City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Administrative Services
Meeting Date: June 15, 2026
Report #:2512-5698
TITLE
PUBLIC HEARING: Adoption of an Ordinance Adopting the Operating and Capital Budgets, Revised Table of Organization, and Municipal Fee Schedule for Fiscal Year 2027; Adoption of a Resolution Proposing the Appropriations Limit for Fiscal Year 2027 - State Law/ City Charter; Accept the Bi-Annual Actuarial Valuation Report of Palo Alto's Retiree Healthcare and Other Post-Employment Benefits (OPEB) as of June 30, 2025 and Approve Annual Actuarially Determined Contribution for Fiscal Years 2027 and 2028; Authorize the City Manager or their Designee to Negotiate and Execute a Memorandum of Understanding and Funding Agreement (or Lease Agreement Amendment) with the Palo Alto Museum to Provide Cost Sharing for Repairs to the Basement and Waterproofing in the Roth Building and Improvements to Heritage Park Drainage
RECOMMENDATION
The Finance Committee and Staff recommend that the City Council hold a public hearing to:
1. Adopt the Fiscal Year 2027 Budget Ordinance (Attachment A), which includes:
City Manager’s Fiscal Year 2027 Proposed Operating and Capital Budgets, previously distributed at the May 4th City Council Meeting (Attachment A, Exhibit 1) Amendments to the City Manager’s Fiscal Year 2027 Proposed Operating Budget (Attachment A, Exhibit 2)
Amendments to the City Manager’s Fiscal Year 2027 Proposed Capital Budget (Attachment A, Exhibit 3)
Fiscal Year 2027 City Table of Organization (Attachment A, Exhibit 4) Fiscal Year 2027 Municipal Fee Changes (Attachment A, Exhibit 5)
2. Accept the Fiscal Year 2027 – 2031 Capital Improvement Program (CIP)
3. Adopt a Resolution determining the Appropriations Limit for Fiscal Year 2027 (Attachment B)
4. Accept the June 30, 2025 actuarial valuation of Palo Alto's Retiree Healthcare Plan and fund the annual Actuarially Determine Contribution (ADC) for Fiscal Year 2027 and 2028
5. Authorize the City Manager or their designee to negotiate and execute a Memorandum of Understanding and Funding Agreement (or Lease Agreement Amendment) with the
Palo Alto Museum to provide cost sharing for repairs to the basement and waterproofing in the Roth Building and improvements to Heritage Park drainage.
EXECUTIVE SUMMARY
The FY 2027 Adopted Budget will be $1.04 billion including the General Fund Budget of $312.0 million and capital budget across all funds of $316.8 million. The five-year 2027-2031 Capital Improvement Program (CIP) is $1.2 billion. Compared to the proposed budget, General Fund expenses overall increased by $0.9 million, offset by the recognition of estimated new revenue and a reduction of the general fund transfer to the CIP. This net adjustment reflects the combined actions including: restoring partial funding for school crossing guards and Track Watch rail crossing monitors contingent upon PAUSD matching funds, sustaining the Oversized Vehicle (OSV) program at Geng Road alongside enhanced towing capacity, providing a direct allocation to Option C of the Non-Profit Work Plan, capturing target operational savings from Junior Museum & Zoo hourly position reductions, and other technical adjustments. The capital budget across all funds had a net increase of $2.1 million compared to the proposed budget.
This budget recommends citywide staffing levels of 1,089.10 FTE in FY 2027. This is a net increase of 1.00 full-time FTE. Additionally, a reduction of 0.48 FTE Zoological Assistant, a part- time a part-time temporary position, is recommended from the proposed budget.
This memorandum provides all necessary documents and transactions for the City Council adoption of the Fiscal Year (FY) 2027 Operating Budget, Capital Budget, and Municipal Fee schedule effective July 1, 2026, unless otherwise regulated. This action reflects two months of public dialogue by the Council and Finance Committee and provides a summary of all changes to the City Manager’s FY 2027 Proposed Budget received by the Council on May 4, 2026. The necessary supporting documents for formal adoption by the City Council include the FY 2027 Budget Ordinance and the Table of Organization, and Resolution for Appropriations Limit for FY 2027.
