing and monitoring OT; and the impacts of OT on budget, employee well-being, and service delivery.
OT expenditures in Palo Alto have regularly exceeded budgeted amounts. By analyzing OT drivers in Police and Fire, the City can find ways to control personnel costs. Additionally, ensuring proper staffing has safety implications:
excessive OT can lead to fatigued first responders, which may affect their safety and performance on the job
2. To assess OT management, the audit also
evaluated the systems and processes used by Police and Fire to record, approve, and report staff time and OT. Fire utilizes a program called Telestaff to manage scheduling and time reporting, while Police records staff time and overtime through the City’s Systems, Application, and Data (SAP) enterprise software and another scheduling system called PlanIt.
The Police Department’s stated mission is to “proudly serve and protect the public with respect and integrity”. The department is a full-service law enforcement agency with approximately 87sworn officers (78 who are members of Palo Alto Police Officer Association [PAPOA]) serving a resident population around 67,000 (not counting a large daytime workforce and visitors) as reported in the FY2026 adopted budget. The department provides 24/7 emergency response, criminal investigations, traffic safety, and community policing services.
The Fire Department operates 6 fire stations serving Palo Alto and Stanford University, staffed by 89 firefighters and paramedics in FY2026 who handle fire suppression, rescue, and emergency medical services. Dedicated to “safeguarding and enriching the lives of anyone, anytime, anywhere with compassion and pride”, the department also serves communities beyond Palo Alto through mutual aid agreements and when called upon by the State or Federal government for such services as combating large wildfires or providing medical response in emergencies.
Both departments have high operational demands and at times rely on OT to meet staffing requirements and ensure public safety coverage. This round-the- clock staffing requirement, combined with challenges in keeping up with turnover, recruiting and retaining public safety personnel, has led to significant reliance on employees working OT in recent years. Managing OT has become a Item 5
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3 https://www.paloalto.gov/files/assets/public/v/1/administrative-services/city-budgets/fy-2026-city- budget/proposed/fy-2026-proposed-operating-budget.pdf
4 https://www.paloalto.gov/Departments/Fire/Frequently-Asked-Questions prominent issue for Palo Alto’s public safety agencies. More recently, OT costs have grown further. In FY2024, the City paid $7.5 million in OT to Police and Fire employees3.
While OT is an expected tool to meet staffing needs for emergencies or special events, such figures may suggest that OT is being used to backfill routine staffing shortages.
According to management, minimum staffing backfill challenges underlie much of this OT. Police has struggled with vacant FTEs and long-term benefited leave such as sick leave, retirement, and workers’ compensation. For instance, in 2018 it had a 17% vacancy rate (14 of 83 sworn positions unfilled) despite offering pay raises and hiring bonuses to attract officers. Competition from neighboring jurisdictions and a difficult recruiting climate have made it hard to reach full staffing, forcing remaining officers to work extra shifts.
As of March 2026,
PAPD’s authorized sworn staffing levels remain below pre-pandemic levels.
Fire has experienced chronic challenges with minimum staffing backfill. The deployed resources require a continuous schedule of employees on Fire Department units. When the department holds vacant FTEs, overtime is the only mechanism available to provide coverage for these positions. According to management, Police and Firefighters have some of the longest hiring-to-full- productivity timelines in the public sector. For example, it can be 10-12 months from a firefighter application posting to the day a new recruit is able to work on a unit. That entire time, current employees are providing coverage for that spot on a unit to maintain the deployed resources.
Fire deployment resource levels were impacted by the pandemic. In FY2021, budget cuts led the City Council to temporarily reduce fire staffing and temporarily close fire station 2 on nights and weekends
4. Although those cuts
were partially reversed in FY2022 with funding to staff all six stations again, Fire reported using OT to fill gaps from vacancies, sick leave, and training absences in order to keep all engine and ambulance companies in service. Within the last two years, Fire has restored some deployed resources and is similar to pre- pandemic levels.
Finally, OCA noted from the City of Palo Alto’s 2024 Community Survey that 81% of respondents rated the quality of Police Services positively. Fire Services received 92% positive ratings for emergency response services and 80% positive ratings for prevention and education services. In response to the question, "As a resident of Palo Alto, what one change could the City make that would make you happier?" many residents expressed a desire for better funding and staffing of the fire and police departments. Specific concerns included the lack of fire trucks and staff at Mitchell Park, the need for more police services to enhance safety, and increased policing in neighborhoods.
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5 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract with Baker Tilly U.S, LLP for internal audit services for October 2020 through June 2022 with an extension through June 2025. City Council appointed Kate Murdock, Audit Manager in Baker Tilly’s Risk Advisory practice, as City Auditor in May 2024. As a result of transitions in the Audit Office and peer review delays due to the COVID pandemic, an external peer review is targeted for 2026. It should be noted that Baker Tilly’s most recent firmwide peer review was completed in November 2024 with a rating of “Pass”. The scope of that peer review includes projects completed under government auditing standards. A report on the next firmwide peer review should be available later in 2024.
The survey results and resident feedback highlight a strong approval of current police and fire services but also underscore a desire for increased funding, staffing, and resources to further improve public safety and community satisfaction.
Scope The OCA obtained time records from CY2024 through 2025 and assessed the design and implementation of time-tracking and OT reporting processes, including the internal controls in place to ensure accuracy, authorization, and appropriate oversight.
Methodology To achieve the audit objectives, the OCA performed the following procedures:
• Interviewed the appropriate individuals to gain an understanding of the organizational structure, processes, and controls related to staffing and OT.
• Analyzed policies and procedures as well as regulatory requirements to identify the criteria to be used for evaluation of control design and effectiveness.
• Analyzed the complete list of Police and Fire employees and pay periods with higher OT utilization to assess the processes for time tracking, overtime recording, and supervisory review and approval. • OCA sampled employee time records from each department and the three highest-overtime months in 2024 and two highest-OT months in 2025. OCA conducted detailed testing for the selected employees and periods to assess compliance with applicable OT policies, labor agreements, and regulatory requirements.
• Completed audit report of findings, conclusions, and recommendations based on the supporting evidence gathered.
Compliance
Statement
This audit activity was conducted from January 2025 to March 2026 in accordance with generally accepted government auditing standards, except for the requirement of an external peer review5. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, observations, and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, observations, and conclusions based on our audit objectives.
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Organizational
Strengths
During this audit activity, we noted the professionalism and responsiveness of the PAPD and PAFD. We appreciated the participation of both departments in interviews, providing documentation for selected samples, and responding to follow-up requests.
The OCA appreciates the support of the departments involved in conducting this audit activity.
Thank you!
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11 Best Practices Overview
6 305747_Analysis of Police Department Staffing _ McCabe.pdf 7 NFPA 1710 Summary
8 GFOA_Rethinking-Police-Budgeting_7.14.25.pdf
9 Home | The Institute of Internal Auditors | The IIA
Best Practices:
Public Safety
Staffing and OT
Criteria
Addressing staffing and OT challenges in public safety requires a clear understanding of what effective management looks like in practice. The following best practice principles draw from leading industry standards and professional organizations and reflect widely accepted approaches to managing police and fire department staffing in a manner that controls OT costs while sustaining effective public safety service delivery. Professional organizations researched include the Institute of Internal Auditors (IIA), Government Finance Officers Association (GFOA), International City/County Management Association (ICMA), International Association of Chiefs of Police (IACP), U.S. Department of Justice (DOJ), and National Fire Protection Association (NFPA)
Data-Driven Staffing and Workforce Planning
Best practice indicates that staffing levels should be aligned with actual workload, service demand, and performance objectives. The ICMA Center for Public Safety Management recommends workload-based staffing models that evaluate calls for service, officer availability, and discretionary time rather than relying solely on historical minimum staffing levels6.
For fire services, NFPA 1710 (Standard for the Organization and Deployment of Fire Suppression Operations, Emergency Medical Operations, and Special Operations to the Public by Career Fire Departments) provides nationally recognized benchmarks for crew size and response times7. However Palo Alto Fire follows California Occupational Safety and Health Administration (CalOSHA), Title 8 standards requiring staffing be sufficient to perform fire response safely as well as a written procedure to implement firefighter safety.
In addition, workforce planning literature from GFOA emphasizes incorporating long- term leave, retirement projections, and attrition rates into staffing forecasts to avoid structural reliance on OT. Persistent OT used to meet routine minimum coverage is widely recognized as an indicator that staffing models should be reassessed
8. OT Monitoring and Internal Controls
The IIA identifies payroll and OT as high-risk expenditure areas requiring strong internal controls, routine monitoring, and data validation. The IIA’s Global Internal Audit Standards9 emphasize continuous monitoring and use of analytics to identify anomalies and control weaknesses.
The DOJ found that police OT can be effectively controlled through strong management practices, including systematic recordkeeping, analysis of OT trends, and supervisory oversight. The report emphasizes that while some OT is unavoidable due to emergencies, court appearances, and operational demands, agencies can
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12 BEST PRACTICES OVERVIEW
10 https://www.ojp.gov/pdffiles/167572.pdf
11 Officer Safety and Wellness
12 21OIGNYPD.OT.Rpt.Release.05.03.2023.pdf
13 kcao-overtime-2017.ashx
better manage costs and workload by monitoring OT usage and using data to inform staffing and policy decisions10.
Best practice includes automated data capture, reconciliation across systems, supervisory approval thresholds, and analysis of OT drivers (e.g., minimum staffing, vacancy backfill, special events).
Fatigue Management and Risk Mitigation
Public safety research indicates that excessive OT can impair performance and increase safety risks. The IACP advise departments to establish reasonable limits on consecutive hours worked, enforce rest periods, and monitor cumulative OT11.
Oversight bodies such as the New York City Police Department Office of Inspector General
12 and the King County Auditor’s Office13 have found statistically significant relationships between extended OT and increased complaints, use-of-force incidents, and workers’ compensation claims.
The International Association of Fire Chiefs (IAFC), published The Effect of Sleep Deprivation on Fire Fighters and EMS Responders. The report identifies sleep disruption and fatigue as inherent risks in fire and EMS operations, documenting that insufficient or interrupted sleep impairs alertness, decision-making, reaction time, and overall responder performance. Critically, the IAFC notes that these impairments are not limited to extended wakefulness, even moderate disruption of nighttime sleep, such as that caused by repeated emergency calls between 10pm and 6am, can produce measurable cognitive degradation by the end of a shift. The IAFC additionally highlights that firefighters are at elevated risk for chronic, undiagnosed sleep disorders that further erode their capacity to perform safely under operational demands. The National Fire Protection Association (NFPA 1710) further establishes that safe and effective emergency response depends on maintaining adequate staffing and deployment levels rather than relying on extended work hours. Together, these authorities indicate that sustained reliance on overtime as a primary staffing mechanism can contribute to fatigue-related performance degradation, increased safety risk, and diminished workforce health, ultimately undermining the consistency and safety of emergency service delivery.
Best practices therefore include enforcing daily and weekly hour limits, monitoring individual cumulative OT, and integrating OT data into early intervention systems.
Fair and Transparent OT Distribution
Public safety agencies should track OT usage at the individual employee level and periodically review workload distribution to ensure OT assignments are equitable.
Monitoring OT allocation can help identify situations where a small number of employees are consistently working a disproportionate share of OT hours, which may increase fatigue risks and indicate underlying staffing or scheduling inefficiencies.
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13 BEST PRACTICES OVERVIEW
14 WorkforceCrisis.pdf
15 A Performance-Based Approach to Police Staffing and Allocation 16 NFPA Standard 1710
17 305747_Analysis of Police Department Staffing _ McCabe.pdf 18 Workforce Planning and Development | icma.org
Guidance from the Police Executive Research Forum (PERF)14 emphasizes that agencies should analyze workload and staffing distribution data to ensure resources are deployed effectively and personnel demands are balanced across staff.
Transparent and consistent OT assignment procedures can help improve morale, reduce perceptions of favoritism, and distribute workload more sustainably across the workforce.
Financial Oversight and Budget Integration
Public safety agencies should regularly analyze OT expenditures alongside staffing levels to determine whether OT is being used for short-term operational needs or to compensate for persistent staffing gaps. Guidance from the DOJ Office of Community Oriented Policing Services (COPS Office)15 notes that agencies should evaluate whether sustained OT usage indicates the need to adjust staffing levels, deployment models, or recruitment strategies.
By analyzing OT trends in relation to vacancies, service demand, and staffing availability, agencies can better determine whether continued reliance on OT is operationally sustainable or whether additional staffing or alternative staffing models may be necessary.
Performance Alignment and National Benchmarking
Staffing models should support established performance goals. NFPA 171016 provides benchmarks for fire department deployment and response configuration. The ICMA17 emphasizes periodic reassessment of staffing standards to ensure they align with evolving service demands, crime trends, and community expectations.
Failure to reassess minimum staffing levels for extended periods is inconsistent with data-driven governance practices.
