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2025-01-13 City Council Agenda Packet
CITY COUNCIL Regular Meeting Monday, January 13, 2025 Council Chambers & Hybrid 5:30 PM Palo Alto City Council meetings will be held as “hybrid” meetings with the option to attend by teleconference or in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. The meeting will be broadcast on Cable TV Channel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media Center https://midpenmedia.org. VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900‐6833 PUBLIC COMMENTS General Public Comment for items not on the agenda will be accepted in person for up to three minutes or an amount of time determined by the Chair. General public comment will be heard for 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. Public comments for agendized items will be accepted both in person and via Zoom for up to three minutes or an amount of time determined by the Chair. Requests to speak will be taken until 5 minutes after the staff’s presentation or as determined by the Chair. Written public comments can be submitted in advance to city.council@CityofPaloAlto.org and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your subject line. PowerPoints, videos, or other media to be presented during public comment are accepted only by email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received, the Clerk will have them shared at public comment for the specified item. To uphold strong cybersecurity management practices, USB’s or other physical electronic storage devices are not accepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. TIME ESTIMATES Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. CALL TO ORDER AGENDA CHANGES, ADDITIONS AND DELETIONS PUBLIC COMMENT (5:30 ‐ 6:00 PM) Members of the public may speak in‐person ONLY to any item NOT on the agenda. 1‐3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:00 ‐ 6:05 PM) Members of the public may not speak to the item(s). CONSENT CALENDAR (6:05 ‐ 6:10 PM) Items will be voted in one motion unless removed from the calendar by three Council Members. 1.Approval of Minutes from December 9, 2024 and December 16, 2024 Meetings 2.Approval of recommendations on process for the priority setting 2025 Council Annual Retreat as recommended by the Policy & Services Committee 3.Review and Acceptance of Annual Report on Development Impact Fees for Fiscal Year 2024 and Adoption of a Resolution Making Statutory Findings for all Development Impact and In‐Lieu Fee Funds; CEQA status ‐ Not a Project. 4.Adoption of a Resolution Extending the City Manager’s Authority to Execute Transactions Under Master Renewable Energy Certificate Agreements with Pre‐Qualified Suppliers in an Amount Not‐to‐Exceed $5,000,000 per Year During Calendar Years 2025‐2030; CEQA Status: Not a project 5.Approval of Contract Amendment #5 to Contract C17164727 with Professional Account Management, LLC, dba Duncan Solutions, for Parking Enforcement in the Amount of $132,000 to extend the term for one additional year; CEQA Status ‐ Not a Project 6.Approval of Contract Amendment Number 2 to Contract Number C23183770 with Townsend Public Affairs, Inc. to Extend Term for an Additional Year of Service (the second of four (4) annual options to renew) for State and Federal Legislative Advocacy and Grant Consulting and Compliance Services; CEQA Status ‐ Not a Project 7.Retail Committee Recommendation to: (1) Revise the Fiscal Year 2025 Budget Appropriation at Mid‐Year to Enhance Cleanliness Efforts in Both Downtowns; (2) Revise the Ongoing Parklet Regulations to Require Consent to Expand Beyond Own Frontage; and (3) Refer Staff to Follow‐up on Revising the Temporary Use Zoning Rules and Exploring Improvements to Downtown Infrastructure and Experience 8.SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Sections of Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move the Appointment of Members to the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly (FIRST READING: December 2, 2024 PASSED 7‐0) 9.SECOND READING: Adoption of an Ordinance Approving a Plan for Park Improvements at the City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin Tide Gate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval of Addendum to the Mitigated Negative Declaration for the Project Prepared by Santa Clara Valley Water District (SCH # 2020090237). (FIRST READING: December 9, 2024 PASSED 7‐ 0) 10.SECOND READING: Adoption of Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws (FIRST READING: December 16, 2024 PASSED 7‐ 0) CITY MANAGER COMMENTS (6:10 ‐ 6:25 PM) BREAK (15 MINUTES) ACTION ITEMS (Item 11: 6:40 ‐ 7:40 PM, Item 12: 7:40 ‐ 8:40 PM) Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished Business and Council Matters. 11.Discussion regarding State and Federal Legislative Advocacy and Adoption of the Policy and Services Committee Recommendations on the 2025 State and Federal Legislative Guidelines. 12.Review and Accept the FY 2026‐FY 2035 Long Range Financial Forecast (LRFF) and FY 2026 Budget Development Guidelines as Recommended by the Finance Committee, CEQA Status – Not a Project ADJOURNMENT INFORMATION REPORTS Information reports are provided for informational purposes only to the Council and the public but are not listed for action during this meeting’s agenda. 13.Accessory Dwelling Unit (ADU) ‐ 2024 Quarter 3 (July ‐ September 2024) Report 14.Update on Palo Alto Homekey (Interim Housing Shelter at 1237 San Antonio Road) 15.Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project OTHER INFORMATION Standing Committee Meetings this week Public Comment Letters Schedule of Meetings SUPPLEMENTAL / AMENDED AGENDA ITEMS 15.SUPPLEMENTAL REPORT: Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 362‐027‐238 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 1 January 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. CITY COUNCILRegular MeetingMonday, January 13, 2025Council Chambers & Hybrid5:30 PMPalo Alto City Council meetings will be held as “hybrid” meetings with the option to attend byteleconference or in person. Information on how the public may observe and participate in themeeting is located at the end of the agenda. The meeting will be broadcast on Cable TVChannel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed toMidpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.TIME ESTIMATES Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. CALL TO ORDER AGENDA CHANGES, ADDITIONS AND DELETIONS PUBLIC COMMENT (5:30 ‐ 6:00 PM) Members of the public may speak in‐person ONLY to any item NOT on the agenda. 1‐3 minutes depending on number of speakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of the agenda. COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:00 ‐ 6:05 PM) Members of the public may not speak to the item(s). CONSENT CALENDAR (6:05 ‐ 6:10 PM) Items will be voted in one motion unless removed from the calendar by three Council Members. 1.Approval of Minutes from December 9, 2024 and December 16, 2024 Meetings 2.Approval of recommendations on process for the priority setting 2025 Council Annual Retreat as recommended by the Policy & Services Committee 3.Review and Acceptance of Annual Report on Development Impact Fees for Fiscal Year 2024 and Adoption of a Resolution Making Statutory Findings for all Development Impact and In‐Lieu Fee Funds; CEQA status ‐ Not a Project. 4.Adoption of a Resolution Extending the City Manager’s Authority to Execute Transactions Under Master Renewable Energy Certificate Agreements with Pre‐Qualified Suppliers in an Amount Not‐to‐Exceed $5,000,000 per Year During Calendar Years 2025‐2030; CEQA Status: Not a project 5.Approval of Contract Amendment #5 to Contract C17164727 with Professional Account Management, LLC, dba Duncan Solutions, for Parking Enforcement in the Amount of $132,000 to extend the term for one additional year; CEQA Status ‐ Not a Project 6.Approval of Contract Amendment Number 2 to Contract Number C23183770 with Townsend Public Affairs, Inc. to Extend Term for an Additional Year of Service (the second of four (4) annual options to renew) for State and Federal Legislative Advocacy and Grant Consulting and Compliance Services; CEQA Status ‐ Not a Project 7.Retail Committee Recommendation to: (1) Revise the Fiscal Year 2025 Budget Appropriation at Mid‐Year to Enhance Cleanliness Efforts in Both Downtowns; (2) Revise the Ongoing Parklet Regulations to Require Consent to Expand Beyond Own Frontage; and (3) Refer Staff to Follow‐up on Revising the Temporary Use Zoning Rules and Exploring Improvements to Downtown Infrastructure and Experience 8.SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Sections of Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move the Appointment of Members to the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly (FIRST READING: December 2, 2024 PASSED 7‐0) 9.SECOND READING: Adoption of an Ordinance Approving a Plan for Park Improvements at the City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin Tide Gate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval of Addendum to the Mitigated Negative Declaration for the Project Prepared by Santa Clara Valley Water District (SCH # 2020090237). (FIRST READING: December 9, 2024 PASSED 7‐ 0) 10.SECOND READING: Adoption of Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws (FIRST READING: December 16, 2024 PASSED 7‐ 0) CITY MANAGER COMMENTS (6:10 ‐ 6:25 PM) BREAK (15 MINUTES) ACTION ITEMS (Item 11: 6:40 ‐ 7:40 PM, Item 12: 7:40 ‐ 8:40 PM) Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished Business and Council Matters. 11.Discussion regarding State and Federal Legislative Advocacy and Adoption of the Policy and Services Committee Recommendations on the 2025 State and Federal Legislative Guidelines. 12.Review and Accept the FY 2026‐FY 2035 Long Range Financial Forecast (LRFF) and FY 2026 Budget Development Guidelines as Recommended by the Finance Committee, CEQA Status – Not a Project ADJOURNMENT INFORMATION REPORTS Information reports are provided for informational purposes only to the Council and the public but are not listed for action during this meeting’s agenda. 13.Accessory Dwelling Unit (ADU) ‐ 2024 Quarter 3 (July ‐ September 2024) Report 14.Update on Palo Alto Homekey (Interim Housing Shelter at 1237 San Antonio Road) 15.Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project OTHER INFORMATION Standing Committee Meetings this week Public Comment Letters Schedule of Meetings SUPPLEMENTAL / AMENDED AGENDA ITEMS 15.SUPPLEMENTAL REPORT: Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 362‐027‐238 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 2 January 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. CITY COUNCILRegular MeetingMonday, January 13, 2025Council Chambers & Hybrid5:30 PMPalo Alto City Council meetings will be held as “hybrid” meetings with the option to attend byteleconference or in person. Information on how the public may observe and participate in themeeting is located at the end of the agenda. The meeting will be broadcast on Cable TVChannel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed toMidpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.TIME ESTIMATESListed times are estimates only and are subject to change at any time, including while themeeting is in progress. The Council reserves the right to use more or less time on any item, tochange the order of items and/or to continue items to another meeting. Particular items may beheard before or after the time estimated on the agenda. This may occur in order to best managethe time at a meeting or to adapt to the participation of the public.CALL TO ORDERAGENDA CHANGES, ADDITIONS AND DELETIONSPUBLIC COMMENT (5:30 ‐ 6:00 PM)Members of the public may speak in‐person ONLY to any item NOT on the agenda. 1‐3 minutes depending on number ofspeakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of theagenda.COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:00 ‐ 6:05 PM)Members of the public may not speak to the item(s).CONSENT CALENDAR (6:05 ‐ 6:10 PM)Items will be voted in one motion unless removed from the calendar by three Council Members.1.Approval of Minutes from December 9, 2024 and December 16, 2024 Meetings2.Approval of recommendations on process for the priority setting 2025 Council AnnualRetreat as recommended by the Policy & Services Committee3.Review and Acceptance of Annual Report on Development Impact Fees for Fiscal Year2024 and Adoption of a Resolution Making Statutory Findings for all Development Impactand In‐Lieu Fee Funds; CEQA status ‐ Not a Project.4.Adoption of a Resolution Extending the City Manager’s Authority to Execute TransactionsUnder Master Renewable Energy Certificate Agreements with Pre‐Qualified Suppliers inan Amount Not‐to‐Exceed $5,000,000 per Year During Calendar Years 2025‐2030; CEQAStatus: Not a project5.Approval of Contract Amendment #5 to Contract C17164727 with Professional AccountManagement, LLC, dba Duncan Solutions, for Parking Enforcement in the Amount of$132,000 to extend the term for one additional year; CEQA Status ‐ Not a Project6.Approval of Contract Amendment Number 2 to Contract Number C23183770 withTownsend Public Affairs, Inc. to Extend Term for an Additional Year of Service (thesecond of four (4) annual options to renew) for State and Federal Legislative Advocacyand Grant Consulting and Compliance Services; CEQA Status ‐ Not a Project7.Retail Committee Recommendation to: (1) Revise the Fiscal Year 2025 BudgetAppropriation at Mid‐Year to Enhance Cleanliness Efforts in Both Downtowns; (2) Revisethe Ongoing Parklet Regulations to Require Consent to Expand Beyond Own Frontage;and (3) Refer Staff to Follow‐up on Revising the Temporary Use Zoning Rules and Exploring Improvements to Downtown Infrastructure and Experience 8.SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Sections of Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move the Appointment of Members to the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly (FIRST READING: December 2, 2024 PASSED 7‐0) 9.SECOND READING: Adoption of an Ordinance Approving a Plan for Park Improvements at the City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin Tide Gate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval of Addendum to the Mitigated Negative Declaration for the Project Prepared by Santa Clara Valley Water District (SCH # 2020090237). (FIRST READING: December 9, 2024 PASSED 7‐ 0) 10.SECOND READING: Adoption of Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws (FIRST READING: December 16, 2024 PASSED 7‐ 0) CITY MANAGER COMMENTS (6:10 ‐ 6:25 PM) BREAK (15 MINUTES) ACTION ITEMS (Item 11: 6:40 ‐ 7:40 PM, Item 12: 7:40 ‐ 8:40 PM) Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, Unfinished Business and Council Matters. 11.Discussion regarding State and Federal Legislative Advocacy and Adoption of the Policy and Services Committee Recommendations on the 2025 State and Federal Legislative Guidelines. 12.Review and Accept the FY 2026‐FY 2035 Long Range Financial Forecast (LRFF) and FY 2026 Budget Development Guidelines as Recommended by the Finance Committee, CEQA Status – Not a Project ADJOURNMENT INFORMATION REPORTS Information reports are provided for informational purposes only to the Council and the public but are not listed for action during this meeting’s agenda. 13.Accessory Dwelling Unit (ADU) ‐ 2024 Quarter 3 (July ‐ September 2024) Report 14.Update on Palo Alto Homekey (Interim Housing Shelter at 1237 San Antonio Road) 15.Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project OTHER INFORMATION Standing Committee Meetings this week Public Comment Letters Schedule of Meetings SUPPLEMENTAL / AMENDED AGENDA ITEMS 15.SUPPLEMENTAL REPORT: Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 362‐027‐238 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 3 January 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. CITY COUNCILRegular MeetingMonday, January 13, 2025Council Chambers & Hybrid5:30 PMPalo Alto City Council meetings will be held as “hybrid” meetings with the option to attend byteleconference or in person. Information on how the public may observe and participate in themeeting is located at the end of the agenda. The meeting will be broadcast on Cable TVChannel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed toMidpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.TIME ESTIMATESListed times are estimates only and are subject to change at any time, including while themeeting is in progress. The Council reserves the right to use more or less time on any item, tochange the order of items and/or to continue items to another meeting. Particular items may beheard before or after the time estimated on the agenda. This may occur in order to best managethe time at a meeting or to adapt to the participation of the public.CALL TO ORDERAGENDA CHANGES, ADDITIONS AND DELETIONSPUBLIC COMMENT (5:30 ‐ 6:00 PM)Members of the public may speak in‐person ONLY to any item NOT on the agenda. 