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Finance CommitteeStaff ReportFrom: City ManagerReport Type: CONSENT CALENDARLead Department: Administrative ServicesMeeting Date: May 6, 2026Report #:2604-6297TITLEFY 2027 Proposed Municipal Fee Schedule RECOMMENDATION Staff recommends that the Finance Committee review amendments to the Municipal Free schedule for FY 2027 and make recommendations to Council for incorporation into the FY 2027 budget. EXECUTIVE SUMMARYThis report presents the annual update to over 950 fees as part of the budget process and highlights proposed changes to the FY 2027 Municipal Fee Schedule. The proposed changes include 13 new fees, the deletion of 62 fees, and adjustments to existing fees.Most fees are adjusted annually by the General Rate Increase (GRI) of 4.59% or applicable cost indices to reflect changes in the cost of service. This year’s adjustments also include the implementation of a credit card processing fee to recover merchant service costs and the incorporation of select Utility fees1 and all Airport fees into the Citywide Municipal Fee Schedule. Upon Council approval, the recommended Municipal Fees included here will be incorporated into the FY 2027 Adopted Budget and take effect July 1, 2026.BACKGROUNDThe City charges fees for a variety of services, including parking permits, building inspection services, and facility rentals, to ensure that the cost of service is borne by the users receiving the benefit. As part of the annual budget process, departments review and propose updates to 1 Council previously approved these connection and capacity fees on October 20, 2025, and the accompanying staff report explained how these fees would be incorporated into the Municipal Fe Schedule starting in FY 2027; Agenda Item #1, #2505-4736: https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=f6825375-8aac-44fd-bc66-1fde8593eeb3 Attachment A, Exhibit 5 Page 1 of 76
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the Municipal Fee Schedule, which are presented for Finance Committee review and subsequently adopted by the City Council.To ensure fees reflect the cost of service, the City periodically conducts cost of services studies in addition to making annual adjustments. Last year, the City completed a citywide Cost of Services Study and a focused Planning and Development Services fee study. Since their adoption, departments have continued to evaluate fees and, where appropriate, adjust them to better align with the full cost of providing services or move closer to established cost recovery targets, including through efforts such as the Palo Alto Airport Rates and Charges Study.3 In addition, the City is implementing a credit card processing fee to align transaction costs with users who elect to pay by credit card, applied where costs are not otherwise recovered. At the same time, the City recognizes that not all fees are intended to achieve full cost recovery. Recent discussions related to Planning and Development Services fees4 highlighted that, while fees can be established at full cost recovery based on cost of service analysis, the City Council retains discretion to subsidize certain fees based on policy objectives. In such cases, fees may be set below full cost to support policy objectives, improve accessibility, or incentivize desired outcomes. These policy-driven decisions are evaluated on a case-by-case basis and are reflected in the proposed fee adjustments.Utilities Department connection and capacity rate schedules (Utility Rate Schedule E-15 (Electric Service Connection Charges), G-5 (Gas Service Connection Charges), S-5 (Wastewater Service Connection Charges), W-5 (Water Service Connection Charges), and portions of C-1 (Miscellaneous Charges) will be incorporated into the Municipal Fee Schedule as part of this update, with no changes in the fee amounts. The connection and capacity fee rate schedules will be repealed as part of Council’s adoption of the Municipal Fee Schedule. Approved by Council on October 20, 2025, beginning in FY 2027, utility connection and service-related fee adjustments will follow the California Construction Cost Index (CCCI) as published by the California Department of General Services (DGS). Two new service call fees for unscheduled disconnection of gas services and removal of the meters have also been added. These fees reflect the Utility’s cost to disconnect gas service prior to construction to discourage unsafe or hazardous construction activities within 10 feet of a live gas service or meter. The responsible party will be responsible for the disconnection and/or removal fees and penalties.3 Finance Committee recommended that Council approve the FY 2027 Airport Rates and Charges Schedule, accept the Palo Alto Airport Rates and Charges Study, and authorize annual fee adjustments based on the Airport Benchmark Index (ABI) on April 21, 2026; Agenda Item #3, #2602-59234 Finance Committee discussed Planning and Development Services fee structures and cost recovery considerations on April 7, 2026; Agenda Item #2, #2511-5562: https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87767&dbid=0&repo=PaloAlto Attachment A, Exhibit 5 Page 2 of 76
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Additionally, the Staff recommended Airport Fees updates that were reviewed and recommended by Finance Committee on April 21, 2026 will be incorporated into the Municipal Fee Schedule as a part of this update, repealing previously separate rate schedules.These updates are guided by the City’s User Fee Cost Recovery Level Policy, which was last updated by Council in FY 2019 and establishes the framework for aligning fees with the cost of service. Table 1: Summary of Municipal Fee Cost Recovery Policy This annual report brings forward amendments to the Municipal Fee Schedule organized into three categories(1) New fees,(2) Deletion of existing fees, and(3) Changed fees to attain a cost recovery level consistent with other fees or based on amarket study for similar services.
