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City Council
Staff Report
From: City Manager
Report Type: INFORMATIONAL REPORT
Lead Department: Administrative Services
Meeting Date: June 15, 2026
Report #2512-5697
TITLE
Third Quarter Fiscal Year 2026 Financial Status Report
RECOMMENDATION
This report is informational and does not require action by the City Council.
EXECUTIVE SUMMARY
The purpose of this report is to provide the City Council with information on the financial status of the City’s General Fund and Enterprise Funds through the end of the third (3rd) quarter of Fiscal Year (FY) 2026 (January 1, 2026, through March 31, 2026). The figures presented in this report are unaudited.
Third-quarter results for the General Fund are consistent with historical trends, and it is expected that the fund will meet the adjusted budget. Staff will continue to review revenues and expenditures against the budget and bring forward information, when available, regarding budget-to-actual variances. As of the end of March, 67.4% of the adjusted revenue budget (before operating transfers) was received and 75.3% of the adjusted expenditure budget (including pre-encumbrances and encumbrances, before operating transfers) was spent.
Revenues typically trend lower than 75% in the third quarter primarily due to seasonality of the City’s major tax revenues, specifically property tax and sales tax. Property and sales tax revenues are received unevenly throughout the year, with property tax distributions from the County occurring primarily in the second through fourth quarters. Sales tax revenues reflect seven months of collections due to consistent timing lags in the State’s collection and distribution process. Additional details regarding seasonality and timing are included in the General Fund Property Tax and Sales Tax sections in this report.
General Fund expenditures through the third quarter are below the prior fiscal year and are currently projected to remain within the FY 2026 Adjusted Budget. A portion of the year-over- year decrease in salaries and benefits is attributable to timing and accounting allocation differences related to pension and medical benefit costs rather than year-over-year reduction
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in operational expenditures. In FY 2025, certain employee benefit allocations were recognized later in the fiscal year, whereas FY 2026 reflects a more consistent quarterly allocation methodology. These timing differences are expected to normalize through year-end and are not anticipated to materially impact total annual expenditure levels.
The Budget Stabilization Reserve (BSR) is $53.8 million and is projected to remain at this level through year end, which is 17.2% compared to the Adopted Budget. This level is slightly below Council’s 18.5% target, but it is within the policy’s 15-20% range.
A majority of the Enterprise Funds reported a positive change in net position through the third quarter of FY 2026, which is expected because of increases in the FY 2026 rates to replenish reserves. The Electric and Fiber Optic funds reported a lower positive change in net position compared to the prior year due to higher capital spending for the electric grid modernization and fiber-to-the-premises projects. In total, Enterprise Funds increased by $10.9 million, or
16.3%, compared to the same period in the prior fiscal year, with results varying across funds.
Refer to the Enterprise Fund section for more details.
BACKGROUND
Staff provides quarterly financial reports to ensure visibility of the City’s financial status. Staff previously provided the Mid-Year Budget Review in February 20261, which reported the financial status of major funds and the Capital Improvement Program as of the second quarter (Q2) and recommended adjustments to the Adopted Budget. This third quarter financial report covers financial activity for the period July 1, 2025 through March 31, 2026, and compares results to the same period in the prior fiscal year and to the FY 2026 Adjusted Budget. In the discussion of the major tax revenue categories below, staff generally indicates how each category is trending compared to the adjusted budget. This report serves as a financial status update and does not include any budgetary adjustments for FY 2026.
ANALYSIS
General Fund
The General Fund 3rd Quarter Financial Report (Attachment A) contains a summary of major General Fund revenues by source and expenditures by department and the comparison between the FY 2026 Adopted Budget and Adjusted Budget. The Adjusted Budget column includes prior year commitments that were carried forward into FY 2026 and the City Council approved amendments to the FY 2026 Adopted Budget Year-to-Date (YTD).