1‐3 minutes depending on number ofspeakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of theagenda.COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:00 ‐ 6:05 PM)Members of the public may not speak to the item(s).CONSENT CALENDAR (6:05 ‐ 6:10 PM)Items will be voted in one motion unless removed from the calendar by three Council Members.1.Approval of Minutes from December 9, 2024 and December 16, 2024 Meetings2.Approval of recommendations on process for the priority setting 2025 Council AnnualRetreat as recommended by the Policy & Services Committee3.Review and Acceptance of Annual Report on Development Impact Fees for Fiscal Year2024 and Adoption of a Resolution Making Statutory Findings for all Development Impactand In‐Lieu Fee Funds; CEQA status ‐ Not a Project.4.Adoption of a Resolution Extending the City Manager’s Authority to Execute TransactionsUnder Master Renewable Energy Certificate Agreements with Pre‐Qualified Suppliers inan Amount Not‐to‐Exceed $5,000,000 per Year During Calendar Years 2025‐2030; CEQAStatus: Not a project5.Approval of Contract Amendment #5 to Contract C17164727 with Professional AccountManagement, LLC, dba Duncan Solutions, for Parking Enforcement in the Amount of$132,000 to extend the term for one additional year; CEQA Status ‐ Not a Project6.Approval of Contract Amendment Number 2 to Contract Number C23183770 withTownsend Public Affairs, Inc. to Extend Term for an Additional Year of Service (thesecond of four (4) annual options to renew) for State and Federal Legislative Advocacyand Grant Consulting and Compliance Services; CEQA Status ‐ Not a Project7.Retail Committee Recommendation to: (1) Revise the Fiscal Year 2025 BudgetAppropriation at Mid‐Year to Enhance Cleanliness Efforts in Both Downtowns; (2) Revisethe Ongoing Parklet Regulations to Require Consent to Expand Beyond Own Frontage;and (3) Refer Staff to Follow‐up on Revising the Temporary Use Zoning Rules andExploring Improvements to Downtown Infrastructure and Experience8.SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Sectionsof Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move theAppointment of Members to the Public Art Commission, Human Relations Commission,and Parks and Recreation Commission to November of Each Year and Extending ExistingTerms Accordingly (FIRST READING: December 2, 2024 PASSED 7‐0)9.SECOND READING: Adoption of an Ordinance Approving a Plan for Park Improvements atthe City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin TideGate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval ofAddendum to the Mitigated Negative Declaration for the Project Prepared by Santa ClaraValley Water District (SCH # 2020090237). (FIRST READING: December 9, 2024 PASSED 7‐0)10.SECOND READING: Adoption of Interim Ordinance of the Council of the City of Palo AltoAmending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) andTitle 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code toImplement Recent State Housing Laws (FIRST READING: December 16, 2024 PASSED 7‐0)CITY MANAGER COMMENTS (6:10 ‐ 6:25 PM)BREAK (15 MINUTES)ACTION ITEMS (Item 11: 6:40 ‐ 7:40 PM, Item 12: 7:40 ‐ 8:40 PM)Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, UnfinishedBusiness and Council Matters.11.Discussion regarding State and Federal Legislative Advocacy and Adoption of the Policyand Services Committee Recommendations on the 2025 State and Federal LegislativeGuidelines.12.Review and Accept the FY 2026‐FY 2035 Long Range Financial Forecast (LRFF) and FY2026 Budget Development Guidelines as Recommended by the Finance Committee,CEQA Status – Not a ProjectADJOURNMENTINFORMATION REPORTSInformation reports are provided for informational purposes only to the Council and the public but are not listed for actionduring this meeting’s agenda. 13.Accessory Dwelling Unit (ADU) ‐ 2024 Quarter 3 (July ‐ September 2024) Report 14.Update on Palo Alto Homekey (Interim Housing Shelter at 1237 San Antonio Road) 15.Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project OTHER INFORMATION Standing Committee Meetings this week Public Comment Letters Schedule of Meetings SUPPLEMENTAL / AMENDED AGENDA ITEMS 15.SUPPLEMENTAL REPORT: Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not a Project PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1.Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2.For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3.Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4.Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 362‐027‐238 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 4 January 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. Supplemental Report CITY COUNCILRegular MeetingMonday, January 13, 2025Council Chambers & Hybrid5:30 PMPalo Alto City Council meetings will be held as “hybrid” meetings with the option to attend byteleconference or in person. Information on how the public may observe and participate in themeeting is located at the end of the agenda. The meeting will be broadcast on Cable TVChannel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed toMidpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.TIME ESTIMATESListed times are estimates only and are subject to change at any time, including while themeeting is in progress. The Council reserves the right to use more or less time on any item, tochange the order of items and/or to continue items to another meeting. Particular items may beheard before or after the time estimated on the agenda. This may occur in order to best managethe time at a meeting or to adapt to the participation of the public.CALL TO ORDERAGENDA CHANGES, ADDITIONS AND DELETIONSPUBLIC COMMENT (5:30 ‐ 6:00 PM)Members of the public may speak in‐person ONLY to any item NOT on the agenda. 1‐3 minutes depending on number ofspeakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of theagenda.COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:00 ‐ 6:05 PM)Members of the public may not speak to the item(s).CONSENT CALENDAR (6:05 ‐ 6:10 PM)Items will be voted in one motion unless removed from the calendar by three Council Members.1.Approval of Minutes from December 9, 2024 and December 16, 2024 Meetings2.Approval of recommendations on process for the priority setting 2025 Council AnnualRetreat as recommended by the Policy & Services Committee3.Review and Acceptance of Annual Report on Development Impact Fees for Fiscal Year2024 and Adoption of a Resolution Making Statutory Findings for all Development Impactand In‐Lieu Fee Funds; CEQA status ‐ Not a Project.4.Adoption of a Resolution Extending the City Manager’s Authority to Execute TransactionsUnder Master Renewable Energy Certificate Agreements with Pre‐Qualified Suppliers inan Amount Not‐to‐Exceed $5,000,000 per Year During Calendar Years 2025‐2030; CEQAStatus: Not a project5.Approval of Contract Amendment #5 to Contract C17164727 with Professional AccountManagement, LLC, dba Duncan Solutions, for Parking Enforcement in the Amount of$132,000 to extend the term for one additional year; CEQA Status ‐ Not a Project6.Approval of Contract Amendment Number 2 to Contract Number C23183770 withTownsend Public Affairs, Inc. to Extend Term for an Additional Year of Service (thesecond of four (4) annual options to renew) for State and Federal Legislative Advocacyand Grant Consulting and Compliance Services; CEQA Status ‐ Not a Project7.Retail Committee Recommendation to: (1) Revise the Fiscal Year 2025 BudgetAppropriation at Mid‐Year to Enhance Cleanliness Efforts in Both Downtowns; (2) Revisethe Ongoing Parklet Regulations to Require Consent to Expand Beyond Own Frontage;and (3) Refer Staff to Follow‐up on Revising the Temporary Use Zoning Rules andExploring Improvements to Downtown Infrastructure and Experience8.SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Sectionsof Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move theAppointment of Members to the Public Art Commission, Human Relations Commission,and Parks and Recreation Commission to November of Each Year and Extending ExistingTerms Accordingly (FIRST READING: December 2, 2024 PASSED 7‐0)9.SECOND READING: Adoption of an Ordinance Approving a Plan for Park Improvements atthe City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin TideGate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval ofAddendum to the Mitigated Negative Declaration for the Project Prepared by Santa ClaraValley Water District (SCH # 2020090237). (FIRST READING: December 9, 2024 PASSED 7‐0)10.SECOND READING: Adoption of Interim Ordinance of the Council of the City of Palo AltoAmending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) andTitle 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code toImplement Recent State Housing Laws (FIRST READING: December 16, 2024 PASSED 7‐0)CITY MANAGER COMMENTS (6:10 ‐ 6:25 PM)BREAK (15 MINUTES)ACTION ITEMS (Item 11: 6:40 ‐ 7:40 PM, Item 12: 7:40 ‐ 8:40 PM)Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, UnfinishedBusiness and Council Matters.11.Discussion regarding State and Federal Legislative Advocacy and Adoption of the Policyand Services Committee Recommendations on the 2025 State and Federal LegislativeGuidelines.12.Review and Accept the FY 2026‐FY 2035 Long Range Financial Forecast (LRFF) and FY2026 Budget Development Guidelines as Recommended by the Finance Committee,CEQA Status – Not a ProjectADJOURNMENTINFORMATION REPORTSInformation reports are provided for informational purposes only to the Council and the public but are not listed for actionduring this meeting’s agenda.13.Accessory Dwelling Unit (ADU) ‐ 2024 Quarter 3 (July ‐ September 2024) Report14.Update on Palo Alto Homekey (Interim Housing Shelter at 1237 San Antonio Road)15.Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not aProjectOTHER INFORMATIONStanding Committee Meetings this weekPublic Comment LettersSchedule of MeetingsSUPPLEMENTAL / AMENDED AGENDA ITEMS15.SUPPLEMENTAL REPORT: Boards, Commissions, and Committees Annual AttendanceReport; CEQA Status ‐ Not a Project PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1. Written public comments may be submitted by email to city.council@cityofpaloalto.org. 2. For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3. Spoken public comments for agendized items using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom‐based meeting. Please read the following instructions carefully. You may download the Zoom client or connect to the meeting in‐ browser. If using your browser, make sure you are using a current, up‐to‐date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4. Spoken public comments for agendized items using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 362‐027‐238 Phone: 1‐669‐900‐6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 5 January 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. CITY COUNCILRegular MeetingMonday, January 13, 2025Council Chambers & Hybrid5:30 PMPalo Alto City Council meetings will be held as “hybrid” meetings with the option to attend byteleconference or in person. Information on how the public may observe and participate in themeeting is located at the end of the agenda. The meeting will be broadcast on Cable TVChannel 26, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed toMidpen Media Center https://midpenmedia.org.VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/362027238) Meeting ID: 362 027 238 Phone:1(669)900‐6833PUBLIC COMMENTSGeneral Public Comment for items not on the agenda will be accepted in person for up to threeminutes or an amount of time determined by the Chair. General public comment will be heardfor 30 minutes. Additional public comments, if any, will be heard at the end of the agenda.Public comments for agendized items will be accepted both in person and via Zoom for up tothree minutes or an amount of time determined by the Chair. Requests to speak will be takenuntil 5 minutes after the staff’s presentation or as determined by the Chair. Written publiccomments can be submitted in advance to city.council@CityofPaloAlto.org and will be providedto the Council and available for inspection on the City’s website. Please clearly indicate whichagenda item you are referencing in your subject line.PowerPoints, videos, or other media to be presented during public comment are accepted onlyby email to city.clerk@CityofPaloAlto.org at least 24 hours prior to the meeting. Once received,the Clerk will have them shared at public comment for the specified item. To uphold strongcybersecurity management practices, USB’s or other physical electronic storage devices are notaccepted.Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks,posts, poles or similar/other type of handle objects are strictly prohibited; (2) the items do notcreate a facility, fire, or safety hazard; and (3) persons with such items remain seated whendisplaying them and must not raise the items above shoulder level, obstruct the view orpassage of other attendees, or otherwise disturb the business of the meeting.TIME ESTIMATESListed times are estimates only and are subject to change at any time, including while themeeting is in progress. The Council reserves the right to use more or less time on any item, tochange the order of items and/or to continue items to another meeting. Particular items may beheard before or after the time estimated on the agenda. This may occur in order to best managethe time at a meeting or to adapt to the participation of the public.CALL TO ORDERAGENDA CHANGES, ADDITIONS AND DELETIONSPUBLIC COMMENT (5:30 ‐ 6:00 PM)Members of the public may speak in‐person ONLY to any item NOT on the agenda. 1‐3 minutes depending on number ofspeakers. Public Comment is limited to 30 minutes. Additional public comments, if any, will be heard at the end of theagenda.COUNCIL MEMBER QUESTIONS, COMMENTS, ANNOUNCEMENTS (6:00 ‐ 6:05 PM)Members of the public may not speak to the item(s).CONSENT CALENDAR (6:05 ‐ 6:10 PM)Items will be voted in one motion unless removed from the calendar by three Council Members.1.Approval of Minutes from December 9, 2024 and December 16, 2024 Meetings2.Approval of recommendations on process for the priority setting 2025 Council AnnualRetreat as recommended by the Policy & Services Committee3.Review and Acceptance of Annual Report on Development Impact Fees for Fiscal Year2024 and Adoption of a Resolution Making Statutory Findings for all Development Impactand In‐Lieu Fee Funds; CEQA status ‐ Not a Project.4.Adoption of a Resolution Extending the City Manager’s Authority to Execute TransactionsUnder Master Renewable Energy Certificate Agreements with Pre‐Qualified Suppliers inan Amount Not‐to‐Exceed $5,000,000 per Year During Calendar Years 2025‐2030; CEQAStatus: Not a project5.Approval of Contract Amendment #5 to Contract C17164727 with Professional AccountManagement, LLC, dba Duncan Solutions, for Parking Enforcement in the Amount of$132,000 to extend the term for one additional year; CEQA Status ‐ Not a Project6.Approval of Contract Amendment Number 2 to Contract Number C23183770 withTownsend Public Affairs, Inc. to Extend Term for an Additional Year of Service (thesecond of four (4) annual options to renew) for State and Federal Legislative Advocacyand Grant Consulting and Compliance Services; CEQA Status ‐ Not a Project7.Retail Committee Recommendation to: (1) Revise the Fiscal Year 2025 BudgetAppropriation at Mid‐Year to Enhance Cleanliness Efforts in Both Downtowns; (2) Revisethe Ongoing Parklet Regulations to Require Consent to Expand Beyond Own Frontage;and (3) Refer Staff to Follow‐up on Revising the Temporary Use Zoning Rules andExploring Improvements to Downtown Infrastructure and Experience8.SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Sectionsof Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move theAppointment of Members to the Public Art Commission, Human Relations Commission,and Parks and Recreation Commission to November of Each Year and Extending ExistingTerms Accordingly (FIRST READING: December 2, 2024 PASSED 7‐0)9.SECOND READING: Adoption of an Ordinance Approving a Plan for Park Improvements atthe City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin TideGate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval ofAddendum to the Mitigated Negative Declaration for the Project Prepared by Santa ClaraValley Water District (SCH # 2020090237). (FIRST READING: December 9, 2024 PASSED 7‐0)10.SECOND READING: Adoption of Interim Ordinance of the Council of the City of Palo AltoAmending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) andTitle 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code toImplement Recent State Housing Laws (FIRST READING: December 16, 2024 PASSED 7‐0)CITY MANAGER COMMENTS (6:10 ‐ 6:25 PM)BREAK (15 MINUTES)ACTION ITEMS (Item 11: 6:40 ‐ 7:40 PM, Item 12: 7:40 ‐ 8:40 PM)Include: Report of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Report of Officials, UnfinishedBusiness and Council Matters.11.Discussion regarding State and Federal Legislative Advocacy and Adoption of the Policyand Services Committee Recommendations on the 2025 State and Federal LegislativeGuidelines.12.Review and Accept the FY 2026‐FY 2035 Long Range Financial Forecast (LRFF) and FY2026 Budget Development Guidelines as Recommended by the Finance Committee,CEQA Status – Not a ProjectADJOURNMENTINFORMATION REPORTSInformation reports are provided for informational purposes only to the Council and the public but are not listed for actionduring this meeting’s agenda.13.Accessory Dwelling Unit (ADU) ‐ 2024 Quarter 3 (July ‐ September 2024) Report14.Update on Palo Alto Homekey (Interim Housing Shelter at 1237 San Antonio Road)15.Boards, Commissions, and Committees Annual Attendance Report; CEQA Status ‐ Not aProjectOTHER INFORMATIONStanding Committee Meetings this weekPublic Comment LettersSchedule of MeetingsSUPPLEMENTAL / AMENDED AGENDA ITEMS15.SUPPLEMENTAL REPORT: Boards, Commissions, and Committees Annual AttendanceReport; CEQA Status ‐ Not a ProjectPUBLIC COMMENT INSTRUCTIONSMembers of the Public may provide public comments to teleconference meetings via email,teleconference, or by phone.1. Written public comments may be submitted by email to city.council@cityofpaloalto.org.2. For in person public comments please complete a speaker request card located on thetable at the entrance to the Council Chambers and deliver it to the Clerk prior todiscussion of the item.3. Spoken public comments for agendized items using a computer or smart phone willbe accepted through the teleconference meeting. To address the Council, click on the linkbelow to access a Zoom‐based meeting. Please read the following instructions carefully.You may download the Zoom client or connect to the meeting in‐ browser. If usingyour browser, make sure you are using a current, up‐to‐date browser: Chrome 30 ,Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled inolder browsers including Internet Explorer. Or download the Zoom application ontoyour smart phone from the Apple App Store or Google Play Store and enter in theMeeting ID below.You may be asked to enter an email address and name. We request that youidentify yourself by name as this will be visible online and will be used to notify youthat it is your turn to speak.When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk willactivate and unmute speakers in turn. Speakers will be notified shortly before theyare called to speak.When called, please limit your remarks to the time limit allotted. A timer will beshown on the computer to help keep track of your comments.4. Spoken public comments for agendized items using a phone use the telephone numberlisted below. When you wish to speak on an agenda item hit *9 on your phone so weknow that you wish to speak. You will be asked to provide your first and last name beforeaddressing the Council. You will be advised how long you have to speak. When calledplease limit your remarks to the agenda item and time limit allotted.CLICK HERE TO JOIN Meeting ID: 362‐027‐238 Phone: 1‐669‐900‐6833Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its publicprograms, services and meetings in a manner that is readily accessible to all. Persons withdisabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329‐2550 (voice) or by emailing ada@cityofpaloalto.org. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments. 6 January 13, 2025 Materials submitted after distribution of the agenda packet are available for public inspection at www.CityofPaloAlto.org/agendas. City Council Staff Report Report Type: CONSENT CALENDAR Lead Department: City Clerk Meeting Date: January 13, 2025 Report #:2412-3873 TITLE Approval of Minutes from December 9, 2024 and December 16, 2024 Meetings RECOMMENDATION That the minutes be reviewed and approved. ATTACHMENTS Attachment A: December 9, 2024 Draft Action Minutes Attachment B: December 16, 2024 Draft Action Minutes APPROVED BY: Mahealani Ah Yun Item 1 Item 1 Staff Report Item 1: Staff Report Pg. 1 Packet Pg. 7 of 227 CITY COUNCIL DRAFT ACTION MINUTES Page 1 of 5 Regular Meeting December 9, 2024 The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual teleconference at 5:30 P.M. Present In Person: Burt, Kou, Lauing, Lythcott-Haims, Stone, Tanaka, Veenker Councilmember Tanaka Arrived at 5:34 P.M. Present Remotely: Absent: Special Orders of the Day 1. Appreciation for Joe Simitian for his Many Years Serving Palo Alto and the Region NO ACTION 2. Proclamation Expressing Appreciation for Roy Clay, Sr. NO ACTION Agenda Changes, Additions and Deletions Public Comment Council Member Questions, Comments and Announcements Item 1 Attachment A - December 9, 2024 Draft Action Minutes Item 1: Staff Report Pg. 2 Packet Pg. 8 of 227 DRAFT ACTION MINUTES Page 2 of 5 City Council Meeting Draft Action Minutes: 12/09/2024 Study Session 3. Presentation of the 2024 Annual Community Survey Results NO ACTION Consent Calendar Council Member Kou requested to pull Agenda Item Number 4. Council Member Tanaka registered a no vote on Agenda Item Number 11. Council Member Kou registered a no vote on Agenda Item Number 4, 12. MOTION: Vice Mayor Lauing moved, seconded by Council Member Veenker to approve Agenda Item Numbers 4-15. MOTION PASSED 5-10: 7-0 MOTION PASSED 4, 12: 6-1, Kou no MOTION PASSED 11: 6-1, Tanaka no 4. Adoption of a Resolution Accepting the Statement of Votes and Certificate of Election Results and Declaring the Results of the Consolidated Municipal Election Held on November 5, 2024; and Adoption of an Ordinance Approved by the Voters (Measure D) to Undedicate 0.33 Acres of El Camino Park; CEQA status - the Ordinance is exempt under Pub. Res. Code § 21080(b)(12). 5. Review and Approve the Williamson Act Contract Renewals Within Palo Alto City Limits (2024). 6. Approval of Performing Arts Services Agreements for Public-Private Partnerships Between the City of Palo Alto and TheatreWorks, Palo Alto Players, and West Bay Opera for the use of the Lucie Stern Community Theater until June 30, 2027. CEQA Status - Not a Project. 7. Approval of Construction Contract No. C24192547 with O’Grady Paving, Inc. in the Amount of $2,488,857 and Authorization for the City Manager or Their Designee to Negotiate and Execute Change Orders for Related Additional but Unforeseen Work that May Develop During the Project Up to a Not-to-Exceed Amount of $248,885; and Amendment No. 3 to Contract No. C20176858 with Sandis Civil Engineers in the Amount Not-to-Exceed $59,975 for Construction Administration Services for the Churchill Item 1 Attachment A - December 9, 2024 Draft Action Minutes Item 1: Staff Report Pg. 3 Packet Pg. 9 of 227 DRAFT ACTION MINUTES Page 3 of 5 City Council Meeting Draft Action Minutes: 12/09/2024 Avenue Enhanced Bikeway Project (PL-14000); CEQA Status – exempt under CEQA Guidelines Section 15301(c) 8. Approval of Professional Services Contract Number C25192694 with A3-Immersive in an Amount Not to Exceed $275,692 for Projection Mapping Production Services for the 2025 Code:ART Interactive Media Public Art Festival for a period of One Year; and Approval of a FY 2025 Budget Amendment in the Public Art Fund; CEQA Status: Exempt under section 15061(b)(3). 9. Approval of Contract Amendment Number 1 to Contract Number C21179976 with TruePoint Solutions, LLC in the Amount of $362,312 through December 31, 2026 to Provide Technical Support of Services Related to the Land Use Management Permitting System (Accela); This Amendment Results in a Revised Total Contract Not-to-Exceed Amount of $1,263,995. CEQA Status: Not a Project. 10. Approval of Contract Amendment Number 3 to Contract Number S19174467 with BuildingEye, Inc. in the Amount of $59,020 through December 31, 2025 to Provide Data Visualization for Building Permits, Planning Entitlements, and Code Enforcement Activities; This Amendment Results in a Revised Total Contract Not-to-Exceed Amount of $412,430. CEQA Status: Not a Project. 11. Approval of 1) Amendment No. 7 to Contract No. C16163034A with Cumming Management Group, Inc. in the amount of $827,418 for Additional Construction Management Services; 2) Increase of Construction Contingency for Contract No. C21178123B with Swinerton Builders in the Amount Not-to-Exceed $3,000,000 for the New Public Safety Building Capital Improvement Program Project (PE- 15001); and 3) Budget Amendment in the Capital Improvement Fund; CEQA - Environmental Impact Report for the New Public Safety Building (Resolution No. 9772) 12. Approval of a Cooperative Agreement between the City of Palo Alto, the Peninsula Corridor Joint Powers Board (Caltrain), and the Santa Clara Valley Transportation Authority (VTA) to Conduct the Preliminary Engineering and Environmental Documentation Phase of the Connecting Palo Alto Grade Separation Projects at Churchill Avenue, Meadow Drive, and Charleston Road Crossings and Allocating $20 million in Grant Funding to this Phase, and authorize the City Manager or their designee to Finalize and Execute the Agreement; CEQA status - CEQA and NEPA review will be conducted as part of this agreement. 13. Improvement Projects Providing Enhancing the Churchill Avenue Railroad At-Grade Crossing 14. Approval of Budget Amendments in the Child Care Trust Fund and General Fund in Support of Expenditures to Support Early Education Providers; CEQA status - Not a Project. Item 1 Attachment A - December 9, 2024 Draft Action Minutes Item 1: Staff Report Pg. 4 Packet Pg. 10 of 227 DRAFT ACTION MINUTES Page 4 of 5 City Council Meeting Draft Action Minutes: 12/09/2024 15. FIRST READING: Adoption of an Ordinance Approving a Plan for Park Improvements at the City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin Tide Gate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval of Addendum to the Mitigated Negative Declaration for the Project Prepared by Santa Clara Valley Water District (SCH # 2020090237). City Manager Comments Ed Shikada, City Manager Action Items 16. Receive an Update and Confirm the Preferred Concept Plan for the University Avenue Streetscape Improvements Project (PE-21004) and Direct Staff to Return with a Contract Amendment for Future Phases; CEQA Status – Not a Project MOTION: Council Member Lythcott-Haims moved, seconded by Council Member Burt to: A. Confirm the preferred concept plan for the University Avenue Streetscape Project (PE- 21004); and B. Direct staff to return with a design-related services amendment for Council approval, in order to advance the project; and C. Direct staff to explore additional medium-term measures, including short-term measures, for loading zones on side streets, provisions of tree wells on side streets and University Avenue, and support for historic promotion of the street. MOTION PASSED: 7-0 17. Approval of Amendments to the Employment Agreements between the City of Palo Alto and Council Appointed Officers, specifically the City Manager, City Attorney, and City Clerk. CEQA Status - Not a Project MOTION: Council Member Lauing moved, seconded by Council Member Lythcott-Haims to approve and authorize the Mayor to execute the following contract amendments for Council Appointed Officers: 1. Amendment No. 12 to Employment Agreement between the City of Palo Alto and Molly S. Stump (Attachment A); Item 1 Attachment A - December 9, 2024 Draft Action Minutes Item 1: Staff Report Pg. 5 Packet Pg. 11 of 227 DRAFT ACTION MINUTES Page 5 of 5 City Council Meeting Draft Action Minutes: 12/09/2024 2. Amendment No. 1 to Employment Agreement between the City of Palo Alto and Mahealani Ah Yun (Attachment C). MOTION PASSED: 7-0 MOTION SPLIT FOR THE PURPOSE OF VOTING MOTION: Council Member Lauing moved, seconded by Council Member Lythcott-Haims to approve and authorize the Mayor to execute the following contract amendments for Council Appointed Officer: 3. Amendment No. 6 to Employment Agreement between the City of Palo Alto and Ed Shikada (Attachment B); and MOTION PASSED: 6-1, Tanaka no Adjournment: The meeting was adjourned at 9:30 P.M. ATTEST: APPROVED: ____________________ ____________________ City Clerk Mayor NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC) 2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section 2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council found action minutes and the video/audio recordings of Council proceedings to be the official records of both Council and committee proceedings. These recordings are available on the City’s website. Item 1 Attachment A - December 9, 2024 Draft Action Minutes Item 1: Staff Report Pg. 6 Packet Pg. 12 of 227 CITY COUNCIL DRAFT ACTION MINUTES Page 1 of 6 Regular Meeting December 16, 2024 The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual teleconference at 5:31 P.M. Present In Person: Burt, Kou, Lauing, Lythcott-Haims, Stone, Tanaka, Veenker Present Remotely: Absent: Special Orders of the Day 1. Proclamation Expressing Appreciation to Dean Batchelor Upon His Retirement NO ACTION 2. Proclamation Recognizing Gunn High School Pickleball Club NO ACTION Closed Session 3. CONFERENCE WITH CITY ATTORNEY—POTENTIAL LITIGATION Subject: Potential Litigation Regarding Adequacy of City of Palo Alto Housing Element, As Set Forth in Letter Dated August 2, 2024 from David Lanferman, Esq. Authority: Government Code Section 54956.9(d)(2) One Case, as Defendant MOTION: Council Member Burt moved, seconded by Council Member Lythcott-Haims to go into Closed Session. MOTION PASSED: 7-0 Council went into Closed Session at 5:56 P.M. Council returned from Closed Session at 7:05 P.M. Mayor Stone announced no reportable action. Item 1 Attachment B - December 16, 2024 Draft Action Minutes Item 1: Staff Report Pg. 7 Packet Pg. 13 of 227 DRAFT ACTION MINUTES Page 2 of 6 City Council Meeting Draft Action Minutes: 12/16/2024 Agenda Changes, Additions and Deletions Public Comment Council Member Questions, Comments and Announcements Study Session 4. Discussion of 2024 City Council Ad Hoc Committees Activities NO ACTION Consent Calendar Vice Mayor Lauing, Councilmember Tanaka, and Lythcott-Haims requested to pull Agenda Item Number 24. Councilmember Tanaka, Lythcott-Haims, and Veenker requested to pull Agenda Item Number 22. Councilmember Tanaka registered a no vote on Agenda Item Numbers 10, 13, 16, 17, 18. MOTION: Mayor Stone moved, seconded by Vice Mayor Lauing to approve Agenda Item Numbers 5-21, 23, 25 and to pull Agenda Item Numbers 22 and 24. MOTION PASSED ITEMS 5-9, 11, 12, 14, 15, 19-21, 23, 25: 7-0 MOTION PASSED ITEMS 10, 13, 16-18: 6-1, Tanaka no 5. Approval of Minutes from December 2, 2024 City Council Meeting 6. Adoption of a Resolution Authorizing the City Manager to Transact for Electric Supplies to Meet the City’s Electrical Needs under Electric Master Agreements; CEQA Status: Not a project 7. Adoption of Resolutions Authorizing an Installment Sale Agreement with the California State Water Resources Control Board for Financing of the Local Advanced Water Purification System Project (WQ-19003); CEQA Status - Addendum to the 2015 Item 1 Attachment B - December 16, 2024 Draft Action Minutes Item 1: Staff Report Pg. 8 Packet Pg. 14 of 227 DRAFT ACTION MINUTES Page 3 of 6 City Council Meeting Draft Action Minutes: 12/16/2024 Environmental Impact Report for the Palo Alto Recycled Water Project (SCH 2011062037) 8. Community Development Block Grant 2025-2030 Consolidated Plan and Authorize Execution of Revenue Agreement with the County of Santa Clara for Annual Action Plan FY 2025-2026 9. Approve a Grant Agreement with the Federal Highway Administration for the South Palo Alto Bikeways Demonstration Project for the receipt of $888,000 in Federal Funds and Requiring $222,000 in City Matching Funds over Four Years; CEQA status – not a project. 10. Approval of Seven Professional Services Contracts C25192617, C24193306 - C24193311, with Safebuilt, LLC, Integrated Design 360, CSG Consultants, Inc., 4LEAF, Inc., True North Compliance Services, Inc., TRB and Associates, Inc., and West Coast Code Consultants, Inc. in the Aggregate Total Not-to-Exceed Amount of $4,000,000 for On-Call Development Services, Inspection, Plan Review, and Green Building Program Services for a Period of Four Years. CEQA Status: Not a Project. 11. Approval of Increase of Construction Contingency for Contract No. C24190072 with O’Grady Paving, Inc. in the Amount of $345,000 to Perform Additional Street Improvement Work on California Avenue and El Camino Real for Capital Improvement Program Projects PL-23000 and PL-12000; and Adoption of a Resolution Continuing the Closure of a Portion of California Avenue through 2025; CEQA Status – Categorically Exempt under CEQA Guidelines Sections 15301 and 15304 12. Approval of Professional Services Contract Number C25193087 with Rincon Consultants in an Amount Not to Exceed $202,322 for California Environmental Quality Act (CEQA) Review of a Revised Master Plan for the Cubberley Site for a Period of One Year, and Approval of Budget Amendments in the General Fund and Cubberley Infrastructure Fund; CEQA Status – this action will initiate CEQA review of the master plan. 13. Approval of Contract Amendment No 1 to Contract Number C22177024A with CLEAResult Consulting Inc., Extending the Term for Two Additional Years Through November 14, 2026, a Change in the Compensation Structure, and no Change in Not-to- Exceed Amount of $2,571,714 for Efficiency and Electrification Program Services for Small to Medium Business and Commercial Customers; CEQA Status: Not a Project. 14. Approval of Contract Amendment Number 3 to Contract #S20178065 with OIR Group, in the Amount of $20,000 and for a six-month extension to continue Independent Police Auditing Services in Palo Alto. CEQA Status – Not a Project. 15. Approval of Professional Services Contract Number C25192045 with Urban Planning Partners, Inc., in the Amount Not to Exceed of $165,573 for Phase I of the Car Free Ramona Street Project for a Period of One Year, Direct Staff to Return with an Amendment to Approve Phase II; Approval of a Budget Amendment in the General Item 1 Attachment B - December 16, 2024 Draft Action Minutes Item 1: Staff Report Pg. 9 Packet Pg. 15 of 227 DRAFT ACTION MINUTES Page 4 of 6 City Council Meeting Draft Action Minutes: 12/16/2024 Fund; and Adopt a Resolution Continuing the Closure of a Portion of Ramona St. through 2025; CEQA Status – categorically exempt. 16. Approval of Contract C24191871 Amendment Number 1 Effective July 1, 2024 with Equinix, LLC in the Amount of $1,246,793 to Extend the Term for an Additional 2 Years Through June 30, 2029 for Fiber Licensing Agreement (Attachment A); and Authorization to Increase Contingency Amount by $75,000 for a Total Not to Exceed Amount of $1,954,923; CEQA Status – Not a Project 17. Approval of Purchase Order C24193066 with Origami Risk LLC for Records Management Software Supporting the City’s Claims and Litigation for a Three-Year Term Not-To- Exceed Amount of $206,310; CEQA: Not a project 18. Adoption of a revised salary schedule for Limited Hourly employees to increase the maximum hourly rate for the Management Specialist classification; CEQA Status - not a project 19. Adoption of a Resolution of Intention to Reimburse Expenditures for the Grid Modernization and Related Projects of the Electric Utility System Infrastructure from the Proceeds of Tax-Exempt Utility Revenue Bonds. 20. Accept the City of Palo Alto’s Audited Financial Statements as of June 30, 2024 and the Macias, Gini & O’Connell Management Letter; Approve the FY 2024 Annual Comprehensive Financial Report; and Amend the FY 2024 Budget in Various Funds, as Recommended by the Finance Committee; CEQA Status – Not a Project 21. Approval of Audit Reports and Task Orders: 1) ADA Compliance Audit and Recruitment & Succession Planning Audit; 2) Annual Risk Assessment and 2025 Audit Plan; 3) Task Order Execution for Remaining FY25 Tasks; and 4) Realignment of FY 2024 and FY 2025 Task Order Budgets with No Fiscal Impact as Reviewed by Policy & Services Committee; CEQA: Not A Project 22. FIRST READING: Adoption of a Temporary Ordinance Amending Section 18.42.110 (Wireless Communications Facilities) of Title 18 (Zoning) to Require Architectural Review Board Review for Tier 2 and Tier 3 Wireless Communications Facilities in the Public Rights-of-Way and Repeal the Objective Aesthetic, Noise, and Related Standards for Wireless Communication Facilities in the Public Rights-of-Way. CEQA Status: Exempt Pursuant to CEQA Guidelines Sections 15301, 15302, and 15303. 