On May 19, 2026, the Finance Committee (Staff Report #: 2605-63391) recommended the City Council adopt the FY 2027 budget inclusive of the Final Recommended Changes (and technical changes) section of this memorandum. The Finance Committee voted unanimously (3-0) to recommend adoption of the Operating and Capital Budgets, the Municipal Fee Schedule, and the FY 2027-2031 Capital Improvement Program as amended. However, the motion to fund the approved City Council Administrative Assistant pilot program with FY 2026 funds through December 2026 was split for the purposes of voting and passed on a 2-1 vote. All changes to the Proposed Budget recommended by the Finance Committee are detailed for the FY 2027 Operating Budget, by fund and by department, in Attachment A, Exhibits 2 and 3. 1 Finance Committee, May 19 2026; Agenda Item #1; SR #2605-6339 https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=88191&dbid=0&repo=PaloAlto&searchid=ab93b1d 7-9fab-454a-afcb-bedc8a387cdc
The City continues to make infrastructure a priority through capital project investments in FY 2027 and through the 2027–2031 Capital Improvement Program (CIP). The FY 2027 budget includes projects to maintain current infrastructure such as streets, sidewalks, and facilities as well as enterprise funded capital needs such as electric, gas and water distribution networks and substantial improvements at the Regional Water Quality Control Plant. The 2027–2031 CIP also includes projects to upgrade the City’s infrastructure by accelerating design and construction timelines for key rail crossing Quiet Zone improvements, implementing regional transportation and bicycle pathway enhancements, and continuing multi-year investments in grid modernization and public safety facilities.
At the conclusion of the Finance Committee Budget Hearings, no referrals were recommended as part of staff’s workplan for FY 2027 for Council consideration.
FY 2027 Appropriation Limit
Also included in this staff report is the approval of the FY 2027 Appropriations (Gann) Limit that is required under Article XIIIB to the California State Constitution, as amended by Proposition 98 in 1988 and Proposition 111 in 1990 (Attachment B). The appropriations limit for Fiscal Year 2027 is $246.8 million with net budgeted appropriation subject to the limit of $168.21 million.
The budgeted appropriations are estimated to be $78.59 million under the limit (Attachment B, Exhibit 1).
Actuarial Report of Retiree Healthcare and Other Post-Employment Benefits (OPEB) The City of Palo Alto provides a Retiree Healthcare benefit plan administered by CalPERS. Every two years, staff contracts with an independent actuary to evaluate the plan's status. This actuarial report establishes baseline assumptions to calculate the annual Actuarially Determined Contribution (ADC) and guide trust pre-funding in accordance with Council policy.
The report was provided to Finance Committee on May 19 (Staff Report #: 2512-5689). 3
BACKGROUND
The City Charter requires the City Manager prepare and submit to the Council a budget that provides a clear and complete financial plan for all City activities proposed for the coming budget cycle, or fiscal year. The FY 2027 Proposed Operating and Capital Budgets were released April 24, 2026 and transmitted to the City Council at their meeting on May 4, 2026. These documents represent the planned expenditures and revenues for FY 2027 for the various fund types that constitute the City’s Budget: General Funds, Capital Funds, Enterprise Funds, Internal Service Funds, Special Revenue Funds, and Debt Service Funds. The budget documents contain 3 Finance Committee, May 19, 2026; Agenda Item #2; SR #2512-5689 https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=88190&dbid=0&repo=PaloAlto&searchid=d9f6aacd -de03-4347-9eca-ef790f500ab0
an overview section with descriptions of each of these fund types and detailed information of the revenues and expenses for each fund as well as for each individual department.
The FY 2027 Proposed Operating and Capital Budgets May 4, 2026 Council Study Session presentation provided an overview of the budget for review and discussion, including Citywide budget strategies, assumptions used in budget development, and a summary of service adjustments. As part of this discussion, the City Council provided guidance to the Finance Committee for their review of the budget documents during hearings on May 5, 6, and 19.