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ANALYSIS The development of the Municipal Fee Schedule for FY 2027 reflects some department service realignments as most fees across the City have been updated to maintain cost recovery levels. The General Rate Increase (GRI) for FY 2027 is 4.59% and reflects a combination of increases in salaries and benefits as well as inflationary factors. This rate is applied to most fees to maintain current cost recovery levels, consistent with City policy. Fees that were updated by a factor greater or less than 4.59% to achieve a different cost recovery level or based on staff recommendation are further detailed in Attachment A.New FeesAs identified in Table 2 below, thirteen (13) new fees are recommended to be added to the FY 2027 Municipal Fee Schedule. For Airport and Utilities, this table includes only newly established fees; other fees are incorporated into the Municipal Fee Schedule as part of this update.Table 2. New Fees for FY 2027DepartmentFee TitleFY 2027 Proposed FeeCostRecovery LevelAdministrative ServicesCredit Card Service Fee2-3% of transaction; actual amount will be based on percentage charged to CityHighCommunity Services Leptospirosis Vaccine$45.00 per petHighCommunity ServicesFeLV Vaccine$45.00 per petHighCommunity ServicesFluid Therapy - SQ $50.00 - 75.00 each HighCommunity ServicesMedication$15.00 - $250.00 eachHighCommunity ServicesSedation/Anesthesia $150.00 - $350.00 HighCommunity ServicesSurgery, Preparation and Recovery$550.00 - $1,650.00 per hourHighUtilitiesUnscheduled Gas Disconnection Service Call - After Hours$9,798 per mobilizationHighUtilitiesUnscheduled Gas Disconnection Service Call - Weekend$13,065 per mobilizationHighAirportTransient Aircraft Landing Fee $3/1000lbs MTOW per landingHigh Attachment A, Exhibit 5 Page 4 of 76
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DepartmentFee TitleFY 2027 Proposed FeeCostRecovery LevelAirportAutomobile Parking Citation Fee$57 per occuranceHighAirportHangar Ground Lease Origination / Transfer Fee2% of sale of assessed value per agreementHighAirportExpired Certification of Insurance Fee$50 per monthHighDeleted FeesA total of 62 fees are proposed for deletion as part of this update. These fees are no longer applicable, have been consolidated, or are administered by external entities. Examples include the veterinary and massage establishment fees. A complete list of deleted fees and associated justifications is provided at the end of Attachment A. Changed Fees241 fees are recommended to be adjusted by a factors other than the General Rate of Increase or applicable cost indices, including, but not limited to: (1)Attain a cost recovery level consistent with other fees;(2)Align with a market study; (3)Modify the fee structure to align with current service delivery; or(4)Hold the fee flat to avoid discouraging use of the service of activityConsistent with ongoing cost-of-service efforts, departments have continued to evaluate service costs and revenues and, where appropriate, adjust fees to better align with cost recovery targets; as a result, some fees in this section reflect increases.Each fee is listed by name along with the Adopted FY 2026 rate, the Proposed FY 2027 rate, and the fee change justification in Attachment A. Parking In-Lieu feesPalo Alto Municipal Code (PAMC) Chapter 16.57.030 requires that the Parking In-Lieu Fee be recalculated in the event the City Council approved the construction of a public parking structure. Per the Municipal Code, the fee shall be adjusted at the time the construction contract is awarded to include actual costs to date, plus the projected construction cost, and authorized contingency. A second recalculation must occur after the project is completed, based on actual design and construction costs incurred. The recalculated fee may be higher or lower than the initial fee. In December 2018, Council awarded a construction contract to Swinerton Builders (CMR 9688) for the California Avenue Area Parking Garage. The total project cost was calculated per PAMC 16.57.030 and includes design costs plus additional services, the construction bid with authorized Attachment A, Exhibit 5 Page 5 of 76