Recruitment Pipeline and Training Metrics
Effective workforce planning requires tracking academy enrollment, completion rates, attrition, probationary success, and time-to-deployment. Workforce analytics and public administration literature emphasize that hiring pipeline metrics are critical inputs into staffing projections and vacancy forecasting18.
Without structured tracking of academy outcomes, departments may underestimate attrition-driven staffing gaps.
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14 AUDIT RESULTS
Audit Results
Palo Alto Police Department
19 https://www.paloalto.gov/Departments/Administrative-Services/City-Budget/Archived-Budget-Documents 20 City of Palo Alto Operating Budget.book
Finding 1:
Police may
not have
sufficient
sworn staffing
to meet
operational
demands.
PAPD may not have sufficient staffing capacity to meet current operational demands.
The department has not returned to pre-pandemic sworn staffing levels, at any given moment several employees are not deployable due to injury or enrollment in the training academy or in the field training program, and minimum staffing standards have not been reassessed in more than two decades.
PAPD has not returned to pre-pandemic staffing levels.
Our review of City budget documents
19 shows that PAPD has not returned to pre-
pandemic staffing levels. From FY 2015 - FY 2019, actual full-time equivalents (FTEs) averaged 155. In FY2020, the department eliminating six positions shifting service delivery for animal services to an external vendor20. Between Fy2021 and FY2022, FTEs dropped from 149 to 125. In recent years, staffing has increased to 139 FTES.
While actual FTE counts are not available for FY25 and FY26 in the City’s budget documents, budgeted FTEs for these years were 141, still 8 FTE’s short of pre- pandemic levels.
Exhibit 1: Number of Police Actual Full-Time Equivalents 2015 through 2024
*OCA analysis September 2025
155 155 155 155 155 149 149
125
134
140
0 40
80 120
160
200
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During FY2025 and the beginning of FY2026 approximately 20 employees were not deployable.
Although the PAPD appeared fully staffed based on its budgeted 141 FTEs, discussions with department personnel and review of staffing data indicate that in the fall of 2025, approximately 20 employees were not deployable. Of these, 10 employees were on leave due to injury or workers’ compensation claims and 10 employees were assigned to the police academy for training. As a result, the number of officers available for field deployment was lower than authorized staffing levels, which placed additional strain on operational capacity.
Investigations have gone without resolution due to staffing constraints.
Interviews with key PAPD personnel revealed that budgeted staffing in the investigations division has led to an increase in cases going uninvestigated, compared to the period pre-pandemic. While quantitative data is limited, qualitative feedback indicates that cases are often left unresolved due to insufficient detective staffing. Due to the department’s minimum Patrol staff requirements, staff are often pulled from other functions such as investigations to ensure the safety of officers in the field and compliance with requirements. This gap in investigative capacity results in some cases involving misdemeanors and non-violent crimes are often left unresolved.
Minimum staffing standards have not been re-evaluated in over two decades.
The PAPD Policy Manual and the PAPOA Memorandum of Understanding outline minimum staffing requirements for the Patrol Division across three time blocks:
• 0700–2400 hours: 1 Watch Commander, 1 Supervisor, and 6 Officers/Agents • 0001–0300 hours: 1 Watch Commander, 1 Supervisor, and 5 Officers/Agents • 0300–0700 hours: 1 Supervisor and 5 Officers/Agents
PAPD consistently meets minimum staffing levels with only rare instances when the department falls below minimum staffing.
PAPD did not experience any fully unstaffed
shifts in FY 2023 or FY 2024. Our review of staffing data confirmed only minor gaps totaling 266 open hours in FY 2023 and 218 open hours in FY 2024, representing just
0.40% and 0.33% of total shift hours, respectively. This indicates that PAPD has been effective in maintaining minimum staffing coverage, with only minimal disruptions.
Exhibit 2: Percentage of Open or Understaffed Shifts
PAPD Openings FY 2023 FY 2024
Total Openings 90 86
Total Open Hours 266 218.5
Percentage of open shift
hours
0.40% 0.33%
*OCA analysis September 2025
Despite consistent coverage, staff were unable to confirm when the last formal study was conducted to determine appropriate minimum staffing levels. Current standards, which are also a component of the collective bargaining agreement with the police officers’ associations, have remained unchanged for at least 20 years, raising concerns about their relevance in today’s policing environment.
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21 https://icma.org/sites/default/files/305747_Analysis%20of%20Police%20Department%20Staffing%20_%20McCabe.pdf
Police staffing models typically fall into five categories:
1. Crime Trends
2. Per-Capita Ratios (e.g., officers per 1,000 residents)
3. Authorized/Budgeted Levels
4. Minimum Manning Levels
5. Workload-Based Models (e.g., calls for service, response times, discretionary time)
According to the ICMA Center for Public Safety Management, departments should use data-driven benchmarks to evaluate staffing needs. These include:
• Number of officers assigned to patrol
• Workload levels of patrol officers
• Time spent handling calls for service21
While the City tracks this data, it has not conducted a formal analysis to assess whether current staffing levels are adequate.
PAPD has not met response time goals but response times also have not worsened despite being understaffed.
The OCA reviewed PAPD’s performance metrics as outlined in the City’s annual budget documents. PAPD tracks response times to emergency and urgent calls for service, with a goal of responding to:
• Emergency calls within 6 minutes, 90% of the time
• Urgent calls within 10 minutes, 90% of the time.
Emergency and urgent calls require the most timely police response because they are generally life-threatening or represent higher danger crimes in progress.
While PAPD has not met the 90% budgeted goal during the years reviewed of FY 2015 - FY2024 as shown in the Exhibit below, response times have trended somewhat positive despite staffing being reduced. Factors that influence response times include, but are not limited to, time of day, number of officers available to take a call or staffing levels, location of officers relative to the service call, existing demand for services, and the ability of officers to get through traffic - which can be impacted by commute time and weather, among other factors.
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Exhibit 4: PAPD Performance Compared to KPI Goal
*OCA analysis February 2025
We
Recommend
the City:
1. Over-Hiring for Long-Term Leave Positions and/or Improve Workforce Availability Management
To strengthen PAPD’s hiring pipeline and ensure operational efficiency, we recommend that the City consider over-hiring for roles where staff are on long- term disability leave or workers’ compensation. This approach would help maintain adequate staffing levels and reduce reliance on OT to cover long-term absences. Additionally, increasing the number of new hires could help alleviate ongoing staffing shortages.
However, given the City’s current and projected budget deficits, Police, with support from the City’s Human Resources and Administrative Services Departments, should evaluate policies and practices related to long-term leave, light-duty assignments, and training scheduling to identify opportunities to improve workforce availability. Proactively managing these factors could help minimize staffing gaps and reduce operational strain without increasing staffing levels.
2. Expand Recruitment and Retention Efforts
Increasing the number of Public Safety new hires can help address persistent staffing shortages and support long-term workforce sustainability. Enhanced recruitment strategies may include targeted outreach, accelerated onboarding, and partnerships with local academies. The City can also consider further investment in retention incentives such as career development programs, wellness initiatives, and competitive compensation packages.
3. Conduct Staffing Analysis
PAPD should conduct a comprehensive staffing analysis to assess whether current staffing levels are sufficient to meet operational demands and service expectations and whether staffing is deployed across units in alignment with 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Percent of emergency calls responded to
within 6 minutes
Percent of urgent calls responded to within
10 minutes
KPI Goal
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operational priorities. This analysis should incorporate factors such as calls for service, officer workload, response time goals, crime trends and the number of deployable personnel. The results will help the department evaluate whether existing staffing levels and deployment strategies remain appropriate and to inform future staffing, hiring, and budgeting decisions. Leveraging existing data tracked by the City (e.g., number of patrol officers, call volumes, response times, and time spent per call) can aid in staffing assessments.
PAPD should review current staffing deployment across units to ensure personnel resources are aligned with operational priorities. This review should consider whether staffing assigned to specialized units, administrative roles, or other assignments could be adjusted to better support patrol and investigative functions when staffing shortages occur.
4. Reassess Minimum Staffing Standards
PAPD should initiate a formal review of minimum staffing standards, which have remained unchanged for over two decades. This study should incorporate workload-based analysis, crime trends, and officer availability to determine whether current minimums are appropriate and sustainable.
Management
Response
Responsible Department(s): Police
Concurrence: Partial Agreement
Target Date: Varies
Action Plan:
1. Partially agree. Although City Council has previously authorized over-hire positions, this approach was deprioritized due to persistent recruitment challenges and budget constraints. PAPD will reassess the feasibility of over- hire positions if recruitment conditions improve sufficiently as part of future staffing strategies, as feasible.
2. Agree. PAPD has taken a number of steps to expand recruiting, including assigning dedicated recruitment staff, updating recruiting materials on the City website, hosting local testing events at PAPD facilities, while also maintaining high hiring standards. PAPD has worked with the Palo Alto Police Foundation to implement several initiatives aimed at communicating to prospective and current employees that they are valued. The Department will continue to prioritize recruitment and retention efforts build a more consistent pipeline.
3. & 4. Partially agree. Completion of such analysis will take time and resources from PAPD, Human Resources and Administrative Services that are not currently allocated – staff will assess the scope and resource requirements to inform resource restraints and feasibility. An updated staffing analysis and assessment of minimum staffing standards should be based on a clearly defined expected level of service. Any proposed changes to service delivery should include structured public engagement.
Unlike many peer agencies, PAPD continues to respond to a broad range of calls, including alarms, non-injury traffic collisions, and quality-of-life issues.
These service commitments have staffing implications that may not be fully captured by workload-only or per-capita models.
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19 PALO ALTO POLICE DEPARTMENT
22 https://www.paloalto.gov/Departments/Administrative-Services/City-Budget/Archived-Budget-Documents Finding 2:
Police relies
heavily on OT
to maintain
minimum
staffing levels
Due to staffing shortages and vacancy levels, Police relies heavily on overtime to maintain patrol minimum staffing levels. Overtime expenditures have exceeded the budget for several years and more recently actual expenditures have been more than twice of what was budgeted. Overtime expenditures are primarily used to backfill vacancies.
Vacancies are driving most of overtime use.
The City’s Office of Management & Budget (OMB) produces a Quarterly OT Report that shows budgeted vs. actual OT expense incurred by public safety departments. This report also tracks the department’s number of vacancy days or the cumulative number of days positions are vacant each year. A trend analysis of the Quarterly OT Reports from FY2015 – FY 2024 shows a peak in the number of vacancy days in FY2019 and a significant dip in FY2021. Vacancy days steadily began climbing again over the next several years. These vacancies have created staffing gaps in patrol staffing, leading to a growing reliance on OT to maintain service levels. Based on the City’s budget documents
22 and as shown in the graph below, as the number of vacancy days increases, so does the use of OT. We also see the opposite, that when vacancy days decrease, so does the use of OT suggesting these metrics are related. As noted in the Best Practices section of this report, DOJ guidance is for police departments to evaluate whether sustained OT usage indicates the need to adjust staffing levels.
Exhibit 5: Police Vacancy Days vs. OT Expenses
*OCA analysis September 2025
In addition, while PAPD’s OT expenses have exceeded the budget since 2015, in recent years actual expenses have far exceeded the budget as shown in the Exhibit below
0 1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
$-
$500,000.00
$1,000,000.00
$1,500,000.00
$2,000,000.00
$2,500,000.00
$3,000,000.00
$3,500,000.00
$4,000,000.00
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
Number of Vacancy Days
Overtime Expenses
Axis Title
Overtime Expenses Vacancy Days
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Exhibit 6: Police OT Budgeted vs. Actual Expenditures
*OCA analysis September 2025
The correlation between rising vacancies and increased OT expenditures suggests the department is compensating for reduced headcount by extending the workload of existing staff. For example, in the chart above you can see that OT expenses reduced by $1,135,871 from FY2020 to FY2021 which coincides with the Police Department’s significant drop in vacancy days in FY2021.This approach, while necessary in the short term, may not be sustainable and could contribute to employee fatigue, reduced morale, and operational inefficiencies. The following sections take a closer look at staffing challenges.
Overtime use in 2024 was largely driven by meeting minimum staffing levels.
The Police Department uses informal reporting of monthly OT at the employee/position level by way of matching hours worked from the enterprise accounting system to published pay rates on the city website. Using this reporting method, our analysis shows that in CY2024, 81% of Police Patrol OT costs were attributed to the “minimums/back-fill/early-in/hold-over” category. This indicates that maintaining minimum staffing for Patrol was a primary driver of OT for PAPD. Police management stated that meeting minimum staffing requirements remains a significant portion of OT use as of the writing of this report.
$-
$500,000.00
$1,000,000.00
$1,500,000.00
$2,000,000.00
$2,500,000.00
$3,000,000.00
$3,500,000.00
$4,000,000.00
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Budgeted Overtime Expense Actual Overtime Expense
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23 palo-alto-employee-survey-report-2024.pdf
Exhibit 7: PAPD Patrol – Largest Categories of OT Use in CY2024
*OCA analysis September 2025
OT concentration suggests potential workload imbalances and burnout.