The Finance Committee review of operating and capital budgets is structured around public hearings conducted prior to the City Council adoption to complete a detailed review of the budget documents and to incorporate opportunities for community input into the decision- making process. These meetings are organized by service area and include presentations by each City department to highlight areas of emphasis for their respective department and fund(s). The Finance Committee reviews individual budget sections for tentative approval of the budget, potential amendments, and requests for additional information to aid in their review.
Staff held an additional study session on May 11 to check in with the City Council for their feedback before the final budget wrap meeting on May 19. At the conclusion of these hearings (Budget Wrap-Up), the Finance Committee is ultimately tasked to provide recommendations to amend the Proposed Operating and Capital Budgets and Municipal Fee Schedule for City Council consideration. These amendments, and additional information recommended for City Council review, are included in this adoption memorandum.
This memo also includes three additional actions. Two of the actions result in a complete and comprehensive adopted budget approval: the establishment of the statutory Fiscal Year 2027 Appropriations Limit and the acceptance of the bi-annual OPEB Actuarial Valuation Report, with the verified Actuarially Determined Contribution for Fiscal Year 2027 having been fully integrated into the final Adopted Budget. The third authorizes the City Manager to negotiate and execute a Memorandum of Understanding and Funding Agreement with the Palo Alto Museum to provide cost sharing for repairs to the basement and waterproofing in the Roth Building and improvements to Heritage Park drainage.
The City Council adoption of the City Manager’s FY 2027 Proposed Operating and Capital Budgets and FY 2027 Municipal Fee Schedule, including the amendments summarized in the Budget Wrap-up Memorandum on May 19, 2026 (Staff Report #: 2605-6339)5, will represent the ratification of the amendments that were approved by vote through the budget hearings. These amendments include all changes to the Table of Organization. A comprehensive list of meeting materials issued during Finance Committee budget hearings is available on the City website, www.paloalto.gov/budget.
5 Finance Committee, May 19, 2026; Agenda Item #1; 2605-6339, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=88191&dbid=0&repo=PaloAlto&searchid=cd9f5ca8- 35aa-47ce-9a87-5d6c17516935
ANALYSIS
This report is organized by the following sections:
FY 2027 Final Recommended Changes: A summary of final direction given by the Finance Committee on May 19th and additional recommended technical and staff adjustments organized by fund type.
Table of Organization: A summary of additional changes to the Table of Organization because of adjustments made to the proposed budget that was presented to City Council on May 4, 2026.
Municipal Fee Schedule: A summary of the changes in the review and recommendations to Council for the FY 2026 Municipal Fee Schedule for incorporation in the FY 2027 Proposed Budget (Staff Report #: 2604-6297).7
FY 2027 Utility Rate Changes: A brief overview of the rate changes reviewed by the Utilities Advisory Commission and Finance Committee and the final decision the City Council will make on June 15, 2026; each of these rate changes are included in the FY 2027 budget assumptions.
FY 2027 Appropriation Limit Resolution: Review and approval of a resolution based on California Article XIIIB to the State Constitution, as amended by Proposition 98 in 1988 and Proposition 111 in 1990. The provisions of this article place limits on the amount of revenue that can be appropriated by all entities of government. Attachments: Attached to this report are several documents as outlined and referenced throughout the recommendation language and the report. In addition, links to all the materials presented throughout the budget process to the City Council such as staff reports, At Places Memorandums, presentations made during the budget hearings, and transcripts from City Council Budget Hearings are included.
Although Council only adopts the budget for the upcoming Fiscal Year, the FY 2027 Proposed Budget continues the practice of outlining a long-range balancing strategy, while investing in priority services, infrastructure, and saving for long-term liabilities. The strategy includes revenue enhancements, limiting or reducing ongoing costs and looking for innovations to mitigate the potential for greater future deficits. While there are continued unknowns and uncertainties ahead, the FY 2027 Budget offers the Council, community, and staff the ability to address community priorities while reducing expenses working toward an ongoing balanced financial strategy.