Revenue Highlights for FY 2026 3rd Quarter YTD
The Adjusted Budget for Revenues and Other Sources (excluding Operating Transfers-in) totals $262.0 million, reflecting a $7.7 million (2.9%) decrease from the FY 2026 Adopted Budget of 1 February 23, 2026 Council Meeting Item #8, Report # 2512-5662:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86652&dbid=0&repo=PaloAlto&searchid=40c482af -1ed8-49eb-b477-c51c9088ae03
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$269.7 million. The net reduction is primarily driven by a $9.0 million decrease in Sales Tax and a $1.3 million decrease in Property Tax, partially offset by increases in revenue from other agencies (+$1.5 million), permits and licenses (+$0.4 million), and charges for services (+$0.2 million), along with (+$0.5 million) modest gains in business tax and other revenues. This decrease includes reappropriations, encumbrances, and budget amendments. These changes can be viewed on City’s website3.
Revenue collected before Operating Transfers-in, totaled $176.6 million, or 67.4% of the adjusted budget, a 6.7% increase compared to $165.5 million collected through the third quarter of the prior fiscal year.
Table 1 highlights the City’s major revenue sources for the 3rd Quarter Year-To-Date (YTD), compared to the same period of the prior fiscal year. Revenues are expressed as a percentage of the Adjusted Budget.
Table 1: General Fund Revenue
3 Budget Adjustments and Monitoring
https://www.cityofpaloalto.org/Departments/Administrative-Services/Budget-Adjustments-and-Monitoring Revenues FY 2026 Inc / (Dec) % change FY 2026 % FY 2025 % Property Tax $41,741 ($2,185) -5.0% $72,327 57.7% $68,319 64.3% Charges for Services 29,793 4,956 20.0% 44,499 67.0% 39,112 63.5% Sales Tax 21,925 1,314 6.4% 27,377 80.1% 35,588 57.9%
Transient Occupancy Tax 18,619 1,310 7.6% 29,139 63.9% 28,345 61.1% Utility User Tax 15,267 1,101 7.8% 21,437 71.2% 21,489 65.9% Permits, Licenses and Other Fees 8,819 2,130 31.8% 11,065 79.7% 10,877 61.5% Documentary Transfer Tax 6,599 1,185 21.9% 8,542 77.3% 8,550 63.3% Business Tax 3,540 851 31.6% 6,738 52.5% 5,250 51.2%
All Other Revenue Sources 30,270 406 1.4% 40,869 74.1% 43,259 69.0% Total Revenue $176,573 11,068 6.7% $261,993 67.4% $260,789 63.5%$165,505 6,689
5,414
29,864
2,689
24,837
17,309
14,166
$43,926
20,611
3rd Quarter Actuals Adjusted Budget
FY 2025
FY 2026 3rd Quarter YTD
(000's)
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Property Tax
At the close of the 3rd quarter, property tax revenue receipts were $41.7 million, or 57.7% of the adjusted budget, and a decrease of 5.0% over the same period in the prior fiscal year due to timing differences in recording revenue. Based on remittances received from Santa Clara County, after adjusting for these timing differences the underlying property tax revenues through April are 4.6% above prior year levels. Property tax revenues are received from the County of Santa Clara during the second, third, and fourth quarters of the calendar year. The compounded annual growth rate (CAGR) over the 5-year and 10-year periods for this revenue source is 6.3% and 7.4%, respectively.
At the FY 2026 Mid-Year review, the property tax revenue estimate was reduced by $1.3 million, from $73.6 million to $72.3 million, to align with the County of Santa Clara’s secured roll and assessed valuation data. With this adjustment, Property Tax revenues are still projected to increase year over year, though at a more moderate level than the Adopted Budget. Based on 3rd quarter results and County projections issued in May 2026, revenues are expected to meet the revised year-end estimate.