Police policy, collective bargaining agreements, and the Fair Labor Standards Act limit the amount of consecutive hours certain employees can work to 16 hours. Then, the employee must take an 8-hour break before beginning another shift or working OT.
Analysis of sworn employee overtime use based on the FY2024 Police internal OT Report shows that 69 out of 93 sworn employees (74%) logged OT hours. The highest individual OT recorded was 1,019 hours. Notably, the top 10 sworn employees working OT accounted for over 35% of the department’s total sworn OT hours.
This concentration of OT among a small group of employees suggests potential workload imbalances and may be indicative of broader staffing challenges. While OT is often seen as a way to increase salaries, especially in an area of the country where living expenses are high, employees at all levels of the PAPD stated that some employees are working more OT than desired. Police management stated they have only mandated sworn OT a handful of times in the past several years. Sustained high OT levels can contribute to employee fatigue, reduced morale, and increased risk of burnout. While not necessarily attributable to OT, in the most recent City of Palo Alto Employee Survey, 202423 employees in the Police and Fire departments were “less likely than their counterparts to have positive ratings for overall staff morale in the work group” with only 54% of Police and 57% of Fire employees rating overall staff morale as “excellent” or “good”. PAPD and PAFD employees were also less likely than employees from most other departments to recommend working for the City. 6%
81%
1% 12%
PAPD Patrol Largest Categories of Overtime in 2024
Patrol FSD - Follow-up/Case work/Court or Court prep/Warrant Service/Evidence Processing/Etc Patrol FSD - Patrol incl minimums/back-fill/early-in/hold-over Patrol FTO - Trainee
Patrol FTO- Training Officer
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OT is not assessed as part of reviewing Workers’ Compensation cases, police vehicle crashes, or use-of-force incidents.
OCA was unable to obtain employee files to evaluate contributing factors in police workers’ compensation cases and vehicle accidents. Based on our review of the Independent Police Auditors Reports, it does not appear that OT is formally considered as a factor in use-of-force incidents either. It appears that workers’ compensation cases have been trending upwards since 2020. Such cases often mean that staff are out on leave requiring other staff to fill in to meet minimum staffing requirements. It is unclear if increased OT is contributing to workers’ compensation claims. For example, management observed that since the pandemic they have seen an increase in workers’ compensation cases for mental health issues compared to other medical conditions.
Alternatively, increased OT may merely be a result of more individuals being on workers’ compensation leave requiring remaining staff to cover their shifts. Determining whether excessive OT is contributing to an increase in workers’ compensation cases may not be possible given the complexity and numerous variables in such cases.
However, considering OT as a factor when reviewing workers’ compensation cases may help the City determine if there is a relationship and if it something they will need to better manage in the future.
While staff reported that it is less expensive to fill hours with OT than the cost of budgeting an additional FTE given the benefits and pension costs of adding an FTE, there may be other less easily measured costs associated with increasing OT. As noted in the background section of this report, some studies have found increasing OT can lead to overly fatiguing officers which can increase the risks of vehicle crashes or use of force incidents occurring. These added risks may outweigh the cost of adding more FTEs.
Exhibit 8: Workers’ Compensation Cases from FY2015 – FY2024
*OCA analysis September 2025
OCA also analyzed vehicle crashes and use of force Incidents from FY2020 through FY2024. It is unclear if there is a relationship between increased OT and increased vehicle crashes and use-of-force incidents. However, including OT as a possible factor 0 5
10 15
20 25
30 35
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Police Workers' Compensation Cases
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24 https://www.paloalto.gov/Departments/Police/Accountability/Independent-Police-Auditor 25 https://www.nyc.gov/assets/doi/press-releases/2023/May/21OIGNYPD.OT.Rpt.Release.05.03.2023.pdf 26 https://www.kingcounty.gov/~/media/depts/auditor/new-web-docs/2017/kcao-overtime-2017/kcao-overtime-2017.ashx?la=en in the occurrence of such incidents will help the City determine if these are additional areas of concern when considering the balance of FTEs and OT use.
Exhibit 9: Police Vehicle Crashes and Use-of-Force Incidents CY2020 – CY2024
*OCA analysis October 2025
The City has an Independent Police Auditor (IPA)24 which reviews all use of force cases including those involving specific weapons or injuries. While most incidents are found to be within policy, the IPA has identified areas for improvement in documentation, communication, and tactical decision-making. Based on OCA’s review of the IPA’s report, it does not appear that IPA analyzes whether officers involved in use-of-force incidents were working OT and it does not appear this analysis is performed by the City. Analyzing potential links between officer OT and use of force could provide an opportunity for deeper data-driven oversight.
OCA’s review of recent OT audits conducted by other larger cities found that extended work hours and fatigue impair officer alertness and decision-making. In a report of the New York City Police Department Inspector General
25 they found that for an officer who
works the average amount of OT—four hours and twelve minutes consecutively—the odds that they will be the subject of a substantiated NYC Civilian Complaint Review Board complaint the next day increased by 36.8%, the odds they will be named in a lawsuit for an incident occurring the next day increased by 36.5%, the odds that they will be involved in an incident the next day resulting in a Threat, Resistance, or Injury Interaction Report increase by 20.5%, and the odds that they would suffer a workplace injury the next day increased by 18.8%. The King County Auditor 26 found that every
additional OT hour raised the likelihood of force by 2.7 percent. It also found that workers’ compensation claims are significantly correlated with OT. If an individual worked one additional hour of OT in the prior week, the odds of a workers’ compensation claim in the following week increased by 2 percent. Taken together, 8 8
6 8
5 10
11 5
4 11
0 2
4 6
8 10
12 CY2020 CY2021 CY2022 CY2023 CY2024
Vehicle Crashes Use of Force Incidents
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24 PALO ALTO POLICE DEPARTMENT
these findings suggest that OT can contribute to fatigue, which in turn raises the risk of officer errors, use-of-force incidents, and an increase in workers compensation claims.
Per discussions with Police staff, the department maintains a relatively low number of use-of-force incidents annually (around eight) and uses software to track instances of use of force for early intervention, showing accountability for these instances.
We
recommend
the City:
1. Align OT budget with operational needs
The City should evaluate PAPD’s budget to ensure it more accurately reflects operational staffing needs. OT expenditures have exceeded the budget in recent years, largely due to staffing shortages and the need to maintain minimum staffing levels. Establishing a more realistic OT budget based on historical trends and operational requirements would improve financial planning and provide greater transparency regarding the resources required to sustain current service levels.
2. Evaluate staffing versus OT balance
PAPD, in coordination with the City’s budget and human resources offices, should periodically evaluate the balance between authorized staffing levels and OT usage. This analysis should consider factors such as vacancy rates, non- deployable personnel, workload demands, and response time goals. A comprehensive review would help determine whether current staffing levels are sufficient or whether adjustments to hiring levels, staffing allocations, or OT practices are needed to support sustainable operations.
3. Explore civilianization opportunities
PAPD should assess whether certain administrative, technical, or support functions currently performed by sworn personnel could be reassigned to civilian staff where appropriate. Expanding the use of civilian positions, such as community service officers or other support roles, may help reduce the workload on sworn officers and allow them to focus on core law enforcement duties.
Civilianization may also provide a more cost-effective staffing model in some cases and reduce reliance on OT to meet operational needs.
Management
Response
Responsible Department(s): Police
Concurrence: Partially Agree
Target Date: FY 2028 Budget
Action Plan:
1. Agree. The overtime budget has not kept pace with operating demands and the variance however, the gap between budgeted and actual overtime is not a failure of cost control. PAPD will work with the Office of Management and Budget to develop a historically informed overtime budget baseline while continuing the current practice of using vacancy savings as an offset. It is worth noting that the City's existing practice of reallocating vacancy savings to offset OT expenditure effectively acknowledges this structural relationship and provides meaningful in-year budget flexibility.
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2. Agree. Regularly evaluating the balance between authorized staffing and overtime usage is a sound management practice. Overtime has become a routinized staffing tool, creating financial and workforce sustainability risks.
PAPD will seek to establish a regular review process using existing data to help inform budget development and staffing allocations – likely this work would align with the Finding 1 staffing assessment and would align with time and resources for that. In the meantime, the department will use existing records to conduct baseline assessments.
3. Partially Agree. The Police Department will review current sworn assignments to identify functions where civilian classifications may be feasible, cost-effective, and operationally appropriate. This is routinely part of the budget development over decades and part of the management of workload and costs. Any reclassification must account for operational requirements and existing labor agreements, with Human Resources and labor relations staff engaged early in the process.
Finding 3:
Police does
not fully use
workforce
data to
monitor staff
sustainability
and risk
The Police Department does not consistently collect or analyze workforce data needed to evaluate staffing sustainability, recruitment effectiveness, and potential operational risks associated with overtime.
Police academy success rates are not currently tracked.
Upon review of success rates for the Police and Fire academy the OCA found that rates are not tracked for the police academy. The City does not run its own police academy but rather recruits attend academies in neighboring cities and counties. Management said they could obtain records if needed but do not formally track how many recruits are successful and graduate from the academy each year or how many graduates make it through the field training program and subsequent probation period to become non- probationary sworn officers.
Tracking and analyzing police academy performance metrics—such as recruitment levels, completion rates, attrition rates, and reasons for separation—could benefit the department in several ways. First, this data could help inform recruitment and selection practices by identifying factors that contribute to recruit attrition or unsuccessful completion of the academy or probationary period. Second, analyzing outcomes across different academy cohorts, training programs, or probationary supervision practices may help the department identify approaches that are more effective in preparing and retaining recruits. Finally, understanding typical completion and retention rates would allow the department to more accurately plan hiring targets and budget for anticipated staffing levels. For example, if historical data show that only a certain percentage of recruits successfully complete the academy and probationary period, the department could adjust recruitment levels accordingly to ensure that desired staffing levels are achieved.
Management noted that one of the more recent cohorts hired had a higher than anticipated attrition rate. As a result, a full analysis of the cohort is being conducted and the results will be used in future recruitments. PAPD should continue to work to improve the collection, analysis and use of workforce-related data to guide staffing, scheduling and risk management decisions in order to more proactively manage resources.
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Effects of OT not considered in safety-related incidents.
As noted in Finding 2, overtime is not currently analyzed as a contributing factor in safety-related incidents. Management indicated that there is no formal review process to evaluate whether OT hours may be associated with employee injuries, mental health concerns, or other workers’ compensation claims. Similarly, OT is not considered when reviewing officer-involved vehicle crashes or use-of-force incidents. Given the sometimes substantial amount of OT worked by employees, analyzing whether extended work hours may affect officers’ performance, decision-making, or overall well- being could provide valuable insight for protecting officer health and promoting public safety.
We
recommend
the City:
1. Formally track Police Academy Field Training Program and probationary period outcomes
PAPD should implement a formal process to track and monitor police academy outcomes, including recruitment levels, completion rates, probationary success rates, and reasons for separation. Regular analysis of these metrics would help the department evaluate the effectiveness of its recruitment and training processes, identify factors contributing to recruit attrition, and make data- informed adjustments to hiring strategies and training practices.
2. Analyze OT in safety incidents
PAPD should incorporate OT hours into its review of safety-related incidents, including worker’s compensation claims, vehicle crashes, and use-of-force incidents. Evaluating whether extended work hours may be associated with these events could help the department better understand potential fatigue- related risks and inform policies or scheduling practices designed to protect officer health and public safety.
Management
Response
Responsible Department(s): Police, Human Resources, Administrative Services Concurrence: Partially Agree
Target Date: Q1 CY 2027
Action Plan:
1. Agree. PAPD agrees with the recommendation to implement formal tracking of academy and probationary outcomes and has already prompted a review of the recent cohort that reinforced the value of consistent data collection in identifying trends and refining hiring projections. PAPD will establish a formal tracking process to capture key metrics. HR can provide a report including Police Trainee date of hire, promotion date to Police Officer (upon Academy graduation) probationary end date and separation date and reason. This data will be reviewed regularly to inform recruitment trends and strategy, hiring targets, and budget planning.
2. Partially Agree. Permissible officer work hours are governed by the Fair Labor Standards Act and applicable labor agreements. PAPD adheres to these standards. With that, PAPD acknowledges that extended work hours can result in fatigue, which may impact officer performance. PAPD staff are unaware of any recent industrial injuries, uses of force, or collisions attributed to officer Item 5
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fatigue, and it will nonetheless formally incorporate an assessment of fatigue into its administrative investigations and tracked in the supervisor injury report with goal to prevent injuries.
PAPD leadership is committed to balancing the regional shortage of qualified officer candidates against the sustained operational expectations of our community — while remaining one of the most transparent departments in the region.
Finding 4:
Inconsistent
and manual
overtime
tracking may
cause the City
to make
staffing
decisions
based on
inaccurate
data.
The City’s internal processes for tracking and reporting OT are inconsistent and largely manual, which may result in inaccurate data being used to inform staffing and budgetary decisions.