FY 2027 FINAL RECOMMENDED CHANGES
This section reviews amendments to the FY 2027 Proposed Operating and Capital Budgets presented to the City Council on May 4th, including final adjustments recommended by the 7 Finance Committee, May 6, 2026; Agenda Item #4; SR #2604-6297, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87994&dbid=0&repo=PaloAlto&searchid=9902123 d-9a2a-487e-841e-95ad41048777
Finance Committee and technical adjustments recommended by staff. A comprehensive list of these adjustments by Fund Type, Fund, and Department is included in Attachment A, Exhibit 2 for changes to the FY 2027 Operating Budget, and Attachment A, Exhibit 3 for funding recommended to be reappropriated from FY 2026 to FY 2027 to continue work on capital projects. Changes to the Table of Organization are discussed later in this memorandum, and an updated Table of Organization is included in Attachment A, Exhibit 4.
Overall, these amendments and technical adjustments will adjust the FY 2027 Citywide Budget from a total of $1.05 billion to $1.04 billion. Specifically, this reflects a $1.8 million, or 0.2%, decrease compared to the FY 2027 Proposed Budget across all funds. In addition, amendments to the budget include an increase from the FY 2027 Proposed Budget of net 1.00 FTE full-time staff, an Assistant Engineer in the Office of Transportation and a decrease of one 0.48 FTE part-time staff. These actions result in a total of 1,089.10 full-time positions (592.86 FTE in the General Fund).
OPERATING BUDGET
OPERATING BUDGET – General Fund
Overall, the City’s General Fund FY 2027 budget is recommended to have $312.0 million in revenues, $311.8 million in expenses, and $0.2 million in transfers. This budget addresses the financial challenge through multi-year comprehensive budget balancing strategies including spending reductions focused on greater government efficiencies where cost allocations are realigned to the appropriate funds to reduce reliance on the General Fund and major contracts and appropriations are thoroughly reviewed. Revenue enhancements maximize revenues by reflecting the higher investment earning yield from the recently updated investment policy and portfolio management change. To maintain service continuity, the strategies utilize one-time funding from Measure B, Stanford University Medical Center development agreement final proceeds, and the Hamilton Avenue Benefit Fund to sustain essential community and senior programming. Furthermore, the plan incorporates a CIP reduction that reduces capital funding from projected to appropriated levels, alongside proactive pension cost and liability management using the Section 115 Pension Trust to reduce pension costs and liability.
Budget Stabilization Reserve
The FY 2027 Proposed Budget recommended retaining the BSR at $53.7 million or 17.4% of General Fund Expenditures for FY 2027. As part of the budget actions recommended for adoption by the Finance Committee, the BSR will be maintained at $53.7 million; however, due to the increased budget of $312.0 million, the BSR is projected at 17.2%. This is still below the
18.5% target level, but within the Council’s recommended range of 15-20% of General Fund Expenditures. Staff anticipates a sales tax prior year one-time adjustment will be more favorable than assumed in this financial plan, which may improve the BSR by $2.0 million bringing it to a projected $55.7 million or 17.9% of General Fund expenditures.
Finance Committee Recommended Adjustments
Throughout budget hearings in May, the Finance Committee engaged in several meetings to review proposed budget documents and recommend tentative adjustments. Two of these adjustments will leverage FY26 budget funding via reappropriations. They include $30,000 for the City Council Administrative Assistant pilot program and $150,000 to support oversized vehicle compliance and enforcement work performed by the Office of Transportation. Table 1 summarizes the Finance Committee General Fund recommended adjustments to the proposed budget.