A portion of Excess Educational Revenue Augmentation Fund (ERAF) distributions remains subject to State audit findings on calculation methodology. Approximately 18% of Excess ERAF is considered at risk. To mitigate these potential losses, the City budgets excess ERAF net of the amount at risk and reserves at-risk amounts when received. The ERAF Reserve balance is $7.1 million as of June 30, 2025, with an additional contribution of approximately $1.5 million anticipated in FY 2026 based on current estimates. As of the publication of this report, the court judgment remains pending.
Sales Tax
Due to the timing of sales tax collection and distribution by the California Department Tax and Fee Administration (CDTFA), third quarter sales tax only reflects seven months of sales activity (through January) and does not represent the full three quarters of the fiscal year. Actual year- end performance will be known in August.
As of the third quarter, sales tax revenue totaled $21.9 million, 80.1% of the adjusted budget, and a $1.3 million or 6.4% increase, compared to the same period in the prior fiscal year.
At the FY 2026 Mid-Year review, the sales tax revenue estimate was reduced by $9.0 million (estimated $5 million ongoing and $4 million one-time), from $36.4 million to $27.4 million, to reflect with an updated allocation methodology used by CDTFA, particularly affecting leasing and new auto sales.
Year-to-date revenues reflect a higher percentage of the adjusted budget and are above prior year levels. However, these results are influenced by the Mid-Year budget adjustment, timing differences between sales activity and revenue distributions, and one-time prior period adjustments associated with the revised allocation methodology, rather than a clear change in underlying economic activity. The timing and implementation of these changes remain 6 1
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uncertain and will continue to affect both the level and timing of reported revenues during the current fiscal year.
Staff will continue to monitor revenues and CDTFA updates through year-end. Given the pending one-time prior period adjustment, staff may recommend options to set aside funding, as appropriate.
Transient Occupancy Tax (TOT)
TOT revenues reached $18.6 million at the end of the 3rd quarter, a $1.3 million or 7.6% increase over the prior fiscal year and 63.9% of the adjusted budget. Consistent with prior financial reporting, actuals are expected to meet or exceed the budget. Performance continues to be supported by hotel operating metrics; through March, the average Occupancy Rate is 84% (compared to 69.8% in the prior fiscal year), and the average room rate is $265.02 (compared to $269.55 in the prior fiscal year). The 3rd quarter revenue estimates represent approximately
7.5 months of TOT receipts due to timing delays in receipts of up to 1.5 months. Reported receipts through February are $20.2 million, a $1.8 million or 9.8% increase over the same period in the prior year.
Utility User Tax (UUT)
UUT revenues total $15.2 million at the end of the 3rd quarter, a $1.1 million or 7.8% increase over the prior fiscal year and 71.2% of the FY 2026 Adjusted Budget. The increase is primarily driven by the FY 2026 adopted utility rate increases, normal fluctuation in utility consumption, and billing cycles. Staff will continue to monitor collections throughout the remainder of the fiscal year.
Documentary Transfer Tax
Cash receipts totaled $6.6 million, 77.3% of the FY 2026 Adjusted Budget and $1.2 million or
21.9% higher than prior fiscal year receipts for the same period. This revenue source is highly variable, as collections depend on both the number and value of property transactions. Recent increases reflect higher transaction activity, with relatively stable home prices. Based on the receipts collected to date, the number of transactions increased by 18.5% compared to the prior fiscal year’s 3rd quarter, while the median price for single family residential homes has increased slightly to $3.7 million compared to $3.6 million in the prior year. Staff continues to monitor these receipts closely due to fluctuations that can occur from changing market conditions.
Business Tax
Cash receipts totaled $3.5 million, 52.5% of the FY 2026 Adjusted Budget. This is consistent with historical collection patterns and reflects the timing of quarterly Business Tax payments, which are received in arrears. Businesses are required to file business tax quarterly, but it is due the first day of the following quarter and is delinquent 30 days later. The expectation is that the adjusted budget will be realized.