Police management and administrative teams meet monthly to review OT usage and identify trends. However, the Police’s monthly OT reporting process relies heavily on manual data entry, with values hardcoded into spreadsheets and not linked to formulas.
Descriptions of OT hours worked are not consistently documented, and categorization is performed manually by staff. This lack of automation and standardization increases the risk of data entry errors and incomplete reporting, potentially undermining the accuracy of OT analysis.
During testing of Police OT data, OCA found that two systems are used for time tracking: SAP, the primary City-wide timekeeping system, which records total hours worked but not specific hours of the day; and PlanIt, which tracks the exact hours officers work. OCA found instances where total shift hours exceeded the allowable 16- hour limit. Management explained that these exceptions sometimes occurred in connection with high-profile incidents and are permitted with authorization. However, in some cases, management was unable to provide details regarding why hours were coded in a particular manner without first consulting the officer involved.
Discrepancies exist between some internal reports.
The Quarterly Public Safety OT Analysis, produced by OMB, reports OT costs for both Police and Fire. However, our review found that the figures in this report do not reconcile with the Police informal monthly analysis. This discrepancy exists in part because the Police monthly report is built through a highly manual process, pulling timecard data from SAP, merging it with hourly pay information, and manually categorizing OT usage, which means pieces of information can be missed on the back end due to disconnected systems. The Police Budget Analyst expressed concerns about the accuracy of the monthly internal report.
Additionally, the quarterly report does not include OT hours or specific drivers of overtime (e.g., minimum staffing requirements, vacancy coverage) beyond backfilling open shifts. Staff indicated that including OT hours worked and the underlying drivers of OT would improve the report's usefulness and transparency and would reduce the burden of re-explaining the same budget dynamics each reporting cycle.
OCA noted in its review of Fire’s OT tracking system, Telestaff, that it was designed for all public safety departments including police and dispatch. The City may be able to leverage the existing system for use with Police as well.
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Previous audit findings remain unaddressed.
An audit was conducted by the OCA in 2017, entitled Continuous Monitoring Audit: OT, which recommended implementing automated tracking through the planned procurement of a new Enterprise Resource Planning (ERP) system to improve resource allocation and utilization. The audit identified issues such as limited data capture in SAP, non-standardized notes, and inconsistent departmental tracking methods, many of which still persist today. Because SAP does not capture work start and end times, the specific reasons for OT in meaningful categories, and because employee timecard notes are not standardized, analysts cannot systematically extract or analyze the root causes of OT. This forces departments to maintain separate manual workarounds, such as the PAPD Budget Analyst's Microsoft Access-based process, which are highly dependent on individual employees and more prone to errors or omissions when staff turns over. These same underlying data limitations may also contribute to the reconciliation gap between the monthly and quarterly reports noted above.
We
Recommend
the City:
1. Revisit and assess audit recommendations
According to the 2017 OT Audit, it was recommended that the City explore the potential of developing a continuous monitoring process to provide more detailed information on OT usage so that management can better manage and control OT costs. A continuous monitoring system could include data analytics to extract data on service demands, absences and vacancies, and elements of city policies and contractual requirement that could be useful in identifying opportunities to reduce OT costs.
The City should consider the benefits of automating data collection and having drill- down reporting capabilities for more accurate data capture and reporting.
2. Enhance internal data collection, system integration and reporting of OT
The City should explore the current contract and Telestaff services in use by the Fire Department for expanded use with the Police Department. In the interim, Police should ensure alignment across reports and regularly validate data to support better staffing and budget decisions. Reconciling internal reports will ensure consistency across reporting periods and improve confidence in the data used.
Additionally, the OMB should consider revising the Quarterly Public Safety OT Analysis to include not only OT costs but also OT hours and drivers of OT. This will provide a more complete picture of OT usage and support better decision-making.
Management
Response
Responsible Department(s): Police, Administrative Services, Information Technology
Concurrence: Agree
Target Date: FY 2028
Action Plan:
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29 1. & 2. Police will consult with Fire Department staff regarding it’s success with their scheduling platform with the goal of reducing manual entry, improve system integration, and improve reliability of information. The Department will also consult with the SAP functional team and Administrative Services to see if enhancements can be achieved in the system to include moving information between systems rather than manually. The City’s Enterprise Resource Planning system is undergoing an upgrade and as part of the Phase 2, which is estimated to begin in FY 2028, this will be added to consider if any new functionality is cost effective and efficient to support this effort.
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Palo Alto Fire Department
Finding 5:
Fire has made
progress in
restoring
deployed
resources but
hiring process
constraints
result in
continued
overuse of OT
to fill
operational
gaps.
Deployed Resources and Minimum Staffing Backfill
The Palo Alto Fire Department has experienced chronic minimum staffing backfill shortages. From FY2015 to FY2025 the Department held an average of 9.6 FTE positions vacant, with some years as high as 14 FTE. Fire personnel indicated that the department has rarely operated at full staffing levels in recent years. In addition to these vacant FTEs, a significant number of staff are consistently out due to injury or disability leave, reducing the number of deployable firefighters.
In the last year, the City has made significant investments in increasing deployed resources.
Over the last one to two years, the department has made significant efforts to increase deployed resources and restore services to all six fire stations. In FY2025, 3.0 FTE were added to restore Fire Engine 62 from a two-person squad. In FY2026, 3.0 FTE Fire Captains were added to cross-staff Medic 64 with Fire Engine 64. In FY2026, 7.0 FTE were added to create a new Single Role Ambulance response division, by adding a 12-HR Peak Ambulance to the deployed resources.
Although deployed resources resemble similar pre-pandemic levels, service demands have increased. In CY2025 the Department responded to over 10,000 calls for service for the first time in its history. This is part of why the Department still struggles to meet key performance measures, particularly with response times, despite adding resources over the last two years.
Management and staff both reported that the department has focused efforts on recruitment and retention. One recruitment and hiring challenge Fire experiences, similar to Police, is the significant time it takes from hire to deployment. According to management, firefighters have some of the longest hiring-to-full-productivity timelines in the public sector Once hired, a recruit goes through a lengthy, but necessary training academy. Upon completion of the academy, the recruit is assigned to a unit while still under a probationary period. This entire process takes between 18 to 24 months.
In addition, there are instances where the new recruits do not successfully complete training or probation. OCA’s analysis of Fire records of academy recruitment groups from 2020 to 2025 showed that on average, 7.8 individuals were recruited per group. Of these individuals, the average separation during the academy was 1.2 or 15% with another 1.2 or 15% separating during probation. The average retention rate for these 5 years was 64%. While one recruitment class had no separations, another had 5 of the 11 recruits separate during the academy and probation period. When this happens, the department is forced to begin the process again to fill these now vacant positions.
Tracking academy performance has provided the department with valuable information and helped in approaching staffing challenges.
According to management, an effort was made in FY2023 to establish hire-ahead Firefighter Trainee positions to support long-term staffing stability; however, implementation was not realized due to internal concerns and administrative complexity. Key challenges included uncertainty around managing potential short-term staffing surpluses, as well as labor considerations related to establishing a lower initial rate of pay and benefits for trainees. As a result, the program was not advanced, and Item 5
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vacancy-driven overtime pressures have continued under the current staffing model.
Those positions have recently been included in budget reduction strategies.
Currently, Fire management has been able to gain internal approval to use city-wide “over-strength” positions to hire ahead. However, the Department has still struggled to achieve full staffing. As a general rule, the City does not encourage over-strength hiring and departments need to get special approval before proceeding. Exhibit 10, below, shows Fire operational deployment positions from FY2015 to FY2019, showing that Fire has been understaffed for much of the past 7 years.
Exhibit 10: Number of Operational Deployment Positions for Fire FY2015 through FY2024
*OCA analysis October 2025
In October 2023, the Local Agency Formation Commission (LAFCO) municipal service review found that Fire deployed resources are below the county average relative to peer jurisdictions. LAFCO also reported that Fire was not consistently meeting its eight- minute response-time standard and identified the need for additional resources. Despite comparatively strong staffing ratios, response performance has been constrained by deployment configuration and a high volume of medical calls. In response, the FY 2025 Adopted Budget includes funding to up-staff Fire Station 2’s Engine 62 to a full three- person crew and implement deployment adjustments, including a new Station 4 apparatus plan.
Overall, the LAFCO review confirms that while Palo Alto’s public safety services are regarded as high quality and deployed resource levels are generally competitive, fire operations have faced challenges in achieving performance targets under existing deployment and workload conditions.
96 95 95 95
84 84 84
78 83 83
0 20
40 60
80 100
120
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27 https://www.iaff.org/wp-content/uploads/English_Version_-_NFPA_1710_standards_DFSR_Summary_2022_new.pdf
OCA also noted that while Fire does not have required minimum staffing levels, the National Fire Protection Association (NFPA) Standard 1710 provides widely accepted benchmarks for fire and emergency medical services staffing. Specifically:
• Engine companies should be staffed with four firefighters. • Advanced Life Support (ALS) units should include two paramedics and two EMTs, all arriving on scene within the prescribed travel time standards. 27 Currently, Palo Alto falls short of the recommended crew size as they staff three firefighters per engine. Fire management stated that NFPA’s standard is a recommendation that provides enough people to immediately begin the step towards fighting a fire. Fire sends two units to every call in order to meet the number of required people at the scene to complete those steps. This follows CalOSHA Title 8 standards requiring staffing be sufficient to perform fire response safely. Fire has a written procedure to ensure firefighter safety and effective fire operations. This has been a sufficient practice given Palo Alto’s size and resource mix. However, when engines leave the City to provide mutual aid or respond to State or Federal emergency response calls, they do send four firefighters per engine.
The City’s recent Fire investments, staffing augmentations, and strategic deployment adjustments are intended to address these gaps and improve alignment between resource levels and service demand.
Current “floating” positions may not provide adequate coverage The Fire Department operates nine units to provide service coverage to the City 24 hours per day, seven days per week. This coverage is broken into three shifts per day.
According to management, 25 positions are required to staff each shift and with three shifts each day, the City requires 75 positions. Currently, Fire has 86 budgeted positions for these shifts leaving 11 “floaters” to cover for sick leave, vacation, training, etc. Floater positions are a standard staffing practice in fire service operations, consisting of personnel who are not assigned to a specific apparatus or shift but are deployed to fill daily staffing gaps caused by vacancies, leave usage, training, and other absences, reducing the need for overtime backfill. According to Fire management, maintaining an adequate number of floaters allows Fire to preserve minimum staffing levels, limit fatigue associated with excessive overtime, and support consistent emergency response performance.
However, as of the writing of this report, the City currently only has two functional floaters due to having thee employees on “light duty” (meaning they are assigned to less strenuous tasks) and six employees on workers compensation leave. The department’s policy allows for up to four employees per shift to take vacation and employees can take other types of leave (sick, bereavement, parental, etc.) as needed.
With a lack of adequate floaters to cover for these various absences, the department is forced to use more overtime.
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While Fire was meeting some KPIs, deployed resource levels may have impacted other response times and violation follow-up.
According to the City’s annual budget documents, Fire has established Key Performance Measures (KPMs) for emergency response:
• Fire and EMS response within 8 minutes, 90% of the time. • Advanced Life Support Ambulance (ALS) response within 12 minutes, 90% of the time.
Fire met its goals for EMS and ALS response times in most years from FY 2019 - FY 2024. However, the department consistently fell short of its goal for fire emergency responses within 8 minutes during the same period as shown below.
Exhibit 11: Fire Performance Compared to KPI Goals FY2015 – FY2024
*OCA analysis October 2025
Beginning in FY 2026, the department plans to revise its KPMs to reflect:
• Emergency response within 8 minutes, and
• Ambulance arrival within 12 minutes, 90% of the time.
Violations have gone without resolution due to deployed resource and financial constraints.
Discussions with the Fire Marshal revealed that the department has faced challenges in conducting timely follow-up after issuing fire code violations. These delays are attributed to staffing constraints and may impact enforcement effectiveness and public safety.
0%
20%
40%
60%
80%
100%
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Percent of responses to EMS calls within 8 minutes
Percent of responses to fire emergencies
within 8 minutes
Percent of responses to paramedic calls
within 12 minutes
KPI Goal for EMS Calls & Fire Emergencies
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Most OT is used to meet minimum staffing requirements.
Fire relies on overtime to meet minimum staffing requirements when they have experienced vacant FTEs. Management and union representatives reported that most OT is driven by backfilling vacancies, sick leave, vacation, workers’ compensation, training, and seasonal staffing needs. As shown in the graph below the number of vacancy days and the amount of OT expenses seems to generally trend together.
Years with the highest number of vacancy days also have the highest OT expenditures.
As mentioned in the Police section of this report, compensating for reduced headcount by extending workload of existing staff may be necessary in the short term but is not a sustainable model and can contribute to employee fatigue, reduced morale and operational inefficiencies.