TABLE 1: FY 2027 General Fund Recommended Budget Adjustments Dept Descriptions FY27
Revenue
FY27
Expense
FY27 Net
Revenue/
(Expense)
FY28/
Ongoing
(Savings)
CSD
JMZ Conservation Costs and explore
utilizing existing conservation programs
to fulfill the AZA requirements to the
extent possible | Reduce Hourly Positions
- (64,000) 64,000 (64,000)
POL School Crossing Guards | Contingent
upon 50% match from PAUSD 51,250 102,500 (51,250) TBD
POL Track Watch | Contingent upon 50%
match from PAUSD (March - June) 307,715 615,430 (307,715) TBD NON
OSV - Geng Road parking site from Sept-
June ($200k) and additional towing
capacity to include ($184K) for
enforcement and street sweeping.
- 384,000 (384,000) TBD
NON Non-Profit Work Plan - Option C - 124,000 (124,000) TBD PWD
Adjust Canopy contract with total
reduction of $15,000 instead of the
$43,550 and direct staff to communicate
with Canopy regarding scope reductions
- 28,550 (28,550) 28,550
OOT
1.0 FTE Assistant Engineer - Office of
Transportation (leveraging $150K OSV
Reappropriations from FY26)
38,646 38,646 - TBD
OOT Quiet Zone – accelerate design to FY27
and construction to FY28 - 1,000,000 (1,000,000) N/A
NON TOT Revenue Increase and Increase of CIP
Transfer 542,000 542,000 - N/A
NON General Fund Base Transfer to CIP
Decrease - (460,059) 460,059 N/A
NON Use of Measure K | Affordable Housing - (384,000) 384,000 N/A NON Use of Measure K | Transportation - (1,000,000) 1,000,000 N/A Dept Descriptions FY27
Revenue
FY27
Expense
FY27 Net
Revenue/
(Expense)
FY28/
Ongoing
(Savings)
NON Technical Adjustments (net aggregated to
balance) - 12,544 (12,544) N/A
Total 939,611 939,611 -
While the City adopts an annual budget, Finance Committee made recommendations for FY 2027 in consideration of our multi-year budget balancing strategy to reduce the City’s multi- year budget deficit. Table 2 reflects the updated forecast:
TABLE 2: General Fund Long-Range Financial Plan Summary *FY2029 does not reflect fiscal impact of bi-annual OPEB actuarial fluctuation, which staff roughly estimates an additional $2 million of expense appropriation.
While the adjustments in Table 1 above outline the immediate balancing framework for Fiscal Year 2027, there are services and programs not integrated into the City’s formal Long-Range Financial Forecast (LRFF) beyond the upcoming fiscal year within Table 2, as the formal LRFF is published annually in December. In the interim, a preliminary LRFF is published and shown as Table 2. However starting in FY 2028, these programs present an ongoing deficit risk to the General Fund that varies based on the status of Palo Alto Unified School District matching funds. With the 50% cost-share maintained, the ongoing deficit exposure to the General Fund increases by approximately $1.41 million annually, which includes $51,250 for crossing guards and current $854,156 share of the full $1.70 million full fiscal year cost for the Track Watch contract, alongside the fully absorbed $384,000 oversized vehicle program and $124,000 non- profit allocation. Without the school district cost-share, the deficit exposure increases by approximately $2.31 million annually. These costs will be considered during the next update of the LRFF and especially FY 2028 budget development.
OPERATING BUDGET – Other Funds
Actuarial Report of Retiree Healthcare and Other Post-Employment Benefits (OPEB) The City of Palo Alto provides a Retiree Healthcare benefit plan administered by CalPERS. Every two years, staff contracts with an independent actuary to evaluate the plan's status. This actuarial report establishes baseline assumptions to calculate the annual Actuarially Determined Contribution (ADC) and guide trust pre-funding in accordance with Council policy.
Line Item FY 2027
Forecast
FY 2028
Forecast
FY 2029*
Forecast
Revenue $312.0 $318.7 $329.2
Expenses $311.8 $322.7 $331.1
Transfers (Measure K) $0.2 $(2.3) $1.3
Projected Net Surplus / (Deficit) - $(1.7) $(3.2)
On May 19, 2026 the Finance Committee reviewed and accepted the June 30, 2025 actuarial valuation of Palo Alto’s Retiree Healthcare Plan and recommended funding the annual ADC for Fiscal Year 2027 and 2028 (Staff Report #: 2512-5689).9 The FY 2027 Budget includes an ADC of $26.1 million, an increase of $3.5 million from FY 2026 Adopted levels of $22.6 million. These costs were included in the FY 2027 Proposed Budget so this action does not require additional appropriation.