23. FIRST READING: Adoption of a Temporary Ordinance Amending Various Sections of Titles 18 (Zoning) and 21 (Subdivisions and Other Divisions of Land) to Implement Laws from the 2024 Legislative Session; Adoption of an Identical Emergency Ordinance; and Adoption of a Resolution Repealing SB 9 Objective Design Standards and Replacing Them with Single Family Objective Standards. CEQA Status – Exempt Pursuant to CEQA Guidelines 15061(b)(3). Item 1 Attachment B - December 16, 2024 Draft Action Minutes Item 1: Staff Report Pg. 10 Packet Pg. 16 of 227 DRAFT ACTION MINUTES Page 5 of 6 City Council Meeting Draft Action Minutes: 12/16/2024 24. REINTRODUCED FIRST READING: Adoption of an Ordinance Amending Palo Alto Municipal Code Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) to Clarify Existing Regulations and to Implement State Housing Laws Adopted in 2023 and Earlier. CEQA Status - Exempt Pursuant to CEQA Guidelines Section 15061(b)(3). (PREVIOUSLY INTRODUCED: November 12, 2024 PASSED 6-1, Kou no) 25. SECOND READING: Adoption of an Interim Ordinance Amending Chapters 18.04, 18.16, 18.30(A), and 18.30(C) of the Palo Alto Municipal Code to Implement High Priority Retail Revitalization Measures and Direction; Exempt Pursuant to CEQA Guidelines Section 15061(b)(3) (FIRST READING: November 18, 2024 PASSED 7-0) City Manager Comments Ed Shikada, City Manager Action Items 26. Policy and Services Committee Recommendation to Adopt a Policy to Reimburse Council Members Up to $2,000/year from the City Council Contingent Account for Technology Resources and Other Actual and Necessary Expenses Incurred in the Performance of Official Duties MOTION: Councilmember Lythcott-Haims moved, seconded by Vice Mayor Lauing to adopt the attached policy authorizing Council Members to receive reimbursement, up to $2,000 per calendar year (taken from the City Council Contingent Account funding), for technology resources (limited to one of the same hardware items per four-year Council term) or other actual and necessary expenses incurred in the performance of official City duties. The policy includes procedures for documentation and audits. MOTION PASSED: 6-1, Kou no 27. Approval of CAO Committee Recommendation to direct the City Manager, or their designee, and Council Appointed Officers Committee Chair Lauing to negotiate renewal of the contract with Baker Tilly US, LLC for Internal Audit Services through June 30 2026 with an option to renew for two years; and align the review of the City Auditor performance with other CAO reviews. MOTION: Council Member Burt moved, seconded by Council Member Kou to direct the Council Appointed Officers Committee Chair Lauing, with technical support from the Human Resources Director and appropriate City staff, to renew and refine the terms of a contract amendment Item 1 Attachment B - December 16, 2024 Draft Action Minutes Item 1: Staff Report Pg. 11 Packet Pg. 17 of 227 DRAFT ACTION MINUTES Page 6 of 6 City Council Meeting Draft Action Minutes: 12/16/2024 with Baker Tilly US, LLC through June 30, 2026 plus negotiate terms for an option to renew for two years, and to align the review of the City Auditor performance with other CAO reviews. MOTION PASSED: 7-0 Adjournment: The meeting was adjourned at 9:57 P.M. ATTEST: APPROVED: ____________________ ____________________ City Clerk Mayor NOTE: Action minutes are prepared in accordance with Palo Alto Municipal Code (PAMC) 2.04.160(a) and (b). Summary minutes (sense) are prepared in accordance with PAMC Section 2.04.160(c). Beginning in January 2018, in accordance with Ordinance No. 5423, the City Council found action minutes and the video/audio recordings of Council proceedings to be the official records of both Council and committee proceedings. These recordings are available on the City’s website. Item 1 Attachment B - December 16, 2024 Draft Action Minutes Item 1: Staff Report Pg. 12 Packet Pg. 18 of 227 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: City Manager Meeting Date: January 13, 2025 Report #:2412-3924 TITLE Approval of recommendations on process for the priority setting 2025 Council Annual Retreat as recommended by the Policy & Services Committee RECOMMENDATION The Policy & Services Committee and staff recommend City Council approve the process for the priority setting 2025 Annual Retreat. This includes recommending the 2025 Mayor not make Councilmember appointments to City Ad Hoc Committees prior to the Annual Retreat, and that the City Council forgo substantive review of the City Council Procedures and Protocols Handbook given significant edits made in 2024, with the exception of minor edits to section 7(b) Priorities Background and Definition. BACKGROUND The Council Handbook establishes the Annual Council Priorities process, including the role of the Policy & Services Committee. Section 7.b.6 states that “If needed, the Policy and Services Committee, each year at its December meeting, shall make recommendations about the process that will be used at the Annual Retreat paying particular attention to the number of priorities suggested by Councilmembers. The recommended process is to be forwarded to Council for adoption in advance of the Council retreat.” The current Council Priorities are: •Economic Development and Transition •Climate Change and the Natural Environment: Protection and Adaptation •Housing for Social and Economic Balance •Community Health, Safety, Wellness & Belonging Item 2 Item 2 Staff Report Item 2: Staff Report Pg. 1 Packet Pg. 19 of 227 ANALYSIS At its December 10, 2024 meeting1, the Policy and Services Committee (P&S) reviewed the 2024 Council Priorities and proposed 2025 priority setting process for reviewing and selecting Council priorities. Per the Handbook process, the Policy & Services Committee recommends to the Council, which suggestions if any, should be considered at the Annual Retreat. Attachment A includes responses from the survey on Council Priority recommendations. Chair Kou recommended the Council consider edits to the Climate Change Priority as suggested by Councilmember Veenker: “Climate and Sustainability Action and Adaptation (our goal is not Climate Change, it is Climate Action).” Standing and Ad Hoc Committees as resources to advance Council Priorities Discussion The P&S Committee discussed the use of various ad hocs in 2024 that helped advance Council Priorities. On December 16, the City Council also engaged in a Study Session to report out the progress made via the seven ad hocs (Retail, Stanford, Housing, Climate Action, Rail, Cubberley, and El Camino Real). While acknowledging the good work done through these ad hoc Committees, the P&S Committee also recognized the challenges of time management and supporting seven ad hocs in addition to the Council‘s standing committees (Finance, Policy & Services, Council Appointed Officers, and City/Schools Liaison). Staff reported that the current committee structure presents several challenges. First, the scope and purpose of some ad hoc Committees have evolved to address broad subject areas rather than specific topics. This development is not aligned with the purpose of ad hocs as outlined in the Council Handbook, and creates the need to follow Brown Act procedures. Second, this broad focus has led to an indefinite duration for many ad hocs, which is a workload management challenge. Finally, much of the work funneled to ad hocs could be addressed within existing Standing Committees, ensuring that the nature of the work aligns with organizational priorities and makes better use of staff resources and capacity. The P&S Committee recommended that, at its Annual Retreat, the Council discuss the role of ad hocs and specific priorities for conducting the Council’s business in 2025 To enable the discussion as outlined above, the Policy & Services Committee recommended the 2025 Mayor not make appointments to City Ad Hoc Committees prior to the Annual Retreat. City Council Procedures and Protocols Handbook Edits Section 8.1 Annual Review and Update of the Handbook, directs the Policy and Services Committee to review and update the Procedures and Protocols Handbook and make recommendations to Council. Given the extensive update to the Handbook in 2024, the Policy 1 Policy & Services Committee Meeting 12/10/2024: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=14557 Item 2 Item 2 Staff Report Item 2: Staff Report Pg. 2 Packet Pg. 20 of 227 & Services Committee recommends that the Council forgo significant updates, and instead recommend that the Council consider minor updates to Section 7(b) titled Priorities Background and Definition to reflect the following edits: •Remove language limiting priorities to three years •Remove “unusual” from the definition of priorities Council Annual Retreat FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW Item 2 Item 2 Staff Report Item 2: Staff Report Pg. 3 Packet Pg. 21 of 227 ATTACHMENTS APPROVED BY: Item 2 Item 2 Staff Report Item 2: Staff Report Pg. 4 Packet Pg. 22 of 227 ATTACHMENT A Council and Council-elect Survey Responses on 2025 Priorities Per the City Council Procedures and Protocols Handbook process, the Policy & Services Committee recommends to the Council, which suggestions if any, should be considered at the Annual Retreat. The Council and Council-elect were surveyed November 15 - November 27 on recommended 2025 Priorities for the Policy & Services Committee to consider, below are the responses received. Councilmember Veenker “I suggest: •Climate and Sustainability Action and Adaptation (our goal is not Climate Change, it is Climate Action) •Community Health, Safety, Wellness & Belonging •Economic Development •Housing for Social & Economic Balance” Councilmember-elect Lu “I realize the final priorities will probably evolve incrementally, so I'm taking some refinements / prioritization with existing priorities. My hope is to have the clearest possible milestones (or finish) projects that make it into our final list.” “My top 3 (unranked): 1. Housing for Economic Balance o Clear milestones for the San Antonio + Downtown plans o Finalize plans + restart Buena Vista redevelopment o Implementation of Housing Element Goals 2. Economic Development o Clear milestones for Cal Ave / University streetscapes (i.e. designs and funding?) o Implement another round of retail streamlining ordinances, focused on a more complex set of zoning issues (including parking) o Permanent parklet ordinance (with as much simplicity + documentation for 3. Community Safety and Wellness o Taking a Vision Zero goal (with a deadline and plan to fund improvements) coming out of our Safe Systems / Bike and Pedestrian planning processes o TBD milestones for mental health resources (with a focus on youth)” Councilmember Lauing Item 2 Attachment A - Council and Council-elect Survey Responses on 2025 Priorities Item 2: Staff Report Pg. 5 Packet Pg. 23 of 227 ATTACHMENT A Each of this year’s objectives is massive and requires a multi-year approach. As I have reflected on this, I don’t see any objective more crucial than what we already have. And we don’t want to change key objectives just for the novelty of it. If anything, I could see dropping the word “transition” this year on the economic recovery objective as we are far from the pandemic. This could help emphasize that this objective is not just about retail. •A summary and communication program on recent and planned permitting and inspection streamlining related to solar, energy storage, and electrification appliances. •Identification of expanded or enhanced special events to date and those projected for 2025 resulting from additions made to special events staffing. •A plan with milestones for Cal Ave and University Ave downtowns nearer term improvements, including a permanent parklet program for Cal Ave early in Q1 2025. •A summary and communication program of recent and planned retail related permit streamlining. Item 2 Attachment A - Council and Council-elect Survey Responses on 2025 Priorities Item 2: Staff Report Pg. 6 Packet Pg. 24 of 227 City Council Procedures and Protocols Handbook 35 2) Are environmentally sustainable. 3) Integrate equity into our decisions, considering how decisions affect people differently based on their identity or circumstances. 4) Make decisions that create a healthy, safe and welcoming community for all. 5) Safeguard public trust through transparent practices and open communication. 6) Embrace innovation. (b) Annual Council Priorities Priorities Background and Definition The Council adopted its first Council priorities in 1986. Each year the Council reviews its priorities at its Annual Council Retreat. On October 1, 2012 the Council formally adopted the definition of a Council priority, and the Council’s process and guidelines for selection of priorities. There is a goal of no more than three to four priorities per year and priorities generally have a two‐ to three‐year time limit. Council can identify two to three specific objectives within a priority. A Council priority is defined as a topic that will receive particular, unusual and significant attention during the year. This varies from a Council value which is defined as an enduring goal and intention to guide the work of the Council. The values (shared above) allow the Council to maintain these enduring intentions while also selecting annual priorities that reflect shorter‐ term projects and goals. Purpose The establishment of Council priorities will assist the Council and staff to better allot and utilize time for discussion and decision making. Process In advance of the annual Council Retreat, staff will solicit input from the Council on the priorities to be reviewed and considered for the following year. 1) Councilmembers may submit up to three priorities. 2) Priorities should be submitted no later than December 1. 3) As applicable, the City Manager will contact newly elected officials for their input by December 1. 4) The City Manager and the City Clerk will solicit for the public to share proposed priorities prior to the Council retreat. The Policy and Services Committee shall recommend to the Council which suggestions if any shall be considered at the Council retreat. 5) Staff will collect and organize the recommended priorities into a list for Council consideration and provide to Council in the packet for the Council retreat. Item 2 Attachment B - City Council Procedures and Protocols Handbook Redline Edits Item 2: Staff Report Pg. 7 Packet Pg. 25 of 227 ATTACHMENT C Proposed 2025 Council Annual Retreat January 25, 2025 Mitchell Park Community Center, El Palo Alto Room #Item 1.Welcome by Mayor and CM Goal and purpose as aligned with Council policy Expectations and meeting norms Agenda for the day and source of the input 2.Introductions Introduction of Council members and introductory comments from each member 3.Discuss Key Inputs Community poll on priorities Council feedback on priorities 2024 Accomplishment Highlights 4.Public Comment Break 5.Selection of 2025 Council Priorities: Economic Development & Transition Climate Change & the Natural Environment Housing for Social & Economic Balance Community Health, Safety, Wellness & Belonging What’s missing or needs retooling? 6.Discussion on Strategies to Achieve Priorities Council Engagement, Community engagement, resources Management of Council Committees and ad hocs Break 7.Next Steps Key dates and outcomes: 2025 Objectives discussion Committee workplans 8.Retreat Action Review and Comment Adjournment Item 2 Attachment C - Proposed 2025 Council Retreat Agenda Item 2: Staff Report Pg. 8 Packet Pg. 26 of 227 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Administrative Services Meeting Date: January 13, 2025 Report #:2409-3457 TITLE Review and Acceptance of Annual Report on Development Impact Fees for Fiscal Year 2024 and Adoption of a Resolution Making Statutory Findings for all Development Impact and In-Lieu Fee Funds; CEQA status - Not a Project. RECOMMENDATION Staff recommends that the City Council review and accept the Annual Report on Development Impact Fees for the period ending June 30, 2024, and adopt the resolution making statutory findings for all development impact and in-lieu fee funds (Attachment B). EXECUTIVE SUMMARY This report contains the annual report on the City of Palo Alto’s Development Impact Fees for the Fiscal Year (FY) 2024. This report meets the annual reporting requirements in Government Code section 66006 and 66013. This report also contains a resolution making the finding required by Government Code section 66001. BACKGROUND Development Impact Fees Local agencies commonly impose fees on development projects to help offset the costs of funding the public facilities impacted by those developments. These fees are known as development impact fees. State law (Government Code section 66000 et seq. or “the Mitigation Fee Act”) requires local agencies that impose development impact fees to prepare an annual report providing specific information about those fees. The City assesses 12 development impact fees. Within 180 days after the close of the fiscal year, the agency that collected the fees must make available to the public the following information regarding each fund or account: Brief description of the type of fee in the fund. Amount of the fee. Beginning and ending balance in the fund. Item 3 Item 3 Staff Report Item 3: Staff Report Pg. 1 Packet Pg. 27 of 227 Amount of fees collected, and interest earned, if applicable. Identification of each public improvement on which (Attachment): o Fees were expended o Amount of the expenditure on each improvement o Total percentage of the cost of the public improvement that was funded with fees. Identification of an approximate date by which the construction of a public improvement will commence, if the local agency determines that sufficient funds have been collected to complete financing on an incomplete public improvement. Description of each interfund transfer or loan made from the account or fund, including the public improvement on which the loaned funds will be expended, and in the case of an interfund loan, the date on which the loan will be repaid and the rate of interest that the account or fund will receive on the loan. Amount of any refunds made due to inability to expend fees within the required time frame. The Mitigation Fee Act requires that the City Council review the annual report at its first regularly scheduled public meeting no less than 15 days after the information is made available to the public. Staff published the report on the City’s website on December 27, 2024. In addition to the annual reporting requirement, the Mitigation Fee Act requires, for the fifth fiscal year following the first deposit into the fund and every five years thereafter, that the City