Guidance from the National Fire Protection Association and the International Association of Fire Chiefs identifies heavy reliance on overtime as a structural driver of firefighter fatigue that directly impacts EMS patient outcomes. Extended shifts and insufficient recovery time degrade cognitive performance, increase medical error rates, and reduce effectiveness in critical interventions such as CPR and airway management. In time-sensitive emergencies—including cardiac arrest, stroke, and respiratory failure—this fatigue-driven decline in performance can delay care, reduce survival rates, and increase the likelihood of adverse patient outcomes.
Exhibit 12: Fire Vacancy Days vs. Overtime Expenses
*OCA analysis October 2025
Fire has routinely spent significantly more on OT than it has budgeted with actual OT expenses exceeding budgeted by more than 100% in some years. The budget has remained relatively flat during a 10-year period, assuming the Department will be fully staffed. As discussed in the section on PAFD staffing, the department has made significant efforts to keep up with turnover and is currently nearly fully staffed after hiring for a Spring Academy.
0 1,000
2,000
3,000
4,000
5,000
6,000
$-
$500,000.00
$1,000,000.00
$1,500,000.00
$2,000,000.00
$2,500,000.00
$3,000,000.00
$3,500,000.00
$4,000,000.00
$4,500,000.00
$5,000,000.00
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24
Number of Vacancy Days
Overtime Expenses
Axis Title
OvertimeExpenses Vacancy Days
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Exhibit 13: Fire OT Budgeted vs. Actual Expenditures
*OCA analysis October 2025
OT and Workers’ Compensation Cases
In comparing Exhibit 13 of OT Expenditures with Exhibit 14, Fire Workers’ Compensation Cases, there appears to be similar trends with workers’ compensation cases seeming to rise when there is greater use of OT. Determining whether the amount of OT worked is a factor in workers’ compensation cases is important for the City to understand the full cost of using OT as a means for supporting systemic staffing issues.
Exhibit 14 : Fire Workers’ Compensation Cases
*OCA analysis October 2025
$-
$500,000.00
$1,000,000.00
$1,500,000.00
$2,000,000.00
$2,500,000.00
$3,000,000.00
$3,500,000.00
$4,000,000.00
$4,500,000.00
$5,000,000.00
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Budgeted Overtime Expense Actual Overtime Expense
0 5
10 15
20 25
30 35
40 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Item 5
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Fire implemented structural changes to reduce forced or mandatory OT with positive feedback from staff.
In order to maintain minimum staffing levels, PAFD has relied on “Force In” or mandatory OT. Analysis of OT data over the past 10 fiscal years provided from Telestaff software records in the PAFD shows that:
• 62% of OT hours were voluntary
• 34% were due to Force In/Mandatory OT
• 4% were related to State Strike Team Deployment (reimbursed by OES)
Exhibit 15: Fire Categories of OT FY2015 – FY2025
*OCA analysis October 2025
Mandatory OT is typically used when staffing levels are insufficient to cover shifts through voluntary means and firefighters are required to work OT shifts. The high proportion of “Force In/Mandatory OT” indicates persistent staffing challenges and can lead to staff dissatisfaction and burn-out.
Fire implemented operational changes in 2023 to merge voluntary and mandatory OT lists. The department also adopted a system that prioritizes the last day worked for OT assignments. Staff feedback suggests these changes have improved fairness in shift distribution. The graph below shows that mandatory OT hours have decreased since FY 2022.
62%
34%
4%
Regular Overtime Force In/Mandatory Overtime State Strike Team Deployment Item 5
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Exhibit 16: Fire “Force In/Mandatory” OT Hours FY2015-FY2024
*OCA analysis October 2025
We
Recommend
the City:
1. Strengthen workforce planning and hiring pipeline management Fire should continue to strengthen its workforce planning efforts by maintaining a consistent hiring pipeline that accounts for the department’s lengthy training and onboarding process incorporating attrition, academy separation rates, retirements, and long-term leave into its hiring projections. Developing a more proactive hiring plan will help ensure staffing levels remain stable and reduce the need for overtime to cover vacancies.
The Department should consider reestablishing a structured hire-ahead Firefighter Trainee program to create a continuous staffing pipeline aligned with anticipated vacancies, reducing reliance on overtime to maintain minimum staffing. By proactively filling positions and maintaining adequate staffing levels, the Department can improve service reliability, control overtime costs, and mitigate fatigue-related performance risks identified
2. Consider best ratio of floater positions
Fire should reassess the current ratio of floater positions to total suppression staffing and adjust it based on historical leave usage, vacancy rates, and workload demands to ensure sufficient baseline coverage without overreliance on overtime.
3. Periodically evaluate staffing levels and deployment against service demand The City should formally assess whether current staffing levels, deployment strategies, and apparatus configurations remain aligned with service demand and response time goals. This evaluation should consider factors such as call volume trends, response performance, staffing availability, and community growth.
Conducting periodic reviews will help the City determine whether current resource levels and deployment models are sufficient to meet operational and public safety objectives.
4. Improve OT monitoring and workforce sustainability
Fire should continue monitoring OT usage and analyzing the factors driving OT demand, including vacancies, leave patterns, training requirements, and seasonal -
10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
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staffing needs. The department should also periodically evaluate whether extended OT hours are associated with employee fatigue, workers’ compensation claims, or other workforce health and safety indicators. Strengthening this analysis will help management identify opportunities to reduce reliance on mandatory OT while maintaining required staffing coverage.
5. Improve budget transparency and operational efficiency.
The City should work with the Fire Department to ensure the budget more accurately reflects operational needs and historical spending trends. Aligning the OT budget with expected staffing realities will improve financial transparency and help both Fire and policymakers better understand the true cost of maintaining fire service levels. In addition, Fire should continue implementing operational improvements—such as inspection software and scheduling adjustments—to improve efficiency and ensure inspection and enforcement activities are completed in a timely manner.
Management
Response
Responsible Department(s): Fire, Human Resources, Administrative Services Concurrence: Agree
Target Date: Q4, FY 2027
Action Plan:
1. Agree. The Department will continue refining workforce planning by incorporating known attrition factors, including retirements, academy and probationary separation rates, and long-term leave trends, into hiring projections and will share these projections annually to inform staffing and financial planning. Given the time required to recruit, train, and deploy firefighters, the Department will work with Human Resources and Administrative Services to review current hiring policies and explore process improvements that could support earlier recruitment while maintaining fiscal controls and oversight. These efforts are constrained by citywide hiring policies and balancing of fiscal impacts of over hiring practices.
It should be noted that the Department recently worked to implement a structured hire-ahead Firefighter Trainee program which encountered identified operational, administrative, and labor-related complexities, including compensation structure and management of temporary over-strength conditions. In FY2027, the hire-ahead Firefighter Trainee position will be frozen and as such work on this will be paused while the City manages financial constraints and balances investment priorities.
2. Agree. The Department agrees that floater positions are a standard and effective strategy for managing daily staffing variability and reducing reliance on overtime and deploys. The Department will conduct a comprehensive analysis of leave usage, including sick leave, parental leave, workers’ compensation, vacation, and other extended absences. This will be used to analyze a recommended number of floater positions and bring forward resource adjustments as necessary or feasible as part of the FY 2028 budget process.
3. Agree. The Department agrees with the importance of aligning staffing levels and deployment models with service demands and community risks. Fire Department Command Staff continuously monitors system performance, including response times, unit availability, and call volume trends, and manages deployment within allocated resources. Performance metrics and operational outcomes are regularly communicated to City Council through the annual budget process.
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To further support this work, the Department is planning an update to the Standards of Cover report as part of the Department’s recent five-year strategic plan that concludes in CY 2030. A Standards of Cover is a data-driven planning document used to evaluate risk, response performance, deployment strategies, and resource allocation, including community hazards, historical call demand, response times, and current staffing and deployment configurations.
4. Agree. The Department agrees with the importance of monitoring overtime usage and evaluating workforce sustainability. The Fire Department currently tracks key overtime-related metrics, including overtime hours, expenditures, vacancy days, and workers’ compensation cases. These metrics are reported through the City’s Quarterly Public Safety Overtime Report and presented to the Finance Committee.
The Department will build on these practices by establishing a more formal internal data review process in collaboration with Human Resources and Payroll to analyze workforce trends. This process will include enhanced tracking and integration of hours per employee, leave trends, workers’ compensation data, overtime usage, and vacancy patterns to better understand workforce impacts. Supervisors may also formally incorporate fatigue assessments into injury reports and monitor trends to support injury prevention.
5. Concurs. The Department agrees with the importance of aligning budget assumptions with operational realities and maintaining transparency in overtime reporting. In the FY2027 budget development, the Department worked with Administrative Services to adjust assumptions for a realistic vacancy rate and increase the base overtime budget to better reflect align the budgeted cost of maintaining minimum staffing and deployed resources. The Department will continue to evaluate opportunities to improve system integration and efficiency while maintaining compliance with applicable codes and standards and ensuring.
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: June 8, 2026
Report #:2605-6405
TITLE
Approval of the City of Palo Alto's Permanent Water Use Ordinance. CEQA Status: Exempt under CEQA Guidelines Sections 15307 and 15308.
RECOMMENDATION
The Utilities Advisory Commission (UAC) and staff recommend that the City Council adopt an ordinance (Attachment A) amending Municipal Code section 12.32.010, Water Use Regulations.
EXECUTIVE SUMMARY
The proposed ordinance updates the City’s water use restrictions to strengthen permanent water conservation measures and align local requirements with State water-efficiency mandates. The ordinance would retain the City’s existing framework for preventing water waste while adding new restrictions on potable water (drinking water) use, particularly for landscape irrigation.
Key updates include the following:
1. Following the State’s phased timeline: Prohibited use of potable water for irrigating nonfunctional turf (decorative grass) at government and commercial, industrial, and institutional (CII) properties, including homeowner associations (HOAs) common areas, statewide, as required by AB 1572;
2. Effective upon Ordinance adoption: Prohibited use of potable water on ornamental landscape or turf irrigation between 9:00 a.m. and 6:00 p.m., except via hand watering with a bucket or a hose with an operating shut-off valve; These updates are intended to reduce water waste and support the City’s compliance with evolving State water conservation laws.
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BACKGROUND
The City has long maintained water waste prevention requirements in Chapter 12.32 (Water Use Regulations) of the Palo Alto Municipal Code to support responsible management of limited water supplies. Existing permanent restrictions already prohibit wasteful actions, such as water use that results in runoff, and irrigation during daytime hours. Since those provisions were adopted, State law and regulations have continued to advance water use efficiency standards. Specifically, Assembly Bill 1572 requires local agencies to prohibit potable water irrigation of nonfunctional turf at government and CII properties, including HOA common areas, on a phased schedule beginning January 1, 2027.
Staff recommends that the City adopt the proposed water ordinance updates concurrently with the 2025 Urban Water Management Plan (UWMP), which includes the Water Shortage Contingency Plan (WSCP), to ensure consistency. See Staff Report-2512-5656. The 2025 UWMP includes a description of the City’s water use restrictions ordinance, and the WSCP identifies response actions to be implemented during a water shortage. These actions include enforcement of the City’s permanent water use restrictions, along with increasingly stringent water-use prohibitions for each water shortage level.
Enforcement of all water waste measures is carried out by staff with an education-first approach. Residents can report water waste through the PaloAlto3111 app or call (650) 496- 6968.
ANALYSIS
Staff proposes updating the City’s permanent water use restrictions to align with state- efficiency mandates and local requirements. These updates are:
Prohibition on irrigation of turf or ornamental landscape between 9:00 a.m. and 6:00 p.m.:
This update revises the existing prohibition on the use of potable water for turf or ornamental landscapes between 10:00 a.m. and 6:00 p.m. to be between 9:00 a.m. and 6:00 p.m. This is for consistency with Santa Clara Valley Water District regulations. The ordinance amendment is stated below:
The irrigation of turf or ornamental landscapes, which serve purely decorative purposes, and are distinguished from trees, edible gardens or landscapes that provide more than a purely aesthetic function, with potable water shall not be allowed between 910:00 a.m. and 6:00 p.m., except via hand watering with a bucket or a hose with an operating shutoff valve.
1 Palo Alto 311 https://www.paloalto.gov/311
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Prohibition on the use of potable water for irrigating nonfunctional turf, as required by AB 1572: The proposed updates incorporate the commercial nonfunctional turf watering ban established under California Assembly Bill 1572 (2023) to ensure the City is compliant with state law. AB 1572 prohibits the use of potable water for irrigating nonfunctional turf at government and CII properties, including HOA common areas, statewide. AB 1572 features a phased implementation timeline and requires local governments to adopt or revise ordinances by January 1, 2027. Staff recommends following the phased timeline outlined in the state mandate. The ordinance amendment is stated below:
The use of potable water for the irrigation of nonfunctional turf located on commercial, industrial, and institutional properties, other than a cemetery, and on properties of homeowners’ associations, common interest developments, and community service organizations or similar entities is prohibited as of the following dates:
(i) All properties owned by local governments, local or regional public agencies, and public water systems, beginning January 1, 2027.
(ii) All other institutional properties and all commercial and industrial properties, beginning January 1, 2028.