Community Development Block Grant (CDBG) Fund
The U.S. Department of Housing and Urban Development requires jurisdictions to prepare a five-year strategic plan, referred to as the Consolidated Plan, and an accompanying Annual Action Plan identifying projects and activities to be funded during the upcoming program year.
On June 1, 2026, the City Council adopted the FY 2026-2027 Annual Action Plan and approved the associated CDBG funding allocations recommended by the Human Relations Commission.
The FY 2027 Budget includes the associated appropriations and incorporation of these federally restricted funds within the CDBG for eligible community development activities benefiting low- and moderate-income residents.
Gas Tax Fund – Gas Tax Revenue Adjustment
This action is a technical update to increase Gas Tax revenue estimates for Palo Alto based on the California Department of Finance’s May 2026 updates for estimated Highway Users Tax Account (HUTA) and Road Maintenance and Rehabilitation Account (RMRA) taxes for FY 2027.
CAPITAL BUDGET
The City’s Capital Improvement Program reflects a $316.8 million FY 2027 budget, and a $1.2 billion program over the 2027-2031 five-year Capital Improvement Program (CIP). Of this, the Capital Improvement Fund FY 2027 budget reflects expected expense of $106.5 million and $390.8 million over the five-year CIP.
Capital Reappropriations
The Municipal Code requires City Council authorization to reappropriate funds for capital projects from one fiscal year to the next. The FY 2027 budget process continues this procedure, and the FY 2027 Proposed Capital Budget included approximately $142.0 million in reappropriated funds for project expenditures across all funds. In the time since the FY 2027 Proposed Budget figures, staff refined the FY 2027 estimated project activity levels and provided further updates to increase the reappropriations by $0.1 million, to $142.1 million across all funds. The additional reappropriation adjustments are summarized in Attachment A, Exhibit 3.
9 Finance Committee, May 19, 2026; Agenda Item #2; 2512-5689, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=88190&dbid=0&repo=PaloAlto&searchid=e07b77d 1-bb65-4a9f-9abc-790ee978c553&cr=1
Other Capital Project Adjustments
In addition to the reappropriations from FY 2026 to FY 2027, several capital projects need to be adjusted based on updated information that became available after the release of the FY 2027 Proposed Capital Budget or as a result of actions recommended in this memorandum. These adjustments are discussed below and summarized in Attachment A, Exhibit 2.
Capital Improvement Fund
-Art in Public Spaces (AC-86017): Ordinance no. 5301 stipulates that one percent (1%) of the CIP budget be set aside for public art, with certain exceptions. Annual adjustments to allocated amounts are made as the CIP budget changes, and the recommended action does so based on the 2027-31 CIP, reducing the previously programmed FY 2027 budget by $5,100.
-Bicycle and Pedestrian Transportation Plan Implementation (PL-04010): Consistent with Finance Committee action on May 5, 2026, the recommended action reallocates $240,000 of previously programmed FY 2027 expenditure and Measure B LSR revenue to the new Chimalus Shared Use Path (TR-28000) project for use in FY 2028. -Embarcadero Road Improvements (TR-26000): Consistent with Report #2604-6269, the recommended action adds $260,000 of expenditure and Measure B LSR revenue as the second year of funding for the project.
-Quiet Zone Improvements (TR-27000): Consistent with Finance Committee recommendation on May 5, 2026, the recommended action moves $1.0 million of design costs and Measure K revenue from FY 2028 to FY 2027.