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The tax was effective in January 2023, with a discounted rate through January 2025 at 50% or
3.75-cents per square foot per month. The full rate was assessed starting January 2025 at 7.5- cents per square foot per month. The tax has an annual cap of $0.5 million per business and both the rate and the cap are increased by 2.5% annually beginning FY 2027. FY 2026 represents the full fiscal year in which the Business Tax is fully phased in at the voter approved rate.
Charges for Services
This revenue category includes charges to Stanford University for fire and communication services, paramedic services, fees related to the City’s golf course, recreational classes and programs, zoning and building plan checks, and the rental registry. As of the 3rd quarter of FY 2026, revenues totaled $29.8 million, up by $5.0 million or 20.0% over the same period in the prior fiscal year. The year-over-year increase was primarily driven by:
Zoning, inspection, and plan check fees: $2.2 million increase Paramedic service fees: $1.8 million increase (reflecting the new first responder fee and an increased number of transports)
Recreation, programming, drop-in admissions, golf tournament and driving range fees:
$0.7 million increase
Stanford communication and fire service fees: $0.5 million increase Rental registry fee: $0.2 million increase
At the FY 2026 Mid-Year review, the revenue budget was revised upward by $0.2 million from $44.3 million to $44.5 million. Staff anticipate that actual year-end revenue will meet this adjusted budget.
Permits, Licenses, and Other Fees
Revenue in this category increased by $2.1 million, largely attributed to robust demand in new building construction. Declines across several smaller permit categories partially offset gains, with overall growth driven by concentrated new construction activity.
Expense Highlights for FY 2026 3rd Quarter YTD
Overall General Fund expenditures are currently expected to remain within FY 2026 Adjusted budget levels of $290.3 million (excluding transfers to infrastructure or other funds). General Fund expenditures (excluding operating transfers) for the third quarter are 2.9% lower than the prior fiscal year and are tracking at $197.2 million or 67.9% of the Adjusted Budget (excluding encumbrances). It is important to note that the tables in this report do not include pre- encumbrances and encumbrances, whereas Attachment A does include encumbrances.
Attachment A includes the encumbrances to identify the commitments against appropriations, while the tables in this report include actual expenditures. The decrease in expenses is primarily due to overall lower salaries and benefits (related to timing of pension accrual accounting) and contract services.
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As of April 2026, the citywide vacancy was 117.50 positions or 10.6% vacancy rate. See Table 2 below for more detailed information regarding citywide vacancies by department. All recruitments are subject to review and approval by the Hiring Review Committee and further consideration of governmental efficiencies.
Table 2 Citywide Vacancies by Department
Table 3 highlights General Fund expenditures by department for the 3rd quarter of FY 2026, compared to the same period in the prior fiscal year. Year-to-date expenditures are presented as a percentage of the respective fiscal year’s Adjusted Budget.