(iii) All common areas of properties of homeowners’ associations, common interest developments, and community service organizations or similar entities, beginning January 1, 2029.
Notwithstanding the provisions of this subdivision (i), the use of potable water is not prohibited to the extent necessary to ensure the health of trees and other perennial nonturf plantings, or to the extent necessary to address an immediate health and safety need. For the purposes of this subdivision (i), relevant terms have the same meaning as in Section 10608.12 of the Water Code.
FISCAL/RESOURCE IMPACT
Adoption of the ordinance has no direct impact on budget and staff resources, as this work is part of the FY 2026 work plan.
STAKEHOLDER ENGAGEMENT
On March 31, 2026, staff presented the UAC with the proposed water use ordinance amendments. One Commissioner expressed interest in accelerating implementation of AB 1572, the nonfunctional turf ban, by fully implementing it in 2027 rather than using a phased approach and requested clarification on the distinction between decorative and recreational turf for homeowners associations. Staff explained that the proposed approach follows the State’s phased implementation timeline to allow more time for customer communication and reduce confusion.
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On May 6, 2026 the UAC met and discussed this item and recommended that the City Council adopt the draft ordinance as proposed3. One commissioner asked whether AB 1572 requires local governments to update their ordinances to align with state law, and staff confirmed that it does.
Palo Alto communicates water use restrictions through the City’s websites, via bill inserts, and newsletters.
ENVIRONMENTAL REVIEW
Council’s adoption of this ordinance is exempt from review under the California Environmental Quality Act (CEQA) pursuant to Section 15307 and 15308 of the CEQA Guidelines, as an action taken by the City as a regulatory agency for the protection of natural resources and the environment.
ATTACHMENTS
Attachment A: Ordinance Amending Municipal Code Sections 12.32.010, Water Use Regulations APPROVED BY:
Alan Kurotori, Director of Utilities
Staff: Linda Grand, Sustainability Programs Administrator (Utilities) 3 Additionally, in the same motion, the UAC also recommended a resolution adopting the 2025 UWMP, a resolution adopting the 2025 WSCP, and that the UAC submit to the Council as additional information a letter from Commissioner Gupta that he sent to the UAC on May 5, 2026 proposing seven in-context edits for inclusion in the City’s 2025 UWMP. Commissioner Gupta’s memo pertains to the Draft UWMP and does not include any suggested edits to the Water Use Restrictions Ordinance.
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Ordinance No.
Ordinance of the Council of the City of Palo Alto Amending Chapter 12.32 (Water Use Regulations) of the Palo Alto Municipal Code to Incorporate Additional Water Use Regulations
The Council of the City of Palo Alto ORDAINS as follows:
SECTION 1. Findings and Declarations. The City Council finds and declares as follows:
A. Article 10, Section 2 of the California Constitution declares that waters of the State are to be put to beneficial use, that waste, unreasonable use, or unreasonable method of use of water be prevented, and that water be conserved for the public welfare.
B. The State of California is prone to drought conditions, which result in water supply shortages.
C. The City of Palo Alto recognizes the continuing need to manage water resources under its jurisdiction and control in a constitutionally compliant manner.
D. Section 12.32.010 of the Palo Alto Municipal Code sets forth permanent water use restrictions applicable to all City water customers in order to responsibly manage the City’s water resources.
E. City regulation of the time and manner of water use, rate design, the method of application of water for certain uses, and establishment of enforcement procedures in support of water use management is an effective and immediately available means of conserving water and is authorized by Palo Alto Municipal Code Section 12.20.010.
F. California Assembly Bill (AB) 1572 (2023) prohibits the use of potable water to irrigate nonfunctional turf at most commercial, industrial, and institutional properties, including common areas managed by homeowner associations, and requires the City of Palo Alto to update its regulations to enforce the State-mandated prohibitions.
G. In 2024, the State Water Resources Control Board adopted the “Making Conservation as a Way of Life” regulation (23 CCR § 965 et seq.), which establishes urban water use objectives and performance measures for retail water suppliers like the City.
H. The Council wishes to make minor changes to existing water use restrictions and adopt additional permanent water use restrictions in order to responsibly manage the City’s water resources, meet its urban water use objectives, and comply with AB 1572.
SECTION 2. Section 12.32.010 (Water Use Regulations) of Chapter 12.32 (Water Use Item 6
Attachment A - Ordinance
Amending Municipal Code
Sections 12.32.010, Water
Use Regulations
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Regulations) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined, deletions struck through):
12.32.010 Water use regulations.
No purchaser of water from the city of Palo Alto, nor any customers of the water utility of the city of Palo Alto, shall use water or allow any other person to use water under the control of such customer or purchaser in the following ways:
(a) Potable water shall not be allowed to flood or run off into gutters: driveways, sidewalks, streets or other unlandscaped areas.
(b) By means of a hose to wash cars, boats, trailers, buses or other vehicles or to wash sidewalks, building structures, other hard-surfaced areas or parts thereof without an operating automatic shut-off valve. Use of a hose for such purposes should be avoided whenever possible.
(c) Potable water for consolidation of backfill and other nondomestic uses in construction shall not be used if other water sources such as reclaimed water are available, as determined by the director of utilities or his or her designee. Applicants for hydrant permits from the city of Palo Alto shall be deemed to have consented to restrictions on water use which may be imposed by the director of utilities or his or her designee. (d) Any broken or defective plumbing, sprinklers, watering or irrigation systems which permit the escape or leakage of water shall be repaired or replaced as soon as possible, but no later than the date established by the director of utilities, or his or her designee, as reasonable after observation of the broken or defective system. (e) The irrigation of turf or ornamental landscapes, which serve purely decorative purposes, and are distinguished from trees, edible gardens or landscapes that provide more than a purely aesthetic function, with potable water shall not be allowed between 910:00 a.m. and 6:00 p.m., except via hand watering with a bucket or a hose with an operating shut- off valve.
(f) The use of potable water in a fountain or other decorative water feature is prohibited, except where the water is part of a recirculating system. (g) The use of potable water for street sweepers and washers is prohibited if non-potable water is available, as determined by the Director of Utilities, or his or her designee. (h) Commercial car washes must use recycled water systems, if recycled water is available, as determined by the Director of Utilities, or his or her designee, and economically feasible.
(i) The use of potable water for the irrigation of nonfunctional turf located on commercial, industrial, and institutional properties, other than a cemetery, and on properties of homeowners’ associations, common interest developments, and community service Item 6
Attachment A - Ordinance
Amending Municipal Code
Sections 12.32.010, Water
Use Regulations
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organizations or similar entities is prohibited as of the following dates:
(i) All properties owned by local governments, local or regional public agencies, and public water systems, beginning January 1, 2027.
(ii) All other institutional properties and all commercial and industrial properties, beginning January 1, 2028.
(iii) All common areas of properties of homeowners’ associations, common interest developments, and community service organizations or similar entities, beginning January 1, 2029.
Notwithstanding the provisions of this subdivision (i), the use of potable water is not prohibited to the extent necessary to ensure the health of trees and other perennial nonturf plantings, or to the extent necessary to address an immediate health and safety need. For the purposes of this subdivision (i), relevant terms have the same meaning as in Section 10608.12 of the Water Code.
SECTION 3. If any section, subsection, clause or phrase of this Ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portion or sections of the Ordinance. The Council hereby declares that it would have adopted the Ordinance and each section, subsection, sentence, clause or phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid.
SECTION 4. The Council finds that this ordinance is categorically exempt from review under the California Environmental Quality Act (CEQA) pursuant to Section 15307 and 15308 of the CEQA Guidelines (actions taken by regulatory agencies for the protection of natural resources and the environment).
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Amending Municipal Code
Sections 12.32.010, Water
Use Regulations
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SECTION 5. This ordinance shall be effective on the thirty-first day after the date of its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED AS TO CONTENT:
City Attorney or Designee City Manager
Director of Utilities
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Sections 12.32.010, Water
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: IT Department
Meeting Date: June 8, 2026
Report #:2603-6190
TITLE
Approval of Purchase Order C27197380 with Optiv Security, Utilizing a State of California Department of General Services Software Licensing Program (SLP) SLP-24-70-0184Z Contract, to Procure Varonis Systems for a Three-Year Term with an Annual Amount of $154,043 for a Total Not-To-Exceed Amount of $462,129. CEQA Status - exempt under CEQA regulation § 15061(b)(3).
RECOMMENDATION
Staff recommends that City Council approve and authorize the City Manager or their designee to execute Purchase Order C27197380 with Optiv Security, utilizing the above-noted State of California Department of General Services Software Licensing Program SLP-24-70-0184Z1 contract to procure Varonis Systems over a three-year term (August 18, 2026 to August 17, 2029) with an annual amount of $154,043 and a total not-to-exceed amount of $462,129.
BACKGROUND
The City began using Varonis on August 18, 2023, under a three-year purchase order with annual payments of $146,000 and a total amount of $438,000. That purchase order also utilized a cooperative contract.
Varonis is currently deployed across the City’s hybrid IT environment to provide centralized visibility and monitoring for Active Directory, the City’s file storage servers, and Microsoft 365, including email, SharePoint, and OneDrive. The City stores and processes critical and sensitive information, including personally identifiable information, financial records, human resources data, and public safety-related information. Because these systems span both on-premises and cloud environments, the City has an ongoing need for tools that provide centralized visibility and consistent security controls across platforms.
1 Software License Leveraged Procurement Agreement:
https://caleprocure.ca.gov/PSRelay/ZZ_PO.ZZ_CTR_SUP_CMP.GBL?Page=ZZ_CTR_SUP_PG&Action=U&SETID=STAT E&CNTRCT_ID=SLP-24-70-0184Z
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This renewal supports the City’s ongoing investment in secure and reliable technology infrastructure and is intended to maintain the City’s current cybersecurity capabilities without interruption.
ANALYSIS
Renewal of Varonis is recommended because it is a critical cybersecurity tool that supports the City’s ability to safeguard sensitive data, monitor user activity, and manage access permissions across key systems. Varonis provides centralized visibility, threat detection, and access governance across Active Directory, file storage servers, and Microsoft 365. These capabilities are not natively available in a single solution and are important to the City’s ability to manage risk in a hybrid IT environment.
Varonis enables the City to identify who has access to sensitive data and how that data is being used, monitor activity across Active Directory, file storage, and Microsoft 365, and generate real-time alerts regarding suspicious behavior, including potential ransomware activity. The platform also helps identify and remediate excessive, outdated, or otherwise inappropriate permissions. Without Varonis, the City would have limited ability to proactively detect unauthorized access, investigate abnormal activity, or reduce unnecessary exposure of sensitive data.
Renewal also supports the City’s cybersecurity and compliance obligations. The tool aligns with core NIST Cybersecurity Framework functions, including Identify, Protect, Detect, and Respond.
It also supports the City’s operational and audit requirements by maintaining detailed audit trails for data access and permission changes, which is important for compliance-related activities, including CJIS-related controls, state and local regulatory requirements, and public records obligations. This is also in alignment with the cybersecurity risk assessment recommendations included in the various information technology assessments completed by Baker Tilly, the City’s Auditor.
This procurement leverages cooperative contract SLP-24-70-0184Z, under which the California Department of General Services conducted a competitive solicitation and awarded Optiv Security as an approved vendor, allowing eligible public agencies to use the competitively solicited terms. The vendor offered a flat annual rate of $154,043 with no annual escalation, for a total not-to-exceed amount of $462,129 over three years. In addition to utilizing cooperative pricing, City staff negotiated below the cooperative contract price sheet rates, generating additional cost savings while maintaining the required maintenance and support coverage.
Renewal is also financially prudent when compared with the potential cost of a cyber incident.
Failure to renew may increase the City’s exposure to data breaches, ransomware incidents, compliance gaps, and reduced audit visibility. A significant cyber incident could result in incident response and remediation costs, legal liabilities, regulatory penalties, operational downtime, and service disruption.
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FISCAL/RESOURCE IMPACT
The annual amount for this purchase order is $154,043, for a three-year total not-to-exceed amount of $462,129. Costs begin in FY 2027; funding for this contract is included in the FY 2027 Proposed Budget and is subject to City Council approval, consistent with how multi-year technology support contracts are funded in future years.
ITD is supported through an internal service fund model. Approximately 49% of ITD’s costs are funded by the General Fund, with the remaining 51% supported by enterprise and special revenue funds. As a result, the cost of this contract will be supported through ITD’s internal service fund structure and allocated consistently with that funding model.
STAKEHOLDER ENGAGEMENT
Staff coordinated with internal City stakeholders to confirm that the renewal scope aligns with Citywide cybersecurity and operational requirements. Staff also worked closely with the vendor on the renewal quote to validate licensing needs, confirm service expectations, and ensure continued support for secure access to City applications, data, and services.
ENVIRONMENTAL REVIEW
The approval of this contract is exempt from review under the California Environmental Quality Act (CEQA) under CEQA Guidelines section 15061(b)(3).