-Roth Building Rehabilitation Phase 1 (PF-23001): Consistent with Finance Committee recommendation on May 19, 2026, transfer $250,000 from the Mitchell Park Library (PE- 24006) to Roth Building Rehabilitation (PF-23001) in case needed. -Heritage Parks Site Amenities Replacement (PG-21000): Consistent with Finance Committee recommendation on May 19, 2026, the recommended action prioritizes evaluating and utilizing the remaining funding in the project for Heritage Park drainage improvements related to Roth Building water intrusion.
Electric Fund
-Foothills Rebuild Fire Mitigation (EL-21001): The recommended action increases the budget by $1.8 million in order to complete the project in December 2026, supporting substructure work, installation of 10,000 feet of underground wire, and removal of 92 wood poles.
TABLE OF ORGANIZATION
During the budget process, changes to the City Table of Organization were processed through both Finance Committee policy recommendations and staff technical adjustments. The Finance Committee recommended adding a 1.00 FTE Assistant Engineer to the Office of Transportation to support the implementation of street safety and oversized vehicle programs. Separately, a adjustment was processed to reduce the addition of a part-time temporary 0.48 FTE Zoological Assistant in the Community Services Department. These specific actions, detailed in Attachment A, Exhibit 2, modify the baseline to establish a citywide staffing level of 1,089.10 FTE in FY 2027, which represents a net increase of 1.00 full-time FTE and a reduction of 0.48 part-time FTE from the previously proposed budget numbers. An updated Table of Organization is included in Attachment A, Exhibit 4.
MUNICIPAL FEE SCHEDULE
The 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 existing fees and incorporate previously approved fee actions into the Municipal Fee Schedule.
The Finance Committee reviewed the FY 2027 Proposed Municipal Fee Schedule and recommended approval as outlined in Staff Report #: 2604-629711, included in Attachment A, Exhibit 5.
FISCAL YEAR 2027 RATE CHANGES
An overview of the rate changes was reviewed and approved by the Utilities Advisory Commission (UAC) in April 2026 and Finance Committee on May 6, 2026. These rate changes integrated into the FY 2027 budget (as of this memo).
4.5% rate change for Electric (Finance Committee unanimous vote of 4.5% instead of proposed 6% rate increase change)
3.0% CPI increase for pre-2006 Dark Fiber customers
9.0% rate increase for Gas
3.0% rate change for Refuse
3.0% CPI increase for Stormwater
16.0% rate change for Wastewater
8.0% rate change for Water
The proposed rate changes will allow Palo Alto to invest in utility infrastructure, gradually increase reserves to guideline levels, and to support community goals. As utility infrastructure ages, investment is needed to maintain the reliability of the electric, gas, stormwater, wastewater, and water utilities. These rate increases will support the maintenance and replacement of infrastructure including rebuilding Palo Alto’s wastewater treatment plant (Regional Water Quality Control Plant). Investment in modernizing the electric grid will allow the City to achieve the Council’s Sustainability and Climate Action goals.
STAFF REFERRALS
During the Budget Hearings, various items were discussed that did not require additional appropriation but not ultimately approved by Finance Committee as formal Referrals for 11 Finance Committee, May 6, 2026; Agenda Item #4; SR #2604-6297, https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=87994&dbid=0&repo=PaloAlto&searchid=9902123 d-9a2a-487e-841e-95ad41048777
Council consideration. Staff will take into consideration their feedback as a part of FY 2028 budget development and/or work that may already be underway.
APPROPRIATIONS LIMIT FOR FISCAL YEAR 2027
California voters approved an initiative on November 6, 1979, that added Article XIIIB to the State Constitution, as amended by Proposition 98 in 1988 and Proposition 111 in 1990. The provisions of this article place limits on the amount of revenue that can be appropriated by all entities of government. The appropriation limit is adjusted annually on the basis of population and per capita income changes provided annually by the California Department of Finance.
Based on Article XIIIB, the City of Palo Alto can use the larger of two measurements of population growth, (county or city population growth) in the appropriations limit calculation.
For Fiscal Year 2027, the City is using the 2025-2026 percent change in population growth of the County of Santa Clara in the calculation. The City typically uses the highest factor in order to provide maximum appropriation flexibility.