Council make findings with respect to any portion of the fee(s) remaining unexpended, whether committed or uncommitted. The findings must: Identify the purpose to which the fee is to be put. Demonstrate a nexus between the fee and the purpose for which it was originally charged; and Identify all sources and amounts of funding anticipated to complete financing of incomplete improvements Designate the approximate dates on which the anticipated funding is expected to be deposited into the fund. If the agency no longer needs the funds for the purposes for which they were collected, or if it fails to make required findings or perform certain prescribed administrative tasks, it may be required to initiate a refunding process as outlined in the statute. The City has chosen to make these findings on an annual basis. Item 3 Item 3 Staff Report Item 3: Staff Report Pg. 2 Packet Pg. 28 of 227 In-Lieu and Other Development-Related Fees In-lieu fees provide developers with an alternative means of satisfying the City’s requirement to provide or construct certain improvements or amenities as part of their projects. While In-lieu fees do not have statutory reporting requirements, they are included in this report in the interest of transparency. These fees include the Parkland Dedication Fee/Quimby Act fee imposed under Government Code section 66477, the Residential Housing In-Lieu Fee, the Public Art In-Lieu Fee, and the water and wastewater connection and capacity fees imposed under Government Code section 66013. The annual report for FY 2024 is included as Attachment A. Staff published the report on the City’s website on December 27, 2024. The report contains the statutorily required information for the following fees: Stanford Research Park/El Camino Real traffic impact fees (PAMC Ch. 16.45): Fee for new nonresidential development in the Stanford Research Park/El Camino Real Service Commercial zone, to fund capacity improvements at eight intersections. The City ceased collecting this fee effective fiscal year 2020. San Antonio/West Bayshore Area traffic impact fees (PAMC Ch. 16.46): Fee for new nonresidential development in the San Antonio/West Bayshore area to fund capacity improvements at four intersections. The City ceased collecting this fee effective fiscal year 2020. Housing impact fees imposed on commercial developments (PAMC Ch. 16.65): Fee on commercial and industrial development to offset the demand that new jobs create for low income and moderate-income housing in the City by supporting below-market rate housing at various levels of affordability. General Government facilities: (PAMH Ch. 16.58) – Fee on residential and non-residential development to fund improvements to those facilities used by the City to provide basic governmental services and public facilities maintenance services, exclusive of public safety. Parks, Community Centers, and Libraries impact fees (PAMC Ch. 16.58): Fee on new residential and non-residential development to provide funds for improvements to community facilities including parks, community centers, libraries. Item 3 Item 3 Staff Report Item 3: Staff Report Pg. 3 Packet Pg. 29 of 227 Residential (Rental) impact fees (PAMC Ch. 16.65) Fee on rental residential developments (including mixed use with rental housing) to offset the demand that new market-rate rental housing creates for low and moderate-income housing in the City. Charleston-Arastradero Corridor pedestrian and bicyclist safety fees (PAMC Ch. 16.60): Fee on new development and re-development within the Charleston-Arastradero Corridor to provide for streetscape improvements designed to increase pedestrian and bicyclist safety in the corridor. Citywide Transportation impact fees (PAMC Ch 16.59): Fee on development in all parts of the City to fund transportation enhancements, or public facilities and programs to reduce congestion. New Public Safety facilities (PAMH Ch. 16.58): Fee on residential and non-residential development to fund the construction, acquisition, and/or upgrade of police and fire facilities, including fire apparatus and vehicles. University Avenue Parking In-Lieu Fund (PAMC Ch. 16.57): Fees collected from non- residential development within the University Avenue Parking Assessment District to fund the cost of public parking facilities to serve non-residential development projects that do not provide adequate new off-street parking spaces to satisfy the requirements of the zoning code. Development Impact Fee Five-Year Findings (Government Code section 660001) The City has elected to conduct an annual review of findings for all development impact fees. The proposed findings are presented in Attachment B, and the unexpended balances as of June 30,2024 for each fund are outlined below: The Stanford Research Park/ El Camino Fund is $1,275,357. The San Antonio/West Bayshore Fund is $427,121. The Commercial Housing Impact Fee Fund is $4,207,369. The General Government Facilities Fund is $191,973. The Community Facilities-Park Development Fee Fund is $2,384,330. The Community Facilities- Community Center Development Fee Fund is $970,142. Item 3 Item 3 Staff Report Item 3: Staff Report Pg. 4 Packet Pg. 30 of 227 The Community Facilities- Library Development Fee Fund is $617,837. The Residential Housing Impact Fee Fund is $1,155,034. The Charleston-Arastradero Corridor Pedestrian & Bicyclist Safety Fee Fund is $17,253. The Citywide Transportation Fund is $1,883,518. The Public Safety Facility Fee Fund is $151,288. The University Avenue Parking In-Lieu Fund is $15,189,652. In addition to development fee funds that are required to be reported under AB 1600, the following funds are reported for information purposes only and are not required to be reported under AB 1600: Residential housing in-lieu fees (PAMC Ch. 16.65): Fee on residential ownership developments in-lieu of providing required below-market rate to low-and moderate- income households. Parkland Dedication (CA Government Code Section 66477-Quimby Act): Fees on parkland dedication imposed on new residential and non-residential development. Public Art Fund (PAMC Ch. 16.61): Fees imposed on new commercial developments (including mixed use projects), including new construction, remodels, additions and reconstruction that (i) have a floor area of 10,000 sq. ft. or more, and (ii) have a construction value of $200,000, or more, exclusive of costs for architecture, design, engineering, and required studies; and all new residential projects of five or more units to fund public art for private developments. Water and Wastewater Collection (California Government Code Section 66013): Connection and Capacity fees charged to developers that are adding load to the water and sewer systems effective July 1,2005. FISCAL/RESOURCE IMPACT There is no direct fiscal impact associated with the review and acceptance of the annual report. The various fee funds are reviewed annually for any unallocated or unexpended balances as part of the development of the City’s five-year capital improvement plan. If the council does not make the findings contained in Attachment B, the development fees described therein might be required to be refunded. This would have a potential fiscal impact of up to $28,470,873. Item 3 Item 3 Staff Report Item 3: Staff Report Pg. 5 Packet Pg. 31 of 227 STAKEHOLDER ENGAGEMENT This report has been prepared by the Accounting Division in Administrative Services and reviewed by partner departments including the City Attorney’s Office, the Planning and Development Services Department, the Office of Transportation, Public Works, Library, and the Community Services Department. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) in that the report and findings required by the Mitigation Fee Act 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: Development Impact Fees FY 2024 and Use of Fees Summary Attachment B: Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees APPROVED BY: Lauren Lai, Administrative Services Director Item 3 Item 3 Staff Report Item 3: Staff Report Pg. 6 Packet Pg. 32 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 Stanford Research Park/El Camino Real San Antonio/West Bayshore Area FUND Transportation Impact Fee Transportation Impact Fee Description of the Type of Fee Amount of the Fee $12.85/sq. ft.; City ceased collecting effective FY 2020 $2.65/sq. ft.; City ceased collecting effective FY 2020 Fund Balance July 1, 2023 $1,220,842 $407,697 FY 2024 Activity Revenues Interest Earnings 31,614 10,555 Unrealized Gain/(Loss) Investments 22,902 8,869 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues $54,516 $19,424 Total Expenditures - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $1,275,358 $427,121 Total Reserves - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $1,275,358 $427,121 Traffic impact fees imposed on new non-residential development in the Stanford Research Park/El Camino Real Commercial Service zone to fund improvements at eight identified intersections. (PAMC 16.45) Traffic impact fees imposed on new non-residential development in the San Antonio/West Bayshore area to fund capacity improvements at four indentified intersections. (PAMC 16.46) Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 7 Packet Pg. 33 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 Commercial Housing FUND Impact Fee General Government Facility Development Fee Description of the Type of Fee Fees imposed on commercial and industrial development to offset the demand that new jobs create for low and moderate-income housing in the City. (PAMC 16.65) Fees imposed on residential and non-residential development to fund facilities associated with municipal administration. (PAMC 16.58) Amount of the Fee Hotel / Retail / Other Residential: (ADUs under 750 sq. ft are exempt) Non-Residential: $26 per sq. ft. Single family $1,684.20 per unit Multi-family $1.346.36 per unit Office/R&D: $77 per sq. ft. Non-Residential: Commercial $939 per 1,000 sq. ft. or fraction thereof Industrial $312 per 1,000 sq. ft. or fraction thereof Office/Institutional $1,256 per 1,000 sq.ft. or fraction thereof Fund Balance July 1, 2023 $27,033,611 $121,165 FY 2024 Activity Revenues Fees Collected 438,546 66,695 Interest Earnings 320,494 4,014 Unrealized Gain/(Loss) Investments 56,927 98 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues 815,967 70,807 Expenditures Salaries and Benefit (11,893) - Liability Insurance (753) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Expenditures (12,646) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $27,836,932 $191,972 Reserves Notes Receivable (see detail below)(23,629,563) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Reserves (23,629,563) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $4,207,369 $191,972 Notes Receivable Detail: $1,290,000 for 2811 Alma; $4,137,278 for 801 Alma; $7,700,000 for Buena Vista Mobile Home Park; $10,502,309 Wilton Court Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 8 Packet Pg. 34 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 FUND Park Development Fee Community Centers Development Fee Description of the Type of Fee Amount of the Fee Residential: (ADUs under 750 sq ft are exempt)Residential: (ADUs under 750 sq ft are exempt) Single family $65,308.60 per unit Single family $5,047.71 per unit. Multi-Family $48,302.43 per unit Multi-Family $3,734.03 per unit Non-residential: Non-residential: Commercial/Industrial $19,150 per net new 1,000 sq ft.Commercial/industrial $1480 per 1,000 sq ft. Hotel/Motel $3,250 per 1,000 sq ft.Hotel/Motel $252 per 1,000 sq ft. Fund Balance July 1, 2023 $1,671,754 $771,619 FY 2024 Activity Revenues Fees Collected 1,409,596 174,306 Interest Earnings 43,637 14,175 Unrealized Gain/(Loss) Investments 110,640 10,042 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues $1,563,873 $198,523 Expenditures - Operating Transfer to Capital Projects Fund (851,297) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Expenditures ($851,297) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $2,384,330 $970,142 Total Reserves - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $2,384,330 $970,142 Fees imposed on new residential and non-residential development approved after Jan 28, 2002 to fund acquisition of land and improvements for neighborhood and district parks. (PAMC 16.58) Fees imposed on new residential and non-residential development approved after Jan 28, 2002 to to fund development and improvements to community centers. (PAMC 16.58) Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 9 Packet Pg. 35 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 Residential Housing FUND Library Development Fee Impact Fee Description of the Type of Fee Fees imposed on new residential and non-residentual development approved after January 28, 2002 to fund development and improvements to libraries. (PAMC 16.58) Fees imposed on all rental residential developments (including mixed-use with rental housing) to offset the demand that the new market-rate rental housing creates for low-income and moderate- income housing in the City. (PAMC 16.65) Amount of the Fee Residential: (ADUs under 750 sq ft are exempt)Single and Multi-Family: $25 per sq. ft. apartment (rentals) Single family $3,008.38 per unit Multi-family $2,224.72 per unit Non-residential: Commercial/industrial $883 per net new 1,000 sq ft. Hotel/Motel $150 per net new 1,000 sq ft. Fund Balance July 1, 2023 $944,041 $1,050,978 FY 2024 Activity Revenues Fees Collected 82,859 54,475 Interest Earnings 15,708 28,118 Unrealized Gain/(Loss) Investments 32,246 21,463 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues $130,813 $104,056 Expenditures Operating Transfer to Capital Projects Fund (457,017) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Expenditures (457,017.00) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $617,837 $1,155,034 Total Reserves - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $617,837 $1,155,034 Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 10 Packet Pg. 36 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 Charleston-Arastradero Corridor Citywide Transportation FUND Pedestrian and Bicyclist Safety Impact Fee Impact fee Description of the Type of Fee Fees collected from new development and redevelopment Transportation impact fees imposed on new development in within the Charleston-Arastradero Corridor to provide for all parts of the City to fund congestion reduction projects. pedestrian and bicyclist safety improvements. (PAMC 16.60)(PAMC 16.59) Amount of the Fee Residential: $1,684 per residential unit Commercial: $0.49 per sq ft (ADUs exempt) $9,754.23 each; per net new PM peak hour trip Fund Balance July 1, 2023 $1,172 $1,622,961 FY 2024 Activity Revenues Fees Collected 14,891 567,097 Interest Earnings 194 42,465 Unrealized Gain/(Loss) Investments 996 45,995 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues $16,081 $655,557 Expenditures Operating Transfer to Capital Projects Fund - (395,000) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Expenditures - ($395,000)--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $17,253 $1,883,518 Total Reserves - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $17,253 $1,883,518 Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 11 Packet Pg. 37 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 University Avenue Non-residential Development FUND Public Safety Facility Development Fee Parking In-Lieu Fee Description of the Type of Fee Fees imposed on residential and non-residential development to fund police and fire facilities, including fire apparatus and vehicles. (PAMC 16.58) Fees collected from non-residential development within the University Ave. Parking Assessment District area in lieu of providing the required off-street parking spaces. (PAMC 16.57) Amount of the Fee Residential:$130,823.17 per space Single family $1,336.38 per unit Multi-family $1,069.91 per unit Non-residential: Commercial $746 per 1,000 sq ft. or fraction thereof Industrial $249 per 1,000 sq. ft. or fraction thereof Office/Institutional $996 per 1,000 sq ft or fraction thereof. Fund Balance July 1, 2023 $95,093 $15,664,946 FY 2024 Activity Revenues Fees Collected 52,982 Interest Earnings 3,159 349,058 Unrealized Gain/(Loss) Investments 53 (47,054) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues $56,194 $302,004 Expenditures General Expense - (727,298) Operating Transfer to Capital Projects Fund - (50,000) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Expenditures - (777,298.00) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $151,287 $15,189,652 Total Reserves - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $151,287 $15,189,652 Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 12 Packet Pg. 38 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 Residential Housing In-Lieu Fee Parkland Dedication Fee FUND (INFORMATION ONLY)(INFORMATION ONLY) Description of the Type of Fee This fee is not subject to AB1600 reporting requirements and is included only for information purposes. Fees collected from ownership residential developments of three or more units(including mixed used with ownership in housing) in-lieu of providing the required below-market rate unit(s) to low and moderate income households. (PAMC 16.65) This fee is not subject to AB1600 reporting requirements and is inlcuded only for information purposes. Fees on parkland dedication imposed on new residential and non-residential development. (PAMC 21.50; Gov. Code Sec. 66477 and 66479) Amount of the Fee Single-family $96 per sq. ft. single-family detached; $64 per sq. ft. single-family attached. Multi-family $64 per sq. ft. condos. Single Family: $76,029.40 per unit; Multi-Family: $54,472.24 per unit. This applies only to residential projects that require a subdivision or parcel map. Land dedication is required for subdivisions resulting in more than 50 parcels. Parkland Dedication Fee -Land: Single Family: 531 sq. ft. per unit; Multi-Family: 366 sq. ft. per unit. When parkland dedication applies, park impact fees do not apply. Fund Balance July 1, 2023 $29,320,569 $2,240,408 FY 2024 Activity Revenues Fees Collected 164,834 1,453,944 Interest Earnings 214,508 81,285 Unrealized Gain/(Loss) Investments 265,714 75,368 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues $645,056 $1,610,597 Expenditures Salaries and Benefit (11,892.84) - Liability Insurance (752.76) - Contract Service/General Expense (79,195.93) - Operating Transfer to Capital Projects Fund - (250,000) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Expenditures (91,842)($250,000) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $29,873,783 $3,601,005 Reserves Reserve for Encumbrances & Reappropriations (99,082) - Reserve for Notes Receivable (28,258,078) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Reserves ($28,357,160) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $1,516,623 $3,601,005 $375,000 for 3053 Emerson; $3,504,850 for Tree House Apts.; $3,000,000 Grant Ave; $747,734 for Sheridan Apts. $2,285,026 for 801 Alma; $842,338 for Palo Alto Housing Project; $600,000 for 2811-2825 Alma St.; $203,561 for Colorado Park Housing; $149,968 for El Dorado Palace; $6,800,000 for Buena Vista Mobile Home Park; $8,249,601 for Wilton Ct.; $1,500,000 for 525 E. Charleston Rd. Residential Housing In-Lieu Fund, Notes Receivable Detail: Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 13 Packet Pg. 39 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 Public Art In-Lieu Fee FUND (INFORMATION ONLY)Water Connection/Capacity Fees Description of the Type of Fee This fee is not subject to AB1600 reporting requirements and is included only for information purposes. The Public Art In-Lieu fee is used to fund public art for private developments that elect not to provide public art onsite. The fee is imposed on new commercial developments and mixed-use projects that (i) have a floor area of 10,000 sq. ft. or more, and (ii) have a construction value of $200,000, or more, exclusive of costs for architecture, design, engineering, and required studies, as well as all new residential projects of five or more units. (PAMC 16.61) Water connection and capacity fees are imposed on new development and redevelopment to buy into existing water distribution system and to recover the proportionate cost of system improvements required to serve the new customers of increased loads of existing customers. These are one-time fees paid before water services are upgraded or installed. Capacity fees recieved are used exclusively for water capital improvement projects. (Gov. Code Sec. 66013) Amount of the Fee 1% of first $128.06 million construction valuation and 0.9% of construction valuation for valuation in excess of $128.06 million Water Capacity Fees: 5/8 in., 3/4 in E-Meter. $3,750, 1 in. E-Meter $6,250, 1 1/2 in. E-Meter $18,850, 2 in. E-Meter $31,250, 4 in. Compound Meter by est. $125/FU (min. 5,000 FU) , 6 in. Compound Meter by est. $125/FU (min. 7,000 FU) Fire Service Capacity Fees: 2 in. $750, 4 in. $8,425, 6 in. $18,250, 8 in. $30,950, 10 in. $48,110 Fund Balance July 1, 2023 $2,091,434 - FY 2024 Activity Revenues Fees Collected 244,528 Connection Fees Collected 1,661,229 Capacity Fees Collected 254,925 Interest Earnings 55,253 - Unrealized Gain/(Loss) Investments 36,328 - Transfers in from other funds 184,000 - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Revenues $520,109 $1,916,154 Expenditures Salaries and benefits (293,728) - Contract Services/Other (64,103) (1,916,154.00) Liability Insurance (3,767) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Expenditures ($361,598)($1,916,154) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 $2,249,945 - Reserves Encumbrances & Reappropriations (5,294) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total Reserves (5,294) - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Funds Available $2,244,651 - Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 14 Packet Pg. 40 of 227 City of Palo Alto Annual Report on Development Impact Fees for Period Ending June 30, 2024 FUND Wastewater Connection/Capacity Fees Description of the Type of Fee Wastewater connection and capacity fees are imposed on new development and redevlopment to buy into the existing wastewater collection systems and to recover the proportionate cost of system improvements required to serve the new customers of increased loads of existing customers. These are one-time fees paid before the wastewater services are upgraded or installed. Capacity fees recieved are used exclusively for sanitary sewer capital improvement projects. (Gov. Code Sec. 66013) Amount of the Fee Sewer Capacity Charges: 4 in. connection with 5/8 in Water Meter (WM) $5,250, 4 in connection. with 1-in WM $10,500, 4 or 6 in. connection with 1-1/2 in WM $31,668, 6 in. connection with 2 in. WM $52,500, 6 in. and larger connection with 4 in. or larger WM by est. at $210/FU Fund Balance July 1, 2023 - FY 2024 Activity Revenues Connection Fees Collected 476,333 Capacity Fees Collected 15,750 ------------------------------------------------------------------------------------------- Total Revenues $492,083 Expenditures Contract Services/Other (492,083) ------------------------------------------------------------------------------------------- Total Expenditures ($492,083) ------------------------------------------------------------------------------------------- Ending Balance June 30, 2024 - Total Reserves - ------------------------------------------------------------------------------------------- Net Funds Available $0 Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 15 Packet Pg. 41 of 227 Fund Name Project FY 2024 Expenditures Total Project Cost % of Total Project Cost Construction Start Date Stanford Research Park/El Camino Real Transportation Impact Fee Page Mill Road/El Camino Real Intersection Improvements None N/A N/A Mid-2025 San Antonio/West Bayshore Area Transportation Impact Fee San Antonio/Charleston Road Intersection Improvements None N/A N/A 2026 Commercial Housing Impact Fee Affordable Housing Development Projects 12,646$ N/A N/A N/A General Government Facility Development Impact Fee PE-15001 New Public Safety Building None 118,602,789$ N/A February 2021 Community Facilities Parks Development Impact Fee PE-08001 Rinconada Park Improvements 46,367$ 10,176,326$ 0.5% Summer 2019 PF-23001 Roth Building Rehabilitation Phase 1 350,000$ 11,367,366$ 3.1%Summer 2023 PG-18001- Dog Park Installation and Renovation 294,500$ 338,904$ 86.9%Recurring PG-19000- Park Restroom Installation 160,430$ 2,003,799$ 8.0%Recurring Community Center Impact Fee PE-24001 Electrification of City Facilities None 1,799,238$ N/A N/A PF-02022 Facility Interior Finishes Replacement None 1,069,488$ N/A N/A Community Facilities Library Developers Impact Fee LB-21000 Library Automated Material Handling (AMH)157,017$ 1,898,292$ 8.3%February 2025 PF-23001 Roth Building Rehabilitation Phase 1 300,000$ 11,367,366$ 2.6%Summer 2023 Residential Housing Impact Fee Affordable Housing Development Projects None N/A N/A N/A Charleston-Arastradero Corridor Pedestrian & Bicyclist Safety Impact Fee PL-04010 - Bike Ped Implementation Plan None N/A N/A N/A Citywide Transportation Impact Fee PL-05030 Traffic Signal and ITS Upgrades 395,000$ ongoing N/A ongoing Public Safety Facility Development Impact Fee PE-18004 Fire Station 4 Replacement None 18,255,946$ N/A Spring 2022 University Ave Non Residential Development Parking In-Lieu Fee Refund paid to Hamilton and High LLC 727,298$ N/A N/A N/A PE-15007 New Downtown Parking Garage 50,000$ 5,398,000$ 0.9%Summer 2026 Residential Housing In-Lieu Fee Affordable Housing Development Projects 91,842$ N/A, ongoing N/A N/A Parks Dedication Fund PE-24004- Rinconada Pool Family Changing Room 250,000$ 1,397,698$ 17.9%November 2025 PE-18006- Byxbee Park Completion None 3,699,189$ N/A Fall 2024 Public Art In-Lieu Fee Public Art Program (acquisition of new artwork, repair and maintenance, conservation and insurance, project management, and program administration) 361,598$ N/A N/A N/A Water Fund Capacity Fees WS-80013 Customer Connection, Annual 1,229,105$ N/A N/A Recurring WS-15002 Water Main Replacement Project 29 681,678$ 9,500,000$ 7.2%Winter 2022 WS-16001 Water Main Replacement Project #30 5,371$ 9,804,371$ 0.1%Fall 2025 Wastewater Fund Capacity Fees WC-19001 Sewer Sanitary Rehabilitation Project 31 492,083$ $9,500,000 5.2% July 2023 City of Palo Alto FY 2024 Use of Fees Summary Item 3 Attachment A - Development Impact Fees FY 2024 and Use of Fees Summary Item 3: Staff Report Pg. 16 Packet Pg. 42 of 227 *NOT YET APPROVED* Attachment B 1 0290006_20241223 Resolution No. _____ Resolution of the Council of the City of Palo Alto Accepting the Annual Report on Development Impact Fees for the Period Ending June 30, 2024 and Making Findings Regarding the Continuing Need for Development Impact Fees Collected but Not Expended R E C I T A L S A. Government Code Sections 66000 et seq., commonly known as the Mitigation Fee Act, regulates the imposition, collections, expenditure, and reporting of development impact fees; and B. Government Code Section 66006 requires that certain information be made available to the public regarding development impact fees on an annual basis; and C. Government Code Section 66001 requires the City Council to make findings describing the continuing need for impact fees every five years specifying the intended use of any unexpended impact fees; and D. The City of Palo Alto imposes various development impact fees, and has prepared the Development Impact Fee Report for the Period Ending June 30, 2024, which contains the information required by Government Code 66006 for these fees; and E. The City of Palo Alto also imposes in-lieu fees and dedication fees in connection with development projects and although the Mitigation Fee Act’s requirements do not apply to these fees, the Development Impact Fee Report for the Period Ending June 30, 2024 includes information regarding those fees in its annual report in the interest of transparency. F. The Development Impact Fee Report for the Period Ending June 30, 2024 was published on the City of Palo Alto website on December 2, 2024. G. The City Council has read and considered the Development Impact Fee Report for the Period Ending June 30, 2024. The Council of the City of Palo Alto RESOLVES as follows: Section 1. The City Council accepts the Annual Report on Development Impact Fees for the Period Ending June 30, 2024 as required by Government Code 66006. Section 2. Based on the Development Impact Fee Report for the Period Ending June 30, 2024, and the Schedule of Improvements and Expenditures attached as Exhibit 1 to this resolution, the City Council makes the following findings as required by Government Code Section 66001 with regard to fees collected but not expended for the following fees: Stanford Research Park/El Camino Real Traffic Impact Fee Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 17 Packet Pg. 43 of 227 *NOT YET APPROVED* Attachment B 2 0290006_20241223 A. The purpose of this fee is to fund traffic-related improvements at eight designated intersections within the Stanford Research Park/El Camino Real CS zone. B. The fee is reasonably related to its purpose because the fee is imposed on new non- residential development, which is expected to generate an average of eighty percent of new commute period traffic at the designated intersections, and the amount of the fee is based upon the estimated cost of the capacity improvements at the designated intersections. C. The sources and amounts of funding anticipated for incomplete improvements are set forth in Exhibit 1 to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account are set forth in Exhibit 1 to this resolution. San Antonio/West Bayshore Area Traffic Impact Fee A. The purpose of this fee is to fund the cost of capital expenditures needed to provide operational improvements at certain intersections in the San Antonio/West Bayshore Area. B. This fee is reasonably related to its purpose because the fee is imposed on new development in the San Antonio/West Bayshore Area, and the San Antonio/West Bayshore Environmental Impact Report (EIR) showed that these improvements are necessary to mitigate the demonstrated significant traffic impacts of such new development. C. The sources and amounts of funding anticipated for incomplete improvements are set forth in Exhibit 1 to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account are set forth in Exhibit 1 to this resolution. Commercial Housing Impact Fee A. The purpose of this fee is to offset the demand that new jobs create for low and moderate-income housing in the city as a result of commercial and industrial development by supporting below-market rate housing at various levels of affordability. B. The fee is reasonably related to its purpose because the fees are expended exclusively to provide new and preserve existing housing affordable to very low income, lower income, and moderate income households in the city, consistent with the goals and policies contained in the City's housing element and for administration and compliance monitoring of the City’s affordable housing program. C. The Planning and Development Services Department released a Notice of Funding Availability (NOFA) for eligible facilities/services in September 2024. D. The unexpended fund balance should be allocated in FY 2025 and later years through the NOFA process, which awards grants to eligible projects on an annual basis; however, a minimum balance will be maintained to account for unrealized losses as these funds are invested until the time of disbursement. Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 18 Packet Pg. 44 of 227 *NOT YET APPROVED* Attachment B 3 0290006_20241223 General Government Facilities Fee A. The purpose of this fee is to fund the cost of improvements to those facilities used by the City to provide basic governmental services and public facilities maintenance services, exclusive of public safety. B. The fee is reasonably related to its purpose because new residential and non-residential development in the city will generate additional residents and employees who will increase the demand for services, including municipal services and general government functions. Population and growth has a direct impact on the need for government services and facilities, thus a reasonable relationship exists between new development and government facilities, which will have to be acquired to meet the increased demand. A. The sources and amounts of funding anticipated for incomplete improvements are set forth in Exhibit 1 to this resolution. B. The approximate dates on which the funding is expected to be deposited into the appropriate account are set forth in Exhibit 1 to this resolution. Park Development Fee A. The purpose of this fee is to fund the cost to design, acquire, install, and construct park facilities. B. The fee is reasonably related to its purpose because the fees will be collected from new residential and non-residential development in the city for park facilities that will be necessary due to increased demand for such facilities resulting from new development. New development will generate additional residents and employees who will increase the demand for active and passive park facilities within the city. Land will have to be purchased and improved to meet this increased demand. C. The sources and amounts of funding anticipated for incomplete improvements/facilities is set forth in Exhibit A to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account is set forth in Exhibit A to this resolution. Community Center Development Fee A. The purpose of this fee is to fund the cost to design, acquire, install, and construct community center facilities. B. The fee is reasonably related to its purpose because the fees will be collected from new residential and non-residential development in the city for community center facilities that will be necessary due to increased demand for such facilities resulting from new development. New development will generate additional residents and employees who will increase the demand for community center facilities within the city. Land will have to be purchased and improved to meet this increased demand. C. The sources and amounts of funding anticipated for incomplete improvements/facilities is set forth in Exhibit A to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account is set forth in Exhibit A to this resolution. Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 19 Packet Pg. 45 of 227 *NOT YET APPROVED* Attachment B 4 0290006_20241223 Library Development Fee A. The purpose of this fee is to fund the cost to design, acquire, install, and construct library facilities. B. The fee is reasonably related to its purpose because the fees will be collected from new residential and non-residential development in the city for library facilities that will be necessary due to increased demand for such facilities resulting from new development. New development will generate additional residents and employees who will increase the demand for library facilities within the city. Land will have to be purchased and improved to meet this increased demand. C. The sources and amounts of funding anticipated for incomplete improvements/facilities is set forth in Exhibit A to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account is set forth in Exhibit A to this resolution. Residential Housing Impact Fee A. The purpose of this fee is to offset the demand for low and moderate-income housing in the city as a result of market rate residential development by supporting below-market rate housing at various levels of affordability. B. The fee is reasonably related to its purpose because the fees are expended exclusively to provide new and preserve existing housing affordable to very low income, lower income, and moderate income households in the city, consistent with the goals and policies contained in the City's housing element and for administration and compliance monitoring of the City’s affordable housing program. C. The Planning and Development Services Department released a Notice of Funding Availability (NOFA) for eligible facilities/services in September 2024. D. The unexpended fund balance should be allocated in FY 2025 and later years through the NOFA process, which awards grants to eligible projects on an annual basis; however, a minimum balance will be maintained to account for unrealized losses as these funds are invested until the time of disbursement. Charleston-Arastradero Corridor Pedestrian and Bicyclist Safety Impact Fee A. The purpose of this fee is to fund the cost to implement the Charleston-Arastradero Corridor Plan, a series of streetscape improvements designed to increase pedestrian and bicyclist safety in the corridor. B. The fee is reasonably related to its purpose because the fees will be collected on residential and non-residential development within the Charleston-Arastradero Corridor Plan area and used to construct improvements identified in the Charleston-Arastradero Corridor Plan. C. The sources and amounts of funding anticipated for incomplete improvements/facilities is set forth in Exhibit A to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account is set forth in Exhibit A to this resolution. Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 20 Packet Pg. 46 of 227 *NOT YET APPROVED* Attachment B 5 0290006_20241223 Citywide Transportation Impact Fee A. The purpose of this impact fee is to fund the cost of citywide transportation enhancements, or public facilities and services that relieve citywide traffic congestion caused by new development projects. B. The fee is reasonably related to its purpose because the fee is imposed on development projects that cause traffic congestion on a citywide basis, calculated based on the additional traffic impacts attributable to the project, and fee funds are used only on eligible citywide transportation enhancements. C. The sources and amounts of funding anticipated for incomplete improvements are set forth in Exhibit 1 to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account are set forth in Exhibit 1 to this resolution. Public Safety Facilities Impact Fee A. The purpose of this fee is to fund the construction, acquisition and/or upgrade of Police and Fire Facilities and equipment. B. The fee is reasonably related to its purpose because new residential and non-residential development will generate additional residents and employees who will require additional service calls increasing the need for trained Police and Fire personnel. Buildings and vehicles used to provide these services will have to be expanded, constructed, or purchased to meet this increased demand. Thus a reasonable relationship exists between the need for Public Safety facilities and the impact of residential and non-residential development. C. The sources and amounts of funding anticipated for incomplete improvements/facilities is set forth in Exhibit A to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account is set forth in Exhibit A to this resolution. University Avenue Parking In-Lieu Fee A. The purpose of this fee is to fund the cost of providing public parking facilities to serve nonresidential development within the University Avenue parking assessment district area that does not provide adequate new off-street parking spaces to satisfy the requirements of the zoning code. B. The fee is reasonably related to its purpose because the fees will be used for the construction of additional public parking spaces within the University Avenue parking assessment district area. C. The sources and amounts of funding anticipated for incomplete improvements are set forth in Exhibit 1 to this resolution. D. The approximate dates on which the funding is expected to be deposited into the appropriate account are set forth in Exhibit 1 to this resolution. Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 21 Packet Pg. 47 of 227 *NOT YET APPROVED* Attachment B 6 0290006_20241223 Residential Housing In-Lieu Fee A. The purpose of this fee is to offset the demand for low and moderate-income housing in the city as a result of market rate residential development by supporting below-market rate housing at various levels of affordability. The fee allows developers of market-rate residential ownership projects to fulfill their obligation to provide affordable ownership units by paying an in-lieu fee after demonstrating that providing such units as part of the project would be infeasible. B. The fee is reasonably related to its purpose because the fees are expended exclusively to provide new and preserve existing housing affordable to very low income, lower income, and moderate income households in the city, consistent with the goals and policies contained in the City's housing element and for administration and compliance monitoring of the City’s affordable housing program. C. The Planning and Development Services Department released a Notice of Funding Availability (NOFA) for eligible facilities/services in September 2024. D. The unexpended fund balance should be allocated in FY 2025 and later years through the NOFA process, which awards grants to eligible projects on an annual basis; however, a minimum balance will be maintained to account for unrealized losses as these funds are invested until the time of disbursement. Public Art In-Lieu Fee A. The purpose of this fee is to fund the cost of providing publicly visible art displays that enhance the built environment in the city when private developers opt not to commission on-site art displays as part of their projects. B. The fee is reasonably related to its purpose because the fees will be collected from development projects that exceed a minimum size that do not include on-site art displays and used to acquire and install temporary or permanent works of art in public places, provide publicly accessible exhibitions of art, provide community-based public art events, and cover expenses associated with the Public Art Program. C. The Community Services Department, through the Public Art Commission, continually evaluates opportunities for public art displays, exhibitions, and community events using the Public Art Fund. The Public Art Fund also contributes to cost of administering the Public Art Program, however that contribution is limited to 20% of the project budget and for the repair, maintenance, conservation and insurance of those works. D. The sources and amounts of funding anticipated for incomplete improvements are set forth in Exhibit 1 to this resolution. E. The approximate dates on which the funding is expected to be deposited into the appropriate account are set forth in Exhibit 1 to this resolution. The unexpended fund balance is allocated on an ongoing basis as public art projects are considered and approved by the Public Art Commission. Parkland Dedication Fee This fee is under Government Code section 66477 and 66479 and therefore the requirement to make additional findings every five years does not apply. Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 22 Packet Pg. 48 of 227 *NOT YET APPROVED* Attachment B 7 0290006_20241223 Water & Wastewater System Connection and Capacity Fees These fees are imposed under Government Code section 66013 and therefore the requirement to make additional findings every five years does not apply. Refer to the Development Impact Fee Report for the Period Ending June 30, 2024 for the information required by Government Code 66013(d). SECTION 3. The Council finds that adoption of this resolution is not a project as defined by the California Environmental Quality Act (CEQA) in that it is a 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). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: __________________________ _____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: __________________________ _____________________________ Chief Assistant City Attorney City Manager _____________________________ Director of Administrative Services Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 23 Packet Pg. 49 of 227 Attachment B - Exhibit 1 Schedule of Improvements and Expenditures Fund/Project Name CIP Project Number Unexpended Balance FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Notes; Other Funding Sources/Amounts Stanford Research Park/El Camino Real Transportation Impact Fee 1,275,357$ Page Mill Road/El Camino Real Intersection Improvements N/A 1,276,358$ from County 2016 Measure B Expressway Program; anticipated construction San Antonio/West Bayshore Area Transportation Impact Fee Traffic Signal and Intelligent Transportation System Upgrades PL-05030 427,121$ 427,121$ Commercial Housing Impact Fee 4,207,369$ Notice of Funding Availability issued September 30, 2024 N/A 2,200,000$ funding support for eligible affordable housing projects. Funding awards vary by project and the available balance in the this fund, and other funds managed throught City's affordable housing program. Specific projects to be funded through the FY 2025 NOFA process will be determined in January 2025. Additional NOFAs will be issued for FY 2026 and later years based on available General Government Facility Development Fee 191,973$ Public Safety Building PE-15001 191,972$ budget approved by City Council October 21, 2024; additional technical Park Development Fee 2,384,330$ Dog Park Installation and Renovation PG-18001 150,000$ 150,000$ Park Restroom Installation PG-19000 629,590$ 559,342$ 559,342$ Community Center Development Fee 970,142$ Electrification of City Facilities PE-24001 490,000$ Facility Interior Finishes Replacement PF-02022 440,250$ Library Development Fee 617,837$ Library Automated Material Handling LB-21000 382,983$ Residential Housing Impact Fee 1,155,034$ Notice of Funding Availability issued September 30, 2024 N/A 400,000$ funding support for eligible affordable housing projects. Funding awards vary by project and the available balance in the this fund, and other funds managed throught City's affordable housing program. Specific projects to be funded through the FY 2025 NOFA process will be determined in January 2025. Additional NOFAs will be issued for FY 2026 and later years based on available Charleston-Arastradero Corridor Pedestrian & Bicyclist Safety 17,253$ Bike Pedestrian Transportation Plan Implementation Project PL-04010 17,252$ Citywide Transportation Impact Fee 1,883,518$ Traffic Signal and Intelligent Transportation System Upgrades PL-05030 395,000$ 395,000$ 395,000$ 395,000$ 395,000$ Public Safety Facility Development Impact Fee 151,288$ Fire Station 4 Replacement PE-18004 95,093$ 56,195$ University Avenue Non-Residential Development Parking In-Lieu 15,189,652$ New Downtown Parking Garage PE-15007 15,498,600$ budget approved by City Council October 21, 2024; revised project budget and Residential Housing In-Lieu 1,516,624$ Notice of Funding Availability issued September 30, 2024 N/A 500,000$ funding support for eligible affordable housing projects. Funding awards vary by project and the available balance in the this fund, and other funds managed throught City's affordable housing program. Specific projects to be funded through the FY 2025 NOFA process will be determined in January 2025. Additional NOFAs will be issued for FY 2026 and later years based on available Public Art In-Lieu 2,244,651$ Code: Art Community Event 2025 N/A 275,000$ Item 3 Attachment B - Resolution Making Findings Regarding the Continuing Need for Unexpended Development Impact Fees Item 3: Staff Report Pg. 24 Packet Pg. 50 of 227 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Utilities Meeting Date: January 13, 2025 Report #:2409-3528 TITLE Adoption of a Resolution Extending the City Manager’s Authority to Execute Transactions Under Master Renewable Energy Certificate Agreements with Pre-Qualified Suppliers in an Amount Not- to-Exceed $5,000,000 per Year During Calendar Years 2025-2030; CEQA Status: Not a project RECOMMENDATION Staff recommends that the City Council approve a resolution (Attachment A) extending the City Manager’s authority to execute transactions under the Council-approved Master Renewable Energy Certificate Purchase and Sale Agreements (“REC Master Agreements”) as follows: 1. Allow for the purchase and sale of Renewable Energy Certificates (RECs) via the Council- approved Master Agreements with prequalified supplies to meet the needs of the City’s PaloAlto Green (PAG) Program, Renewable Portfolio Standard (RPS) Procurement Plan, Carbon Neutral Plan, and REC Exchange Program; 2. Maintain the annual expenditure authority for the REC purchases at $5,000,000 annually; and 3. Extend the term for REC transactions from calendar year 2025 through calendar year 2030. EXECUTIVE SUMMARY Facilities that produce renewable energy receive revenues both from the sale of the energy produced at the facility and from the “environmental attribute” associated with the project. The environmental attribute is sold separately as a Renewable Energy Certificate (REC). One REC represents the environmental attribute of one megawatt-hour (MWh) of electricity generated from a renewable energy facility. Owners of renewable energy facilities often sell these environmental attributes separately from the underlying energy itself, or “unbundled.” Thus, RECs provide an additional source of funding for renewable energy projects to make them more economical to develop. The City’s PAG program, RPS Procurement Plan, Carbon Neutral Plan, and REC Exchange Program all allow for the use of unbundled RECs to cost-effectively meet each program’s goals. Item 4 Item 4 Staff Report Item 4: Staff Report Pg. 1 Packet Pg. 51 of 227 In November 2013, Council authorized the City Manager, or their designee, to buy RECs from thirteen pre-qualified suppliers with whom the City has executed REC Master Agreements (Resolution 93791). The authority granted by that resolution applied to transactions to meet the needs of the PAG program, the City’s RPS requirements, and the Carbon Neutral Plan, and was limited to $5,000,000 annually through 2018. In May 2019, Council extended this authorization through 2024 (Resolution 98312). The attached resolution extends this existing authority – at the same expenditure level but with an updated set of suppliers – to enable the purchase and sale of RECs that may be required to meet the City’s PAG, RPS, Carbon Neutral Plan, and REC Exchange Program objectives in a competitive, timely, and cost-effective manner. Note that none of these Council actions will directly result in any REC transactions; these actions simply enable the procurement of RECs as needed for the programs described in this report. BACKGROUND 3), which suppliers could execute at any time and become enabled with the City (after the individual 1 Resolution 9379: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9379.pdf 2 Resolution 9831: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso- 9831.pdf?t=55321.72 3 Resolution 9652: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9652.pdf Item 4 Item 4 Staff Report Item 4: Staff Report Pg. 2 Packet Pg. 52 of 227 agreement was approved by Council). In October 2019, Council approved an updated Master REC agreement and modified the approval process for individual agreements “such that Council approval of individual REC Master Agreements is no longer required where Council has authorized the City Manager to award and sign REC contracts with qualified, eligible counterparties, as described in Section 2.30.340(b) of the Municipal Code.” (Resolution 98634) Since December 2016, the City has executed new REC Master Agreements with the following 11 suppliers: ANALYSIS RECs for PAG 4 Resolution 9863: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso- 9863.pdf?t=52859.29 Item 4 Item 4 Staff Report Item 4: Staff Report Pg. 3 Packet Pg. 53 of 227 $7 per REC.5 The costs to procure these RECs, and to administer the PAG program, are borne by participating PAG customers through the program’s rate premium. RECs for RPS and the REC Exchange Program 6 Under California’s RPS regulations, unbundled RECs are an approved resource to meet this requirement, with certain restrictions and limitations on their use for RPS compliance purposes.7 In recent years, the City has opted to use unbundled RECs (which are significantly less expensive than RECs sold together with the associated energy from a renewable resource) in order to reduce its cost of complying with the RPS mandate. 8). Because Bucket 1 RECs are much more valuable under the state’s RPS regulations than Bucket 3 RECs, this program generates significant revenue for the City. Per Council’s direction, during the program’s first two years, two-thirds of this revenue was allocated to offset electric utility supply costs, while since that time all of the revenue has been invested locally in electrification efforts necessary to meet the City’s ambitious climate goals (Resolution 99139). 5 The supply of Green-e certified RECs in the Western U.S. is somewhat limited, and so the price of these RECs tends to be slightly higher than the price of RECs purchased for RPS or Carbon Neutral Plan purposes. 6 Per Senate Bill 100, approved in September 2018: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB100. 7 Under California’s RPS regulations, RECs that are sold independently of the associated energy (i.e., “unbundled RECs”) are categorized as Portfolio Content Category 3 (“Bucket 3”) resources. The volume of Bucket 3 resources that a utility is permitted to use toward its RPS procurement requirements is limited to 10% of the total RPS resources it has procured on or after June 1, 2010. 