Table 3: General Fund Expenditures
As of March 2026, total expenditures represent 67.9% of the adjusted budget compared to
69.2% during the same period in FY 2025. The lower expenditures are mainly attributable to salaries and benefits costs, including pension and medical contributions, in addition to lower contracted legal services and settlement expenses. The variance in pension and medical costs is Department General Fund Other Funds Grand Total
Administrative Services Department 7.0 2.5 9.5
City Managers Office 1.0 0.0 1.0
Community Services Department 5.0 0.0 5.0
Fire Department 9.0 0.0 9.0
Human Resources Department 0.0 1.0 1.0
Information Technology Department 0.0 2.0 2.0
Library Services Department 6.0 0.0 6.0
Office of Transportation 4.0 1.0 5.0
Planning and Development Services 4.0 0.0 4.0
Police Department 13.0 0.0 13.0
Public Works Department 4.0 19.0 23.0
Utlities Department 0.0 39.0 39.0
Grand Total 53.0 64.5 117.5
Vacancy % 8.6% 13.0% 10.6%
Vacancy % (without Public Safety) 6.5%
Expenditures FY 2026 FY 2025 Inc/(Dec) % change FY 2026 % FY 2025 % Police 44,243 $ 45,946 $ (1,703) $ -3.7% 58,966 $ 75.0% 58,608 $ 78.4% Fire 44,959 43,900 1,059 2.4% 60,223 74.7% 56,530 77.7% Community Services 31,800 29,290 2,510 8.6% 44,825 70.9% 42,821 68.4% Public Works 18,751 17,355 1,396 8.0% 29,044 64.6% 27,735 62.6% Planning & Development Services 17,527 17,133 394 2.3% 29,902 58.6% 29,336 58.4% Library 9,871 9,701 170 1.8% 13,098 75.4% 13,144 73.8%
Administrative Services 8,613 8,723 (110) -1.3% 12,039 71.5% 12,267 71.1% All Other Departments 21,458 31,167 (9,709) -31.2% 42,251 50.8% 53,370 58.4% Total Expenditures 197,222 $ 203,215 $ (5,993) $ -2.9% 290,348 $ 67.9% 293,811 $ 69.2% FY 2026 3rd Quarter YTD
(000's)
3rd Quarter Actuals Adjusted Budget
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due to the timing of applying employee contributions and related benefit cost allocations. In FY 2025, these adjustments occurred in the fourth quarter, whereas FY 2026 reflects a quarterly allocation approach to better distribute costs during the fiscal year. These timing changes are not expected to significantly affect overall year-end expenditure comparisons. Overall General Fund projected expenses for FY 2026 are anticipated to come within or under the adjusted budget.
Given the organization’s service-driven nature, salaries and benefits comprise the largest portion of expenditures. Through the first nine months of FY 2026, salaries and benefits accounted for approximately 75.8% of the total adjusted budget in this category. General Fund expenditures for salaries and benefits totaled approximately $144 million through March 2026, compared to $146 million for the same period in FY 2025. Key contributors to this decrease include decreases in pension contribution costs by $5.0 million, medical contribution costs by $1.3 million, and other benefits by $0.4 million. The pension and medical variances are related to timing differences in employee contributions and benefit cost allocations that are expected to level out by fiscal year-end.
The following departments experienced material variances.
Community Services expenditure increased by $2.5 million, or 8.6%, compared to the same period in the prior fiscal year. The increase was primarily driven by higher costs in contract services ($1.2 million), facility maintenance and security ($500K), IT support and maintenance ($271K), grant and subsidies ($210K), liability insurance ($167K), program and project costs ($140K), and other general expenses by ($127K). Of these expenditure categories, contract services represent the largest increase, primarily driven by the timing of payments related to golf course management fees ($700K) and landscaping contract costs ($490K), which were recorded in the fourth quarter of the prior fiscal year rather than the third quarter.
Public Works expenditures increased by $1.4 million, or 8.0%, compared to the same period in the prior fiscal year. This increase was primarily driven by salaries and wages ($643K) and contract services ($1.1 million), which includes facility maintenance, repair, and security and other contract services. Additional increases occurred in indirect charges for liability insurance ($153K), IT support and maintenance ($167K), and vehicle equipment maintenance services ($107K). These increases were partially offset by lower pension employer costs ($391K), reduced gas sales to City departments ($172K), a lower vehicle replacement allocation($54K), and decreased construction material costs ($65K).
Planning and Development Services expenditures increased primarily due to expanded planning activities associated with the new San Antonio Road Area Plan and the implementation of the rental registry program.
Library expenditures increased by $263K overall, partially offset by a $94K reduction in salaries and benefits due to lower pension and medical contribution costs. 6 1
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Administrative Services experienced changes primarily driven by lower salaries and benefits due to reduced pension and medical contribution costs, partially offset by an increase in direct and indirect charges.
