City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Administrative Services
Meeting Date: October 5, 2026
Report #:2607-6552
TITLE
Approval of FY 2026 Reappropriation Requests to FY 2027 Operating and Capital Improvement Budgets and Additional Technical Clean-Up Actions and Corresponding Amendments to the FY 2027 Budget Appropriation for Various Funds. CEQA Status: Not a Project
RECOMMENDATION
Staff recommends that the City Council amend the Fiscal Year 2027 Budget Appropriation for various funds as identified in Attachment A, and various capital projects as identified in Attachment B and Attachment C (requires 2/3 approval).
EXECUTIVE SUMMARY
As a part of the fiscal year-end process, staff reviews the City’s unencumbered and unspent appropriations of the fiscal year just ended (FY 2026), along with the City’s spending plans.
Encumbered amounts are contractual obligations (for example, commitments made through purchase orders), which are carried forward from one fiscal year to the next without the need for Council approval. Each year there are important projects that were unable to encumber funds in the year that just ended. The reappropriation process allows staff to bring forward funding recommendations to City Council to continue these projects into the next fiscal year (FY 2027) without impacting funding programmed for services in FY 2027.
In limited instances, staff also recommends appropriation actions unrelated to the reappropriation process. This fiscal year these are technical clean-up actions for capital projects.
BACKGROUND
Chapter 2.28, Section 2.28.090 of the Municipal Code allows for reappropriation of funding from the previous fiscal year to the current fiscal year if the Administrative Services Department (ASD) Director/Chief Financial Officer (CFO) certifies that sufficient unencumbered and
unexpended funds are available in the Fiscal Year that just ended (FY 2026) to be carried forward to the subsequent Fiscal Year (FY 2027).
Additionally, since capital projects may be delayed or deferred for various reasons, there remains a need to reappropriate funds for capital projects in some instances. This reappropriation is completed through a review of the status of projects as part of the annual budget process and is built into the annual adopted budget. As FY 2026 has closed and staff has processed necessary accounting transactions, unexpended and unencumbered funds for each capital project have been reviewed for a final time. Based on this review, staff recommends capital dollars remaining for some projects in FY 2026 be reappropriated to FY 2027.
ANALYSIS
Attachment A identifies those operating budget requests that staff recommends for approval, while Attachment B lists recommended capital project requests. With the submission of this report for City Council consideration, the ASD Director/CFO certifies sufficient unencumbered and unexpended funds are available from FY 2026 to be reappropriated to FY 2027. To support the continuity of business for these ongoing projects and initiatives, this report is being brought forward prior to the FY 2026 Annual Comprehensive Financial Report (ACFR), scheduled to be considered by the Finance Committee in December. Attachment C includes technical clean-up actions to align project budgets with intended funding levels for the Palo Alto Art Center Ceramics Equipment project (AC-28003) and the Animal Shelter Renovation project (PE-19002).
Operating Budget Reappropriations
The projects recommended for budget reappropriations are outlined in more detail in Attachment A and can generally be grouped into the following categories:
Funding for Citywide Council Priorities: Items in this category are related to citywide priority needs previously identified by the Council, as part of the FY 2027 priority setting in January 2026, that could not be completed in FY 2026 and funding is recommended to be reappropriated to FY 2027 to complete the work. Examples of projects in this category include: Gas Cap and Trade Support for Electrification Programs ($9.1 million), Advancing Racial Equity ($0.2 million), and Child Care Services ($55,000). Timing and Workload Delays: Projects in this category were delayed due to competing workload demands, appropriation of funds late in the fiscal year, or other unanticipated delays. Examples of projects in this category include: Multi-Family EV Projects ($2.9 million), Customer Relationship Management (CRM) Platfrom ($0.5 million), Green Stormwater Infrastructure (GSI) Parks Maintenance ($0.1 million), Roth Building Maintenance ($30,000) and Airplane Noise Reduction Study ($75,000). Multi-year Funding Agreements: Projects in this category include approved donations, grants, loans, and other funding agreements that are anticipated to continue in the coming year. Examples in this category include: Organized Retail Theft Grant ($2.3 million), General Fund Training Programs ($50,000), Library Automated Materials Handling (AMH) System ($80,000), and Citizens Option for Public Safety (COPS) Program ($72,558).
Management Training Program: The Management Training Program provides $1,000 per eligible employee under the terms outlined in the MGMT and PAPMA labor agreements. The purpose of this program is to provide employees with resources to improve and supplement their job and professional skills. In total, $150,000 in unused funding is requested to be reappropriated for various training programs, including:
ethics, civics and citizen engagement, leadership and management, budget, finance, procurement, interpersonal communication, presentation skills, business writing, time management, project management, change management, online-based education, and safety and security.
Operating Reappropriations Previously Approved in the FY 2027 Adopted Operating Budget As part of the FY 2027 Budget review process, early reappropriation of anticipated savings in the General Fund in FY 2026 was recommended and approved by the Council to fund actions in FY 2027. The total approved amount of $180,000 already reappropriated to FY 2027 consisted of $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.
Capital Budget Reappropriations
The FY 2027 Adopted Budget included $142.1 million in reappropriated expenditure funds, partially offset by $111.8 million in reappropriated revenue, across all City funds based on estimates of anticipated spending and revenue collections in FY 2026. Since the adoption of the capital budget, some adjustments and refinements to project reappropriations are required since FY 2026 year-end actuals and projects costs have been updated to reflect actual experience. These primarily reflect either increases or decreases to assumed reappropriations in the FY 2027 Adopted Budget:
Additional reappropriations are recommended when project expenditures originally anticipated to occur before the end of FY 2026 will now instead occur in FY 2027.