ATTACHMENTS
Attachment A: Varonis Quote no. 4613705-2
APPROVED BY:
Darren Numoto, Chief Information Officer; Lisa Bolger, Assistant Director Information Technology/CTO
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Date: 3/30/2026
Expiration: 6/23/2026
To:
City of Palo Alto Information Technology Services
Darren Numoto
CIO / Director of It
250 Hamilton Ave Fl 2
Palo Alto, CA 94301-2531
US
650-329-2211
[email protected]
Varonis - 3YR Renewal - Annual Payments
CA SLP contract / SLP-24-70-0184Z
-
In order to be accepted the PO must be fully funded for the entire 3YR term. Annual payments are as follows:
-
Year 1: $154,042.75 / Net30
Year 2: $154,042.76 / Net30
Year 3: $154,042.76 / Net30
Quote#: 4613705-2
Payment Terms: Net 30
Tax ID: 43-1806449
Internal Reference#: Q-2689233
From:
Eli Hudson
[email protected]
YEAR 1
Line
#
Product Description Product Code Term QTY Customer Price Customer Extended Price
1 Varonis Systems: Varonis for Active Directory SaaS subscription for 12 Months VAD-1001-1500SA 2026-08-18 to 2027-08-17
1,201 USD 11.72 USD 14,075.72
2 Varonis Systems: Varonis for Windows/NAS + M365 SaaS Subscription VTWO-1001- 1500SA
2026-08-18
to 2027-08-17
1,201 USD 92.31 USD 110,864.31
3 Varonis Systems: Collector License CL-1-5OS 2026-08-18 to 2027-08-17
1 USD 1,458.53 USD 1,458.53
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4613705-2
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Line
#
Product Description Product Code Term QTY Customer Price Customer Extended Price
4 Varonis Systems: Varonis for Exchange Online is a
SaaS subscription add-on that extends protection
to cover Exchange Online
DAEO-1001-
1500SA
2026-08-18
to 2027-08-17
1,201 USD 20.35 USD 24,440.35
5 Varonis Systems: Extended Event Retention for 7 Years SaaS Subscription 4M Daily Events
VER7-4SA 2026-08-18
to 2027-08-17
4 USD 800.96 USD 3,203.84
6 Varonis Systems: Varonis SaaS FedRAMP Moderate Add-On SaaS Subscription VFED-1001- 1500SA
2026-08-18
to 2027-08-17
1,201 USD 0.00 USD 0.00
YEAR 1 TOTAL: USD 154,042.75
YEAR 2
Line
#
Product Description Product Code Term QTY Customer Price Customer Extended Price
7 Varonis Systems: Varonis for Active Directory SaaS subscription for 12 Months VAD-1001-1500SA 2027-08-18 to 2028-08-17
1,201 USD 11.72 USD 14,075.72
8 Varonis Systems: Varonis for Windows/NAS + M365 SaaS Subscription VTWO-1001- 1500SA
2027-08-18
to 2028-08-17
1,201 USD 92.31 USD 110,864.31
9 Varonis Systems: Collector License CL-1-5OS 2027-08-18 to 2028-08-17
1 USD 1,458.54 USD 1,458.54
10 Varonis Systems: Varonis for Exchange Online is a
SaaS subscription add-on that extends protection
to cover Exchange Online
DAEO-1001-
1500SA
2027-08-18
to 2028-08-17
1,201 USD 20.35 USD 24,440.35
11 Varonis Systems: Extended Event Retention for 7 Years SaaS Subscription 4M Daily Events
VER7-4SA 2027-08-18
to 2028-08-17
4 USD 800.96 USD 3,203.84
12 Varonis Systems: Varonis SaaS FedRAMP Moderate Add-On SaaS Subscription VFED-1001- 1500SA
2027-08-18
to 2028-08-17
1,201 USD 0.00 USD 0.00
YEAR 2 TOTAL: USD 154,042.76
YEAR 3
Line
#
Product Description Product Code Term QTY Customer Price Customer Extended Price
13 Varonis Systems: Varonis for Active Directory SaaS subscription for 12 Months VAD-1001-1500SA 2028-08-18 to 2029-08-17
1,201 USD 11.72 USD 14,075.72
14 Varonis Systems: Varonis for Windows/NAS + M365 SaaS Subscription VTWO-1001- 1500SA
2028-08-18
to 2029-08-17
1,201 USD 92.31 USD 110,864.31
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Attachment A - Varonis Quote no.
4613705-2
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Line
#
Product Description Product Code Term QTY Customer Price Customer Extended Price
15 Varonis Systems: Collector License CL-1-5OS 2028-08-18 to 2029-08-17
1 USD 1,458.54 USD 1,458.54
16 Varonis Systems: Varonis for Exchange Online is a
SaaS subscription add-on that extends protection
to cover Exchange Online
DAEO-1001-
1500SA
2028-08-18
to 2029-08-17
1,201 USD 20.35 USD 24,440.35
17 Varonis Systems: Extended Event Retention for 7 Years SaaS Subscription 4M Daily Events
VER7-4SA 2028-08-18
to 2029-08-17
4 USD 800.96 USD 3,203.84
18 Varonis Systems: Varonis SaaS FedRAMP Moderate Add-On SaaS Subscription VFED-1001- 1500SA
2028-08-18
to 2029-08-17
1,201 USD 0.00 USD 0.00
YEAR 3 TOTAL: USD 154,042.76
Subtotal: USD 462,128.27
Estimated Tax: USD 0.00
Estimated Shipping: USD 0.00
Grand Total: USD 462,128.27
Sales Quote Terms and Conditions
This Sales Quote and the Client’s purchase of the Products listed in this Sales Quote are subject to and shall be governed by (i) the Sales Quote Terms and Conditions and (ii) the Data Processing Terms and Conditions, both available at http://www.optiv.com/agreements
Optiv Security Inc., 1144 15th Street, Suite 2900, Denver, CO 80202 United States By signing below, client agrees to purchase the items listed above.
Signature:
\s1\
Date:
\d1\
______/______/______
Name (Print):
\n1\
Title:
\t1\
Quote: 4613705-2
Grand Total: USD 462,128.27
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4613705-2
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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Public Works
Meeting Date: June 8, 2026
Report #: 2512-5758
TITLE
Approval of Construction Contract C26197221 with Valentine Corporation in an Amount Not-to- Exceed $503,990 and Authorization for the City Manager or Their Designee to Negotiate and Execute Change Orders for Related Additional but Unforeseen Work that May Develop During the Project up to a Not-to-Exceed Amount of $50,399, for the Guardrail Repair Project, Capital Improvement Program Project PE-86070; CEQA Status – Exempt under Section 15301(c) and 15301(d)
RECOMMENDATION
Staff recommends that the City Council:
1. Approve and authorize the City Manager or their designee to execute Contract No.
C26197221 with Valentine Corporation in the not-to-exceed amount of $503,990, for the construction and installation of guardrails pursuant to the Guardrail Repair Project, Capital Improvement Program Project PE-86070; and
2. Authorize the City Manager or their designee to negotiate and execute one or more change orders to the construction contract with Valentine Corporation, for related, additional but unforeseen work that may develop during the project, the total value of which shall not exceed $50,399.
BACKGROUND
Three separate guardrails throughout the City of Palo Alto have been damaged and require repair. The three locations include the Alma Street and University Avenue interchange, the Alma Street and Oregon Expressway overpass, and the Park Boulevard and Oregon Expressway overpass (Attachment A). Two have been damaged by vehicle collisions, and one has deteriorated due to environmental exposure. The scope of this project is to demolish, remove, and replace the damaged portions of these guardrails using updated designs and materials.
Guardrails are a vital safety measure to protect pedestrians and vehicular traffic on these roadways, and repairing these damaged sections is necessary to ensure the continued safety of the public.
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On February 24, 2025, the City hired Hohbach-Lewin, Inc. (Hohbach-Lewin) to design and provide construction support in the reconstruction of the damaged guardrails and sections of concrete sidewalks, curb, and gutter. Hohbach-Lewin completed designs, including details and drawings, to repair the guardrails. Hohbach-Lewin will also provide on-site inspections during construction, construction administration, and as-built drawings after project completion.
ANALYSIS
Staff recommends approval of Contract No. C26197221 with Valentine Corporation1 to carry out necessary repairs and rehabilitation work to return these guardrail systems to operational status. The scope of work includes the demolition of existing damaged guardrails and substructures, and installation of 250 square feet of new sidewalk, 100 linear feet of curb, and 70 linear feet of new guardrail.
Solicitation Process
On November 19, 2025, an Invitation for Bids (IFB) for the Guardrail Repair Project was posted on OpenGov, the City’s eProcurement system. The bidding period was 34 calendar days. The City received one bid from a qualified contractor on December 23, 2025. This bid exceeded the City’s budget. Staff decided to rebid the project with changes to the IFB including additional project information and reformatting of the Bid Form. Public Works Engineering staff also contacted local companies to raise awareness about the project. On March 25, 2026, the City issued a rebid of the project and another notice inviting formal bids for the Guardrail Repair Project was posted on OpenGov. The bidding period was 37 calendar days. The City received five bids from qualified contractors on May 1, 2026, as listed on the attached Bid Summary (Attachment B).
Table 1: Summary of Invitation for Bids
Project Bid Name/Number Guardrail Repair Project IFB195842 Proposed Length of Project 60 calendar days
# of Bid Packages Downloaded by Builder’s Exchanges 1
# of Bid Packages Downloaded by Contractors 45
Total Days to Respond to Bid 37
Mandatory Pre-Bid Meeting Yes
# of Company Attendees at Non-Mandatory Pre-Bid Meeting 2 Number of Bids Received 5
1 Valentine Corporation Construction Contract for Guardrail Repair Project C26197221 https://www.paloalto.gov//files/assets/public/v/1/public-works/staff-reports-all/2026/c26197221-valentine- corporation-guardrail-repair-project-final.pdf
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Table 1: Summary of Invitation for Bids
Project Bid Name/Number Guardrail Repair Project IFB195842 Base Bid Price Range $334,369 - $450,000
Public Link to Solicitation https://procurement.opengov.com/port al/palo-alto-ca/projects/247830
The apparent low bidder was selected based upon the base bid. The bids ranged from $334,369 to $450,000 and from 15% to 37% below the engineer’s estimate of $530,682. Staff reviewed the submitted bids and recommends that Valentine Corporation be declared the lowest responsible bidder and the City accept the base bid submitted by Valentine Corporation in the amount of $334,369. Staff recommends awarding add alternate #1 in the amount of $169,621 in addition to the base bid to address environmental damage to the guardrail at the Park Boulevard and Oregon Expressway overpass. The total base bid plus the add alternates totals $503,990. The construction contingency amount of $50,399, which equals 10% of the contract value, is requested for related, additional, but unforeseen work which may develop during the project, implemented via City-approved Change Order.
FISCAL/RESOURCE IMPACT
Funding for the Guardrail Repair Project is available in the FY 2026 Adopted Capital Improvement Program Street Maintenance project (PE-86070). The Guardrail Repair project is appropriately categorized under street maintenance because the guardrail system is an existing component of the public roadway.
STAKEHOLDER ENGAGEMENT
The guardrail work has been coordinated with the City’s Public Works and Utilities departments to ensure no impact on other projects. Public outreach, in the form of mailer notifications and NextDoor postings, will be conducted before and during the construction to keep the community informed throughout the process.
ENVIRONMENTAL REVIEW
This project is categorically exempt from the California Environmental Quality Act (CEQA) under Sections 15301(c) and 15301(d) of the CEQA Guidelines. This work includes the repair, maintenance and/or minor alteration of the existing facilities as well as restoration or rehabilitation of deteriorated or damaged structures and facilities in the interest of public health and safety. Therefore, no further environmental review is necessary.
ATTACHMENTS
Attachment A: Project Location Map
Attachment B: Bid Summary
APPROVED BY: Brad Eggleston, Director Public Works/City Engineer Item 8
Item 8 Staff Report
Item 8: Staff Report
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Item 8
Attachment A - Project Location Map
Item 8: Staff Report
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This map is a product of the
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This document is a graphic representation only of best available sources. 0' 400'
FY26 Guardrail Repair Project
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Alma Street and
Oregon Expressway
Overpass Location
Park Boulevard and
Oregon Expressway
Overpass Location -
Add Alternate 1
Item 8
Attachment A - Project Location Map
Item 8: Staff Report
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FY26 Guardrail Repair Project - Bid Summary
BID ITEM UNIT QTY DESCRIPTION UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE 1 LS 1
Complete installation of the guard rail
system and concrete sidewalk, curb and
gutter work as detailed in the project
drawings and specifications for the
Alma/Oregon Over Pass. This includes,
but is not limited to, any demolition, site
preparation, logistics planning and plan
development, and/or material
procurement.