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contingency, and all other staff and administrative costs incurred. This calculation was done and approved as part of the Fiscal Year 2020 budget development process (CMR 10225). The cost per parking space was calculated at $106,171 for the Fiscal Year 2020 Adopted Municipal Fee Schedule. The California Avenue Parking Garage was completed and opened in December 2020. Staff has completed all project close-out documents and recalculated the Parking In-Lieu Fee at $105,811. After adding the appropriate construction cost indexes for the San Francisco Bay Area for Fiscal Year 2021 through Fiscal Year 2026, the revised fee was set at $130,823. Adding the respective construction cost index for FY 2027 brings the fee to $131,634.Development Impact and In-Lieu FeesIn the Planning and Development Services Department, impact fees (i.e., community center, park, library, and citywide transportation impact fees) and in-lieu fees were increased by 0.62% percent to reflect the most recently published Construction Cost Index (CCI) for the San Francisco Bay Area, as calculated by the Engineering News Record. This is in accordance with Municipal Code 16.64.110, as amended on November 28, 2016 (CMR 7518), to standardize when these fees are paid, bring uniformity to the calculation in effect, bring uniformity to the annual adjustment rate, and other updates. Since these fees are governed by the applicable Municipal Code section, they are not discussed in Attachment A.FISCAL/RESOURCE IMPACT This action aligns fees with expense increases associated with these services. It works to ensure the City can maintain cost recovery levels, and is part of the FY 2027 Proposed Operating Budget.POLICY IMPLICATIONSThese recommendations are consistent with existing City policies. Where a fee or charge is subject to Proposition 26, voter approval is required to adopt the fee, unless the amount of the new or increased fee is no more than necessary to cover the reasonable cost of the City service, and the fee represents a reasonable relationship to the payer’s burden on, or benefits received from, the City service funded by the fee. Certain types of fees, such as fines, penalties and/or late charges, or charges imposed for entrance to or use of, as well as the purchase, rental, or lease of local government property, are generally not limited to the actual costs of providing service. Instead, these types of fees are more typically governed by local market rates, reasonableness, and policy factors. These types of fees may have rates that are higher than the full cost recovery level.STAKEHOLDER ENGAGEMENT Attachment A, Exhibit 5 Page 6 of 76
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Staff has coordinated internally with budget and management staff in each department citywide to develop the recommendations in this report. Conversations with the City Council throughout May and June prior to the adoption of the FY 2027 Operating and Capital Budgets and Municipal Fee Schedule allow for public participation in this annual process.ENVIRONMENTAL REVIEW Adjustment to the Municipal Fee Schedule is a governmental fiscal activity that does not involve any commitment to any specific project, and therefore does not constitute a “project” pursuant to CEQA regulation 15378(b)(4). ATTACHMENTS Attachment A: Municipal Fee Schedule Amendments for FY 2027 Changed and Deleted FeesAttachment B: List of all Utility Fees Moved to Citywide Municipal Fee ScheduleAttachment C: Palo Alto Airport Rates and Charges Study Summary of Fee Changes to be Incorporated into the Municipal Fee ScheduleAPPROVED BY: Lauren Lai, Administrative Services Director Attachment A, Exhibit 5 Page 7 of 76
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