All Other Departments expenditures decreased $9.7 million, or 31.2%, compared to the same quarter in the prior fiscal year. The decline is primarily attributable to Non-Departmental variances. Expenditure increases totaling $500K across the City Manager, City Clerk, and City Attorney offices were offset by a decrease in the Office of Transportation.
Non-Departmental expenditures decreased by $9.7 million, or 76.4 %, compared to the previous fiscal year, driven by the following:
Contract Services (Legal fees) decreased by $2.8 million compared with the previous year. This decrease is attributable to the settlement in the Green v. City of Palo Alto litigation, in which the payout of attorney‘s fees and refunds under the settlement agreement was completed earlier than originally anticipated. Other Contract Services decreased by $0.5 million due to non-recurring expenditures in FY 2025, including November 2024 election costs and the completion of the mobile mental health outreach initiative in FY 2025.
General Expenses decreased by $6.2 million primarily due to the conclusion of gas customer refunds related to Green v. City of Palo Alto, which were fully disbursed in March 2025. Additionally, expenditures were reduced by $200K due to a decrease in the Cubberley base rent.
Police and Fire the total combined expenditures for the Police and Fire Departments accounted for approximately 45.0% of total General Fund expenditures through the 3rd quarter of FY 2026.
The table below summarizes salary and overtime expenditure for this period. A detailed analysis of net overtime costs for both departments is provided in Attachment B.
Table 4: Police and Fire
FY 2026 FY 2025 Inc(Dec) % change FY 2026 % FY 2025 %
Police - Salaries $16,238 $16,454 (216) $ -1.31% $23,730 68.4% $23,194 70.9% Police - Overtime 2,239 2,678 (439) -16.39% 1,173 190.9% 1,099 243.7% Total Police18,477 19,132 (655) -3.42% 24,903 74.2% 24,293 78.8% Fire - Salaries 17,076 15,079 1,997 13.24% 21,674 78.8% 19,731 76.4% Fire - Overtime 3,096 4,449 (1,353) -30.41% 4,939 62.7% 5,217 85.3% Total Fire20,172 19,528 644 3.30% 26,613 75.8% 24,948 78.3% Total Public Safety
Salaries & Overtime38,649 $ 38,660 $ (11) $ -0.03% 51,516 $ 75.0% 49,241 $ 78.5% Expenditures
3rd Quarter Actuals Adjusted Budget
Salaries and Overtime Expense
FY 2026 3rd Quarter YTD
(000's)
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Police Department Overtime. As of the end of the third quarter of FY 2026, the Department held 13 vacancies (9% of 139 total FTEs), including 10 police officers, two dispatchers, and one community service officer (CSO). Benefited leave totaled 5,536 hours for the period, with 19 employees unavailable for ten or more shifts. Overtime is primarily used to mitigate staffing shortages due to vacancies, training, and leave, or to support surge requirements for major incidents. Overtime is also used to support special events and work related to the retail theft grant. These costs are driven predominantly by police officer staffing needs. Analysis is included in Attachment B.
Fire Department Overtime. The current deployment model requires 25 positions each day to keep Fire Engines and Ambulances operational. Overtime is primarily driven by backfilling vacancies to maintain minimum daily staffing. Any gaps resulting from vacancies, injuries, training, or leave are covered through overtime. During the third quarter of FY 2026, 10 firefighters were in the Fire Academy, requiring continued overtime backfill. Additionally, all Strike Team deployments are paid as overtime and are fully reimbursable by the State; six deployments have occurred in FY 2026 to date. The midyear overtime budget was adjusted to reflect reimbursement revenue from Strike Teams and the Tri-City agreement for Fire Station 8 (Foothills) staffing during fire season. Analysis is included in Attachment B.