The appropriations limit for Fiscal Year 2027 is $246.8 million with net budgeted appropriation subject to the limit of $168.21 million. The budgeted appropriations are estimated to be $78.59 million under the limit (Attachment B, Exhibit 1). As required by State law, documentation used to compute the appropriations limit has been made available to the public at least fifteen days prior to the Council meeting at which the appropriations limit is being adopted, and notice was published of the availability of these materials.
FISCAL/RESOURCE IMPACT
This report summarizes and seeks the City Council approval of the FY 2027 Operating and Capital Budgets, the supporting fee schedules, and table of organization to support the projections and appropriations included.
The approval of the City Manager’s FY 2027 Capital and Operating Budget, as recommended to be amended in this report, would result in a projected General Fund Budget Stabilization Reserve of $53.7 million. At $312.0 million, the BSR is at 17.2%, slightly below the Council’s target of 18.5% and within the recommended range of 15-20% of General Fund Expenditures.
Table 3 summarizes the projected changes to the fund balance for all other funds for budget amendments from Proposed to Adopted FY27 budget. This includes Capital Funds, Enterprise Funds, Internal Services Funds, and Special Revenue Funds, with detail in Attachment A Exhibits 2 and 3.
TABLE 3: Resource Impact of Amendments to Proposed Budget (Non-General Funds with Fund Balance Change)
Fund Type Fund Name Fund Balance Change
Capital Capital Improvement Fund ($373.8k)
Capital Infrastructure Fund $1.2k
Airport Fund $10.6k
Electric Funds $9,976.9k
Fiber Fund $13.9k
Gas Fund $2,413.5k
Refuse Fund $12.1k
Stormwater Management Fund $13.8k
Wastewater Collection Fund ($2,871.7k)
Wastewater Treatment Fund $178.3k
Enterprise
Water Fund $1,009.6k
Internal Service General Benefits Fund ($6,183.3k)
Liability Insurance Fund $0.7k
Printing & Mailing Fund $0.6k
Technology Fund $30.0k
Vehicle Replacement & Maintenance Fund $235.4k
Worker’s Compensation Fund $1.2k
Community Development Block Grant Fund ($565.0k)
Gas Tax Fund $132.k
Public Art Fund $1.0k
Housing In-Lieu/Residential Fund $0.1k
Housing In-Lieu/Commercial Fund $0.1k
Residential Preferential Parking Permits
Fund
$1.4k
University Avenue Parking Permits $12.8k
Special Revenue
California Avenue Parking Permits $6.5k
STAKEHOLDER ENGAGEMENT
The budget process is structured around public hearings conducted before City Council adoption to complete a detailed review of the budget documents and incorporate opportunities for community input in the decision-making process. The community was encouraged to engage with the budget process through scheduled public meetings with the Finance Committee and City Council, a community informational session with City staff, and direct emails to the City Manager and City Council. Additionally, the City maintains a dedicated webpage for meeting materials and other budget information13
ENVIRONMENTAL REVIEW
Adoption of the City budget and associated actions is not a project under California Environmental Quality Act (CEQA) Guidelines because it is a government fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. CEQA Guidelines Section 15378(b)(4).
ATTACHMENTS
Attachment A - FY 2027 Budget Adoption Ordinance
Attachment A, Exhibit 1 - Fiscal Year 2027 Proposed Budgets & Municipal Fee Schedule Attachment A, Exhibit 2 and 3 - Amendments to the Fiscal Year 2027 Proposed Budgets Attachment A, Exhibit 4 - Table of Organization
Attachment A, Exhibit 5 - Fiscal Year 2027 Municipal Fee Changes Attachment B - FY 2027 City Appropriations Limit Resolution Attachment B, Exhibit 1 - Appropriations Limit Calculation Attachment C - FY 2027 Summary of Stanford Investments
APPROVED BY:
Lauren Lai, Administrative Services Director
13 City’s Budget Website: www.cityofpaloalto.org/budget