$ 151,900.00 $ 151,900.00 $ 145,000.00 $ 145,000.00 $ 140,000.00 $ 140,000.00 $ 166,110.78 $ 166,110.78 $ 159,112.00 $ 159,112.00 $ 163,369.00 $ 163,369.00 2 LS 1
Complete installation of the guard rail
system and concrete sidewalk, curb and
gutter work as detailed in the project
drawings and specifications for
University Avenue. This includes, but is
not limited to, any demolition, site
preparation, logistics planning and plan
development, and/or material
procurement.
$ 247,350.00 $ 247,350.00 $ 135,000.00 $ 135,000.00 $ 62,500.00 $ 62,500.00 $ 109,430.17 $ 109,430.17 $ 109,556.00 $ 109,556.00 $ 100,000.00 $ 100,000.00 3 LS 1
Furnish and provide all labor, materials,
and equipment for mobilization forces
and resources to perform work at
Alma/Oregon Overpass location.
$ 10,000.00 $ 10,000.00 $ 20,000.00 $ 20,000.00 $ 42,765.00 $ 42,765.00 $ 7,130.02 $ 7,130.02 $ 21,000.00 $ 21,000.00 $ 12,000.00 $ 12,000.00 4 LS 1
Furnish and provide all labor, materials,
and equipment required to implement
and maintain traffic control for work at
the Alma/Oregon Overpass. This
includes submission and revisions for
approval of site-specific traffic control
plans.
$ 58,000.00 $ 58,000.00 $ 30,000.00 $ 30,000.00 $ 46,000.00 $ 46,000.00 $ 51,914.00 $ 51,914.00 $ 34,000.00 $ 34,000.00 $ 28,000.00 $ 28,000.00 5 LS 1
Furnish and provide all labor, materials,
and equipment for mobilization forces
and resources to perform work at
University Avenue location.
$ 10,000.00 $ 10,000.00 $ 18,000.00 $ 18,000.00 $ 29,000.00 $ 29,000.00 $ 4,152.16 $ 4,152.16 $ 10,000.00 $ 10,000.00 $ 10,000.00 $ 10,000.00 6 LS 1
Furnish and provide all labor, materials,
and equipment required to implement
and maintain traffic control for work at
the University Avenue location. This
includes submission and revisions for
approval of site-specific traffic control
plans.
$ 33,432.00 $ 33,432.00 $ 28,000.00 $ 28,000.00 $ 19,000.00 $ 19,000.00 $ 26,214.00 $ 26,214.00 $ 15,000.00 $ 15,000.00 $ 18,000.00 $ 18,000.00 7 LS 1 Notifications for all locations. $ 20,000.00 $ 20,000.00 $ 74,000.00 $ 74,000.00 $ 1,000.00 $ 1,000.00 $ 6,425.00 $ 6,425.00 $ 6,000.00 $ 6,000.00 $ 3,000.00 $ 3,000.00
BID ITEM UNIT QTY DESCRIPTION UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE UNIT PRICE TOTAL PRICE 8 LS 1
Complete installation of the guard rail
system and concrete sidewalk, curb and
gutter work as detailed in the project
drawings and specifications for the Park
Boulevard/Oregon Expressway Overpass.
This includes, but is not limited to, any
demolition, site preparation, and/or
material procurement.
$ 167,300.00 $ 167,300.00 $ 120,000.00 $ 120,000.00 $ 125,000.00 $ 125,000.00 $ 105,455.65 $ 105,455.65 $ 111,957.00 $ 111,957.00 $ 117,621.00 $ 117,621.00 9 LS 1
Furnish and provide all labor, materials,
and equipment for mobilization forces
and resources to perform work at
Park/Oregon Overpass Location.
$ 10,000.00 $ 10,000.00 $ 15,000.00 $ 15,000.00 $ 40,000.00 $ 40,000.00 $ 7,448.30 $ 7,448.30 $ 17,000.00 $ 17,000.00 $ 10,000.00 $ 10,000.00 10 LS 1
Furnish and provide all labor, materials,
and equipment required to implement
and maintain traffic control for work at
the Park/Oregon Overpass Location. This
includes submission and revisions for
approval of site-specific traffic control
plans.
$ 33,432.00 $ 33,432.00 $ 25,000.00 $ 25,000.00 $ 62,500.00 $ 62,500.00 $ 38,152.00 $ 38,152.00 $ 44,000.00 $ 44,000.00 $ 42,000.00 $ 42,000.00 Under Over Under Under Under
172,957.00 $ 169,621.00 $ -24% 8% -28% -18% -20%
ALT Bid 1 Total (Items 008 through 010) 210,732.00 $ 160,000.00 $ 227,500.00 $ 151,055.95 $ ADD ALT 1 BID SUMMARY ENGINEER BNO Builders Coral Cons truction MARC Builders T.P.A. Valentine Under Under Under Under Under
T.P.A.
354,668.00 $
Valentine
334,369.00 $
-15% -36% -30% -33% -37%
MARC Builders
371,376.13 $ Base Bid Total (Items 001 through 007) 530,682.00 $ 450,000.00 $ Coral Construction
340,265.00 $
BID SUMMARY ENGINEER BNO Builders
Item 8
Attachment B - Bid
Summary
Item 8: Staff Report
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0 City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Utilities
Meeting Date: June 8, 2026
Report #:2512-5653
TITLE
Approval of Professional Services Contract Number C27196575 with Presidio Systems, Inc. in the Amount Not-to-Exceed $938,452 for Closed-Circuit Television (CCTV) Sanitary Sewer Pipeline Inspection for a Period of Three Years; CEQA Status – Not a Project Under CEQA Guidelines Section 15378.
RECOMMENDATION
Staff recommend that the City Council approve and authorize the City Manager or their designee to execute Contract Number C27196575 (Attachment A) with Presidio Systems, Inc. for CCTV inspection services for a term of three (3) years and a total, not-to-exceed amount of $938,452, including $853,139 for basic service and $85,313 for additional services.
EXECUTIVE SUMMARY
To ensure the long-term resilience of City’s wastewater collection system, it is recommended that the City of Palo Alto (City) initiate a comprehensive CCTV inspection project. This project includes CCTV inspection of approximately 230,000 linear feet (44 miles) of sewer mains to be inspected over the period of 3 years. The sewer mains proposed for the CCTV inspection are non-plastic and no slip lined pipes, and cover a diameter range from 6 to 18 inches. CCTV sewer main inspection shall follow industry standards such as National Association of Sewer Service Companies (NASSCO) Pipe Assessment and Certification Program (PACP) standards.
The last CCTV inspection project was completed in 2006. This project will help the City maintain wastewater collection system compliance with environmental regulations. The CCTV inspection results inform proactive sewer main cleaning and repair activities and provide information about the sewer main’s structural condition to help prioritize the Capital Improvement Program (CIP) for the City’s wastewater collection system.
BACKGROUND
The City’s last CCTV inspection project was completed in 2006 and now requires a comprehensive update. A CCTV sewer inspection program uses specialized cameras to inspect Item 9
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Item 9: Staff Report
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0 and diagnose the condition of sewer main lines. This process provides high-resolution videos of pipes to locate blockages, root intrusions, leaks and pipe breaks. This process helps with system compliance and overall maintenance, preventing costly repairs through early and accurate detection of compromised pipeline integrity.
As part of the 2025 Sewer Master Plan (SMP), the SMP consultant developed a recommendation for the City to perform a future CCTV program to assess the current condition of pipes. The City reviewed the SMP’s proposed CCTV Program, and developed the first phase of this CCTV program, based on risk analysis:
Table 1: Sewer Main CCTV Prioritization, By Year
Year Total (miles) Sewer mains prioritization identified in the SMP 1 15 High-risk sewer mains
2 14 High-risk & medium-risk sewer mains
3 15 Medium-risk sewer mains
The CCTV data obtained from this project will be used as a foundation for the City’s wastewater collection system capital improvement program. Additionally, CCTV inspection data obtained from this project will be used in the future to focus planned maintenance programs.
ANALYSIS
Project Description
The proposed 3-Year CCTV program will evaluate 44 miles of sewer main and provide inspection results using industry standards such as National Association of Sewer Service Companies (NASSCO) Pipe Assessment and Certification Program (PACP) standards.
Solicitation Process
On March 19, 2026, the City posted a notice of request for proposal (RFP) for the 3-Year CCTV Sanitary Sewer Main Inspection Project on the City’s electronic procurement system, OpenGov.
The bidding period was 27 calendar days. Nine (9) vendors submitted proposals on April 14, 2026, as listed on the attached 3-year CCTV Bid Summary (Attachment B).
Table 2: Summary of Request for Proposal
Project Bid Name/Number 3-Year CCTV Sanitary Sewer Main Inspection project, CIP WC-26001, RFP 196575
Proposed Length of Project 3 years at 105 working days per year, between the dry weather months of April and November.
Number of Vendors Notified 3941
# of Proposal Packages Downloaded by Vendors 47
Total Days to Respond to Request for Proposals 27 Calendar Days Pre-Proposal Meeting Yes (Non-Mandatory) on March 24, 2026 at 10am Pre-Proposal Meeting Date no pre-qualification requirement Item 9
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0 Table 2: Summary of Request for Proposal
Project Bid Name/Number 3-Year CCTV Sanitary Sewer Main Inspection project, CIP WC-26001, RFP 196575
Number of Proposals Received 9
Proposal Price Range $576,445 to $2,269,960
Public Link to Solicitation https://procurement.opengov.com/governments/6 50/projects/247562/manage
Presidio Systems, Inc. was selected as the top-ranked proposer based on their expertise, methodology, and relevant project experience. Proposal cost was independently evaluated by Purchasing administrator following the completion of the technical evaluation by Engineering staff.
Presidio Systems, Inc. submitted the 3rd lowest bid, demonstrated the highest technical proficiency, and was identified as the best value proposer. Presidio Systems, Inc. listed previous experiences working with local agencies on large-scale projects. Additionally, they proposed utilization of additional crews to address heavy debris areas and software solutions that support future maintenance planning. Staff have evaluated the submitted proposals and recommend that the proposal of $853,139 submitted by Presidio Systems, Inc. be accepted and be deemed the most advantageous to the City. The selected vendor’s proposal is approximately
5.2 percent below the staff engineer’s estimate of $900,000.
The two (2) lower priced bidders scored lower than the preferred vendor. Examples of areas these submittals feel below the recommended service provider include but are not limited to project references with projects that are currently in progress or scaled down with only 6,000 LF of CCTV inspected sewer mains, reference to projects out of the area, and lack of experience with high traffic on local arterials and severe regional bottlenecks.
Timeline
This CCTV project must be conducted during the City’s historical dry season (April through November) - an industry standard. Dry weather provides the ideal conditions for gathering accurate, actionable data, due to minimum Inflow and Infiltration (I&I) generated from stormwater or groundwater that enters sanitary system through damaged pipes, leaky joints, or improper connections. The low wastewater flow ensures maximum visibility of the pipe invert, reduces the risk of equipment loss, and provides a clear baseline of structural integrity and debris accumulation without the interference of storm-related inflow and infiltration.
FISCAL/RESOURCE IMPACT
Funding for the first year of the contract is included in the FY 2027 Wastewater Collection Capital Budget under WC-26001 (Closed Circuit Television Sewer Main Inspection), subject to City Council approval. Funding for subsequent years is contingent upon Council appropriation Item 9
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0 and approval of funds through the annual budget process. The total project cost of $938,452 includes total basic services of $853,139 and $85,313 (10%) for optional additional services, if deemed necessary by the City, over three years.
Breakdown of Three-Year Contract Costs for CCTV Inspection (WC-26001) Table 3: Three-Year Contract Costs for CCTV Inspection
Fiscal Year (FY) CCTV Inspection (not to exceed)
2027 $292,037
2028 $273,449
2029 $287,653
Subtotal $853,139
Additional Services $85,313
Total $938,452
In accordance with the City’s Purchasing Manual, Section 8.8 Additional Services states that Additional Services are available to the City’s project manager to cover changes, additions, or expansion to the original scope of work which for this project may include performing up to an additional 4 miles of CCTV and unanticipated additional sewer main cleaning to facilitate CCTV.
STAKEHOLDER ENGAGEMENT
The key stakeholders for this project include the Utilities Department and Office of Transportation. Engagement strategies include Utilities Department Division meetings, planning, coordination meetings, and work reviews with other departments.
ENVIRONMENTAL REVIEW
Council action on this item does not require California Environmental Quality Act (CEQA) review because the proposed actions to assess conditions and prepare pipeline assessment reports does not meet the definition of a “project” under CEQA Guidelines section 15378, as it has no potential to result in a physical change to the environment. The pipe repair work, which the proposed action relates to, was previously evaluated under CEQA prior to approval and was found to be categorically exempt under CEQA Guidelines Section 15301 (repair, maintenance, or minor alteration of existing public facilities involving negligible or no expansion of existing or former use).
ATTACHMENTS
Attachment A: Presidio Systems, Contract No. C27196575
Attachment B: 3-year CCTV Bid Summary
APPROVED BY:
Alan Kurotori, Director of Utilities
Item 9
Item 9 Staff Report
Item 9: Staff Report
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Professional Services
Rev. Oct 16,2024