Similarly, revenue previously anticipated to be collected in FY 2026 will be reappropriated to FY 2027 to align with actual collections. Downward adjustments to reappropriations are recommended when expenses are no longer anticipated to occur in FY 2027 and funding was previously reappropriated in the budget document to FY 2027. If expenses were realized in FY 2026, an adjustment to reduce the budgeted reappropriation is needed as the activity no longer needs funding in FY 2027. The downward reappropriation of revenue is treated similarly; an adjustment to reduce the reappropriated revenue is needed to align collections in the appropriate fiscal year.
Table 1 summarizes the recommended capital project adjustments by fund as detailed in Attachment B. These Fiscal Year 2027 adjustment amounts represent the final step in the City Council-approved change to the reappropriation process. There are sufficient expenditure savings in Fiscal Year 2026 to support all recommended adjustments.
Table 1: Year-End Capital Project Reappropriation Summary – By Fund Fund Number of
Projects
Recommended Expense
Reappropriation
Adjustment
Recommended Revenue
Reappropriation
Adjustment
Capital Improvement Fund (471) 68 $17,569,946 $9,008,780 Cubberley Infrastructure Fund (472) 2 $459,033 -
Airport Fund (530) 2 $85,000 $2,532,103
Electric Fund (523) 11 ($82,328) -
Fiber Optics Fund (533) 1 $45,457 -
Gas Fund (524) 1 $437,750 ($220,550)
Stormwater Management Fund (528) 6 ($137,394) ($82,982) Wastewater Collection Fund (527) 1 $117,450 -
Wastewater Treatment Fund (526) 7 $6,080,473 $82,062,817 Water Fund (522) 1 $72,080 -
Technology Fund (682) 4 ($121,596) -
Vehicle Replacement and Maintenance Fund
(681)
6 $3,960,298 -
Total All Funds 110 $28,486,170 $93,300,168
The active review of all project reappropriations results in a reduced level of reappropriated funding from one year to the next, compared to the process of automatically reappropriating unspent capital funding, and better reflects the needs of the various capital projects and of the overall program. In total, $170.6 million will be reappropriated for capital projects, offset by $205.1 million in revenue for the projects. It should be noted 88.0% of the total recommended revenue reappropriation adjustment amount of $93.3 million comes from the Wastewater Treatment Fund because there is substantial lag time in reimbursement of funds from the State Revolving Fund (SRF) loans that support Wastewater Treatment projects, primarily for the Secondary Treatment Upgrades ($40.9 million) and Local Advanced Water Purification System ($36.9 million) projects.
Recommended expenditure adjustments detailed in Attachment B include $17.6 million across 68 projects in the Capital Improvement Fund, primarily driven by Homekey Facilities ($2.3 million; PE-24005), Street Maintenance ($1.8 million; PE-86070), Bicycle and Pedestrian Plan Implementation ($1.6 million; PL-04010), City Bridge Improvements ($1.6 million; PE-20001), Traffic Signals ($1.4 million; PL-05030), and Rail Grade Separation ($2.4 million across Meadow/Charleston and Churchill). In the Vehicle Replacement and Maintenance Fund, adjustments of $4.0 million reflect multi-year delivery lead times for fleet equipment ordered in prior years. Net downward adjustments in the Electric Fund (-$82,328) and Stormwater Management Fund (-$137,394) reflect projects where construction was completed ahead of schedule in FY 2026.
Technical Clean-up Actions
As detailed in Attachment C, in FY 2027, staff recommends reducing the expenditure budget for the Palo Alto Art Center Ceramics Equipment project (AC-28003) by $14,988 to adjust for FY 2026 year-end over-expenditures and maintain the total project budget of $188,000 over the life of the project.
Staff also recommends revising the Animal Shelter Renovation project (PE-19002) expenditure and revenue budgets to reflect a transfer of $297,534 from the Public Services Donation Fund consisting of prior years' donations, to increase project scope and install sprinklers throughout the facility per the City Fire Marshal's recommendation.
FISCAL/RESOURCE IMPACT
Most projects, programs, and corresponding funding contained within this report were previously approved by the City Council for FY 2026. This report primarily realigns funding between fiscal years to align with the status of projects and programs. The ASD Director/CFO certified that sufficient funds exist in FY 2026 for the recommended Fiscal Year 2027 Operating Budget adjustments (Attachment A), and Capital Budget adjustments (Attachments B and C).
For Operating reappropriations, staff recommends expense reappropriations of $0.6 million in the General Fund, $12.5 million in Enterprise Funds, and $2.4 million in Special Revenue Funds.
Staff also recommends revenue reappropriations of $0.2 million in the General Fund and $2.6 million in Special Revenue Funds.
For Capital reappropriations (Attachment B), staff recommends net expenditure adjustments of $18.0 million in Capital Project Funds, $6.6 million in Enterprise Funds, and $3.8 million in Internal Service Funds, and revenue adjustments of $9.0 million in Capital Project Funds and $84.3 million in Enterprise Funds. Technical clean-up actions in Attachment C are fully supported by project balances and private donations with no General Fund reserve impact.
STAKEHOLDER ENGAGEMENT
Review and reconciliation of the funding available for both the Operating reappropriations and the reappropriations for individual Capital projects were coordinated between ASD divisions of the Office of Management and Budget and Accounting, as well as with the departments requesting the reappropriated funds.
ENVIRONMENTAL REVIEW
Council action on this item is not a project under the California Environmental Quality Act (CEQA) as defined in CEQA Guidelines, section 15378, because budget reappropriations are a government funding mechanism or 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 2026 to FY 2027 Operating Reappropriation Requests Attachment B: FY 2026 to FY 2027 Capital Reappropriation Requests Attachment C: Capital Improvement Plan FY 2027 Technical Clean-up Actions APPROVED BY:
Lauren Lai, Administrative Services Director