General Fund Budget Stabilization Reserve (BSR) Balance As a result of budget amendment actions taken in FY 2026, including the FY 2026 Midyear Budget Review,5 the Budget Stabilization Reserve (BSR) was $53.8 million at the end of 3rd quarter and be maintained through year end. This amount is $4.1 million below the City Council’s recommended target of $57.9 million, which represents 18.5% of the General Fund adopted operating expenditure. Per policy, the City maintains a BSR balance within a range of 15% to 20% of annual operating expenditures, with a target level of 18.5%. The FY 2027 Proposed Budget BSR balance is projected to be $53.7 million, which is 17.3% of expenditures and below the City Council’s recommended target level of 18.5% by $3.5 million.
Enterprise Funds
The following is a summary of changes in net position for each of the Enterprise Funds for the nine months ending March 31, 2026, along with a comparison to the same period last fiscal year. Changes in net position reflect the results of operations for the period, including operating revenues, expenses, and non-operating items such as transfers and investment income.
5 City Council Special Meeting, February 23, 2026, Agenda Item 8, Staff Report# 2512-5662 https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86652&dbid=0&repo=PaloAlto&searchid=40c482af -1ed8-49eb-b477-c51c9088ae03
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Table 5: Enterprise Funds Change in Net Position
Water Fund increased by $2.6 million, or 34.7%, from the prior fiscal year. This increase was primarily driven by a $2.8 million increase in operating revenues, mainly from higher customer sales. The increase in customer sales reflects a 10.0% overall rate adjustment for residential and commercial customers, effective July 1, 2025, partially offset by a 3.8% decrease in overall consumption. Operating expenses remained relatively stable compared to the prior fiscal year.
The decrease in consumption contributed to lower utility purchase costs, which were partially offset by increases in other operating expenses, including operations and maintenance.
Electric Fund decreased by $7.2 million, or 16.9%, compared to the prior fiscal year. The decrease was primarily driven by higher operating expenses and increased transfer out, partially offset by increased operating and non-operating revenues.
Operating expenses increased by $14.9 million, primarily due to $11.0 million in higher commodity purchases, driven by increased Resource Adequacy capacity costs, Energy Market Activity, and higher Western power purchase costs. These increases were partially offset by lower NCPA-related costs, including pooling and facilities, as well as lower transmission costs.
Additional increases were driven by higher administrative and general expenses and operations and maintenance expenses.
Operating revenues increased by $8.5 million, mainly due to a $9.9 million increase in customer sales, attributed to the electric rate increase of 6% effective July 1, 2025, and higher commercial and residential usage. This was partially offset by a decrease in other operating revenues, primarily due to lower Renewable Energy Credit sales, partially offset by higher Resource Adequacy capacity sales. Both are market driven and subject to fluctuations.
Increase
Funds FY 2026 FY 2025 (Decrease) % Inc (Dec)
Water 10,273 $ 7,624 $ 2,649 $ 34.7%
Electric 35,171 42,328 (7,157) -16.9%
Fiber Optic 534 1,028 (494) -48.1%
Gas 10,902 8,445 2,457 29.1%
Wastewater Collection 6,123 2,762 3,361 121.7%
Wastewater Treatment 12,528 2,754 9,774 354.9%
Refuse 1,508 1,419 89 6.3%
Storm Drainage 1,908 1,724 184 10.7%
Airport (921) (995) 74 -7.4%
Total Change in Net Position $78,026 $67,089 $10,937 16.3% FY 2026 3rd Quarter YTD
3rd Quarter Actuals
(000's)
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Transfer Out increased by $1.8 million, primarily due to $1.2 million higher transfers to the General Fund associated with grid modernization asset values, as well as transfers to Capital Project and Vehicle Funds.
Nonoperating revenues increased by $1.1 million, primarily due to higher interest income and increased transfers in, mainly from the Technology Fund (partial return of prior-year charges) and the General Fund for updated streetlight and traffic signal electricity costs.
Fiber Optic Fund decreased by $0.5 million, or 48.1%, compared to the same period in the prior fiscal year. This decrease was primarily due to a $0.3 million decline in operating revenues, mainly from lower customer sales associated with customer disconnections due to move-outs and business closures, and a $0.2 million increase in operating and maintenance expenses, primarily driven by higher labor and administrative costs as staff continue to build out Fiber to the Premises initial pilot area.
Gas Fund increased by $2.5 million, or 29.1%, compared to the same period in the prior fiscal year. The increase was primarily driven by higher operating and non-operating revenues, and lower transfers partially offset by higher operating expenses.
Operating revenues increased by $0.8 million, mainly due to the 5.0% gas rate adjustment effective July 1, 2025, despite a slight decline in overall consumption. Non-operating revenues increased by $1.8 million, primarily due to a one-time $1.2 million return of uncashed refund checks related to the closeout of the three-year Green case settlement. The case involved refunds to gas utility customers, and under the settlement terms, uncashed checks were returned to the Gas Utility. The increase also includes approximately $0.4 million in federal grant revenues.
In addition, the transfer to the General Fund decreased by $0.3 million compared to the prior fiscal year, which also contributed to the increase in net position. These increases were partially offset by a $0.8 million rise in operating expenses, mainly due to higher contract services supporting Demand-Side Management and local decarbonization programs through Cap and Invest funds, along with increased rebate payments
Wastewater Collection Fund increased by $3.4 million, or 121.7%, compared to the same period in the prior fiscal year. This increase was primarily driven by higher operating revenues, partially offset by increased operating expenses.
Operating revenues increased by $4.4 million, driven primarily by higher customer sales resulting from the 20.0% rate adjustment for residential and commercial customers effective July 1, 2025.
Operating expenses increased by $0.9 million, primarily reflecting the fund’s $0.5 million increase in the fund’s allocated share of wastewater treatment costs paid to the Regional 6 1
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Water Quality Control Plant. These costs include operating requirements, debt service, and minor capital improvements. In addition, administrative and general expenses, as well as depreciation, also increased.
Wastewater Treatment Fund increased by $9.8 million, or 354.9%, compared to the prior fiscal year. This increase was primarily driven by advance billings to the City of Mountain View and Valley Water for Advanced Water Purification System project, along with normal billing and expenditure fluctuations and other routine operational variances. However, this increase does not reflect a true change in net income, as the fund operates as a pass-through for partner billings, including advance billings that are subject to year-end true-up.
Operating revenues increased by $10.8 million, mainly due to a $7.0 million advance billing to the City of Mountain View and a $3.0 million increase in billings to Valley Water. This increase also reflects approximately $0.8 million in higher partner billings, driven by recovery of higher operating and maintenance costs. Billings are based on the FY2026 Adopted Budget and are subject to a year-end true-up to actual costs. The advance billing to the City of Mountain View may be reclassified to unearned revenue at year-end depending on the timing of actual project costs.
In addition, non-operating revenues increased by $1.1 million due to federal grant reimbursements related to the same project.
Operating expenses increased by approximately $2.2 million, primarily due to higher operating maintenance costs, including salaries and benefits, contract services and interdepartmental charges (such as utilities), and depreciation.
FISCAL/RESOURCE IMPACT
There are no financial impacts recommended in this report. Staff will return to Council as part of the review of the FY 2026 Annual Comprehensive Financial Report with year-end budget adjustments to recommend any adjustments to align budgets with actuals.
STAKEHOLDER ENGAGEMENT
This report has been coordinated between the Treasury Division, Accounting Division, and the Office of Management and Budget in the Administrative Services Department, as well as with City departments.
ENVIRONMENTAL REVIEW
Finance Committee action on this item is not a project as defined by CEQA because financial reports are fiscal activities which do not involve any commitments to any specific project which may result in a potentially impact on the environment, CEQA Guidelines section 15378(b)(4). 6 1
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ATTACHMENTS
Attachment A: FY 2026 3rd Quarter Financial Report
Attachment B: FY 2026 3rd Quarter Public Safety Overtime Analysis APPROVED BY:
Lauren Lai, Administrative Services Director