8 Staff Report 11556: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes- reports/reports/city-manager-reports-cmrs/year-archive/2020-2/id-11566.pdf 9 Resolution 9913: “Consistent with the City’s Cap and Trade Revenue Use Policy, for Fiscal Years 2021 and 2022, an amount equivalent to at least one-third of the revenues earned from the REC Exchanges would be allocated from the City’s Cap and Trade Reserve to local decarbonization efforts; thereafter the City would prioritize local decarbonization efforts with these funds.” https://www.cityofpaloalto.org/files/assets/public/v/1/city- clerk/resolutions/reso-9913.pdf?t=40151.26 Item 4 Item 4 Staff Report Item 4: Staff Report Pg. 4 Packet Pg. 54 of 227 RECs for Carbon Neutrality In March 2013, Council approved the Carbon Neutral Plan (Resolution 9322,10 Staff Report 355011), directing staff to procure resources to achieve carbon neutrality starting in 2013 within a rate impact limit of 0.15 cents per kilowatt-hour. Council updated the Carbon Neutral Plan in August 2020, changing the City’s methodology for accounting for the carbon emissions of its electric portfolio from an annual methodology to a more accurate hourly methodology (Staff Report 1155612). The amount of renewable energy needed to meet carbon neutrality for the electric supply portfolio is highly dependent on hydrological conditions. In dry years, the amount of renewable energy needed will increase, and, conversely, in wet years the City will need less renewable energy to achieve carbon neutrality and it may even have a surplus. For example, CY 2017 was such a wet year that the City ended up with about 369,000 MWh of carbon neutral energy in excess of its load. CY 2018 was much drier, and the City had to purchase a small volume of market power for the year as a result. In a scenario such as this, the City must procure some unbundled RECs to maintain the carbon neutrality of its electricity supplies. Total annual demand for RECs in the coming years will depend heavily on hydrological conditions. Over the past four years, REC purchase volumes (for all of the above-mentioned program needs) have ranged from 155,000 to 500,000, with total purchase costs ranging from $746,000 to $2.4 million, as described in Table 1 below. Going forward, there is significant uncertainty regarding the volume of RECs that will be needed as well as the REC market price. If REC prices are higher than expected, hydro conditions are extremely dry, and/or the resources that the City has under long-term PPA do not come online on time, the annual REC purchase cost could exceed recent historical values. Hence, authorizing the City Manager or their designee to transact up to $5 million per year should provide sufficient flexibility to competitively procure REC supplies for the next five years. Table 1: REC Purchase Volumes & Costs, FY 2021-2024 Fiscal Year Volume Cost $/REC 2021 499,479 $ 1,875,921 $ 3.76 2022 389,115 $ 2,161,284 $ 5.55 2023 448,000 $ 2,397,230 $ 5.35 10 Resolution 9322: https://www.cityofpaloalto.org/files/assets/public/v/1/city-clerk/resolutions/reso-9322- 33835.pdf 11 Staff Report 3550: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes- reports/reports/city-manager-reports-cmrs/year-archive/2013/final-staff-report-id-3550_electric-supply-portfolio- carbon-neutral-plan.pdf 12 Staff Report 11556: https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes- reports/reports/city-manager-reports-cmrs/year-archive/2020-2/id-11566.pdf Item 4 Item 4 Staff Report Item 4: Staff Report Pg. 5 Packet Pg. 55 of 227 2024 155,000 $ 746,400 $ 4.82 Total 1,491,594 $ 7,180,835 $ 4.81 REC Procurement Process The REC Master Agreements are enabling agreements which prequalify counterparties and establish general terms and conditions under which the City and the supplier will transact and settle transactions. Executing a REC Master Agreement does not commit the City to any transactions with that counterparty. REC transactions are always carried out through a competitive solicitation process among the suppliers who have executed REC Master Agreements with the City. Staff awards REC purchase contracts to the supplier with the lowest offer price, and awards REC sale contracts to the buyer with the highest bid price. All REC transactions are under the controls established by the City’s Energy Risk Management Policies, Guidelines, and Procedures, and must adhere to the City’s Purchasing requirements. All REC suppliers are required to satisfy the Western Renewable Energy Generation Information System (WREGIS) protocols and transfer RECs to the City through WREGIS. These protocols ensure the validity of the RECs – verifying that RECs are only counted once and not resold to other buyers. FISCAL/RESOURCE IMPACT Funds to procure RECs to meet PAG, RPS Procurement Plan, Carbon Neutral Plan, and REC Exchange Program needs have already been budgeted for fiscal year 2025. Funding for future years will be subject to the appropriation of funds through the annual budget process. STAKEHOLDER ENGAGEMENT Utilities staff coordinates with the City Attorney’s Office in negotiating REC Master Agreements and with the Administrative Services Department to transact within the Risk Management Policy and associated Guidelines and Procedures. ENVIRONMENTAL REVIEW The adoption of a resolution extending the City Manager’s authority to execute purchases and sales of RECs is not a project subject to California Environmental Quality Act (CEQA) review because adoption of this resolution is an administrative government activity that will not result in any direct or indirect physical change to the environment as a result (CEQA Guidelines section 15378(b)(5)). Item 4 Item 4 Staff Report Item 4: Staff Report Pg. 6 Packet Pg. 56 of 227 ATTACHMENTS Attachment A: Resolution APPROVED BY: Alan Kurotori, Utilities Chief Operating Officer Staff: James Stack, PhD., Senior Resource Planner Item 4 Item 4 Staff Report Item 4: Staff Report Pg. 7 Packet Pg. 57 of 227 Attachment A * NOT YET APPROVED * 0290164_kb_20241213_ms29 Resolution No. _____ Resolution of the Council of the City of Palo Alto Extending the City Manager’s Authority to Execute Transactions under Master Renewable Energy Certificate Purchase and Sale Agreements with Pre-qualified Suppliers at an Annual Expenditure Not Exceeding $5,000,000 During Calendar Years 2025-2030 R E C I T A L S A. The City of Palo Alto (the “City") provides electricity to residential and commercial customers located within its jurisdictional boundary. B. The Council established the PaloAltoGreen voluntary renewable energy program (the “PAG Program”) in March 2003. C. Implementing the PAG Program involves the City’s purchase and sale of renewable energy certificates (“RECs”) to meet the PAG Program's retail customer demands in a competitive manner. D. California’s Senate Bill 100 (2018) requires all load serving entities to have a Renewable Portfolio Standard (RPS) of at least 60 percent by 2030. RPS enforcement procedures adopted by the California Energy Commission (CEC) allow for limited use of unbundled RECs to meet RPS requirements. In 2011, through Resolution No. 9215, the Council approved the City of Palo Alto’s RPS Procurement Plan, which allows for limited use of unbundled RECs to meet RPS requirements, in adherence to the CEC RPS enforcement regulations. E. Through Resolution No. 9322, the Council approved a Carbon Neutral Plan for the electric supply portfolio to achieve carbon neutrality in calendar year 2013 with a rate impact not to exceed 0.15 cents per kilowatt hour. The Carbon Neutral Plan allows for the use of RECs to achieve carbon neutrality. F. In 2020, through Resolution No. 9913, the Council approved a new procurement strategy whereby the City does not keep all of the output of its long-term, in-state renewable resources, but instead exchanges that output for less expensive out-of-state renewable generation, with the net proceeds used to fund local decarbonization programs (the “REC Exchange Program”). G. In 2013, through Resolution No. 9379, the Council delegated authority to the City Manager, or their designee, to execute purchases and sales of RECs to meet the needs of City’s PAG Program, RPS, and Carbon Neutral Plan by negotiating and executing Master Agreements with the following 13 pre-qualified suppliers, in an aggregate amount not to exceed five million dollars ($5,000,000) annually during calendar years 2013 through 2018, inclusive. 1. 3Degrees Group, Inc. 2. Bonneville Environmental Foundation 3. Constellation Energy Commodities Group Item 4 Attachment A - Resolution Item 4: Staff Report Pg. 8 Packet Pg. 58 of 227 Attachment A * NOT YET APPROVED * 0290164_kb_20241213_ms29 4. EDF Trading North America, LLC 5. Element Markets, LLC 6. Idaho Wind Power Partners 1, LLC 7. Lakeview Green Energy, Inc. 8. Nexant, Inc. 9. NextEra Energy Power Marketing, LLC 10. Pacific Corp. 11. Powerex Corp. 12. Shell Energy North America (US), L.P. 13. Sterling Planet Holdings, Inc. H. Master Agreements were negotiated and executed with the thirteen suppliers listed above and expenditures for calendar year 2013 through 2018 were within the delegated annual expenditure amount. I. In 2016, through Resolution 9652, the City Council approved a Standard Form Master REC Agreement that incorporates the contract terms and conditions required in City of Palo Alto Municipal Code Section 2.30.340(c). As a result, new REC suppliers are able to execute the Standard Form Master REC Agreement with the City after staff determines that they are qualified. J. Through Resolution 9831, Council authorized the City Manager to execute purchases and sales of RECs in furtherance of the City’s PAG Program, RPS, and Carbon Neutral Plan with pre-qualified suppliers via Master Agreements during calendar years 2019 through 2024, inclusive. K. In October 2019, through Resolution 9863, Council approved an updated Master REC Agreement and modified the approval process for individual agreements such that Council approval of individual REC Master Agreements is no longer required where Council has authorized the City Manager to award and sign REC contracts with qualified, eligible counterparties, as described in Palo Alto Municipal Code Section 2.30.340(c). L. Since Resolution 9652 was approved in 2016, the City has executed new REC Master Agreements with the following 11 suppliers: 1. Renewable Power Strategies, LLC 2. ACT Commodities Inc. 3. STX Commodities LLC 4. Anew Environmental, LLC 5. AQC Environmental Brokerage Services, Inc. 6. Ecohz, Inc. 7. GO2 Markets, Inc. 8. Verdant Energy Services LLC 9. Bridge to Renewables, LLC 10. SCB Brokers LLC 11. Carbon Solutions Group, LLC Item 4 Attachment A - Resolution Item 4: Staff Report Pg. 9 Packet Pg. 59 of 227 Attachment A * NOT YET APPROVED * 0290164_kb_20241213_ms29 M. Extension of the authority delegated to the City Manager under Resolution No. 9831 is needed to implement the City’s PAG Program, RPS Procurement Plan, Carbon Neutral Plan, and REC Exchange Program. The Council of the City of Palo Alto does hereby RESOLVE, as follows: SECTION 1. The Council hereby authorizes the City Manager, or their designee, to execute purchases and sales of RECs in furtherance of the City’s PAG Program, RPS Procurement Plan, Carbon Neutral Plan, and REC Exchange Program with pre-qualified suppliers via Master Agreements. The aggregate REC transactions shall not exceed the annual expenditure amount of five million dollars ($5,000,000) during calendar years 2025 through 2030, inclusive. SECTION 2. The Council finds that the adoption of this resolution extending the City Manager’s authority to execute purchases and sales of RECs is not a project subject to California Environmental Quality Act (CEQA) review because adoption of this resolution is an administrative government activity that will not result in any direct or indirect physical change to the environment as a result (CEQA Guidelines section 15378(b)(5)). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services Item 4 Attachment A - Resolution Item 4: Staff Report Pg. 10 Packet Pg. 60 of 227 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Police Meeting Date: January 13, 2025 Report #:2411-3775 TITLE Approval of Contract Amendment #5 to Contract C17164727 with Professional Account Management, LLC, dba Duncan Solutions, for Parking Enforcement in the Amount of $132,000 to extend the term for one additional year; CEQA Status - Not a Project RECOMMENDATION Staff recommends that Council approve and authorize the City Manager or designee to execute Amendment #5 with Duncan Solutions (C17164727) to extend the contract term by one year, in the amount not to exceed $132,000 to continue parking enforcement services. This amendment results in a revised total not to exceed contract amount of $992,000. BACKGROUND The City of Palo Alto contracted with Duncan Solutions after a competitive solicitation process to facilitate parking citation processing in 2016 for the Police Department (PD)1. The City of Palo Alto Office of Transportation (OOT) maintains a separate residential permit parking program also using Duncan Solutions for citation processing. The contract extension would align the term of the PD contract with Duncan Solutions to the OOT Residential Parking Program contract. The contract extension supports work to purchase, implement, and transfer operations and data to a new or updated management system to ensure proper functionality for the community members upon the completion of a procurement process. A Request for Proposal (RFP) has been published, responses received, and final vendor selection should be next quarter with Council having an opportunity to approve the purchase. ANALYSIS Police Department’s contract is set to end December 31, 2024. Aligning the end dates for the contracts of the Police Department and the Office of Transportation with Duncan Solutions would provide additional time to implement a consolidated and more comprehensive parking 1 City Council, December 5, 2016; Agenda item #4; SR #7179 https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=1581 Item 5 Item 5 Staff Report Item 5: Staff Report Pg. 1 Packet Pg. 61 of 227 management system between the two departments. This would allow both departments to confer on services offered to the community, parking enforcement strategies, and determine one comprehensive provider to include address the operational needs of both OOT and PD. Currently, PD, OOT, and Revenue Collections team in the Administrative Services Department are evaluating bids from several companies through the RFP process, in conjunction with Dixon Resources, a parking subject matter expert. This amendment would align the Police Department contract term with the Office of Transportation (OOT) contract term in preparation for the selection of a parking management vendor and implementation of a city-wide, comprehensive parking strategy, serving both City departments. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 5 Item 5 Staff Report Item 5: Staff Report Pg. 2 Packet Pg. 62 of 227 Vers.: Aug. 5, 2019 Page 1 of 4 AMENDMENT NO. 5 TO CONTRACT NO. C17164727 BETWEEN THE CITY OF PALO ALTO AND PROFESSIONAL ACCOUNT MANAGEMENT, LLC This Amendment No. 5 (this “Amendment”) to Contract No. C17164727 (the “Contract” as defined below) is entered into as of December 30, 2024 by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and PROFESSIONAL ACCOUNT MANAGEMENT, LLC, a limited liability company, located at 633 W. Wisconsin Avenue, Suite 1600, Milwaukee, WI 53203 (“CONSULTANT”). CITY and CONSULTANT are referred to collectively as the “Parties” in this Amendment. R E C I T A L S A. The Contract (as defined below) was entered into by and between the Parties hereto for the provision of parking citation processing and collection services, as detailed therein. B. The Parties now wish to amend the Contract in order to increase compensation by One Hundred Thirty Two Thousand Dollars ($132,000) from Eight Hundred Sixty Thousand Dollars ($860,000) to a new total not-to-exceed amount of Nine Hundred Ninety Two Thousand Dollars ($992,000) with no rate increase and extend the term for an additional twelve (12) months, changing from December 31, 2024 to a new ending term date of December 31, 2025. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the Parties agree: SECTION 1. Definitions. The following definitions shall apply to this Amendment: a. Contract. The term “Contract” shall mean Contract No. C17164727 between CONSULTANT and CITY, dated December 5, 2016, as amended by: Amendment No.1, dated October 21, 2021 Amendment No.2, dated April 29, 2022 Amendment No.3, dated April 17, 2023 Amendment No.4, dated April 29, 2024 b. Other Terms. Capitalized terms used and not defined in this Amendment shall have the meanings assigned to such terms in the Contract. SECTION 2. Section 2. “TERM” of the Contract is hereby amended to read as follows: “The term of this Agreement shall be from the date of its full execution through December 31, 2025, unless terminated earlier pursuant to Section 19 of this Agreement.” Docusign Envelope ID: 265B673D-FDF6-4E9A-9DCA-E3F95875E903 Item 5 Attachment A - Amendment No. 5 to Contract No. C17164727 Item 5: Staff Report Pg. 3 Packet Pg. 63 of 227 Vers.: Aug. 5, 2019 Page 2 of 4 SECTION 3. Section 4. “COMPENSATION FOR ORIGINAL TERM” of the Contract is hereby amended to read as follows: “The compensation to be paid to CONSULTANT for performance of the Services described in Exhibit “A” (“Basic Services”), and reimbursable expenses, for a total not to exceed amount of Nine Hundred Ninety Two Thousand Dollars ($992,000). CONSULTANT agrees to complete all Basic Services, including reimbursable expenses, within this amount with no changes to Exhibit C-1, Schedule of Rates.” SECTION 4. The following exhibit(s) to the Contract is/are hereby amended or added, as indicated below, to read as set forth in the attachment(s) to this Amendment, which is/are hereby incorporated in full into this Amendment and into the Contract by this reference: a. Exhibit “C” entitled “COMPENSATION”, ADDED / AMENDED, REPLACES PREVIOUS. SECTION 5. Legal Effect. Except as modified by this Amendment, all other provisions of the Contract, including any exhibits thereto, shall remain in full force and effect. SECTION 6. Incorporation of Recitals. The recitals set forth above are terms of this Amendment and are fully incorporated herein by this reference. (SIGNATURE BLOCK FOLLOWS ON THE NEXT PAGE.) Docusign Envelope ID: 265B673D-FDF6-4E9A-9DCA-E3F95875E903 Item 5 Attachment A - Amendment No. 5 to Contract No. C17164727 Item 5: Staff Report Pg. 4 Packet Pg. 64 of 227 Vers.: Aug. 5, 2019 Page 3 of 4 SIGNATURES OF THE PARTIES IN WITNESS WHEREOF, the Parties have by their duly authorized representatives executed this Amendment effective as of the date first above written. CITY OF PALO ALTO _____________________________ City Manager APPROVED AS TO FORM: _____________________________ City Attorney or Designee PROFESSIONAL ACCOUNT MANAGEMENT, LLC By:______________________________ Name:___________________________ Title:____________________________ Attachments: EXHIBIT C – COMPENSATION, AMENDMENT NO.5, (AMENDED REPLACES PREVIOUS) Docusign Envelope ID: 265B673D-FDF6-4E9A-9DCA-E3F95875E903 President / CEO James Kennedy Item 5 Attachment A - Amendment No. 5 to Contract No. C17164727 Item 5: Staff Report Pg. 5 Packet Pg. 65 of 227 Vers.: Aug. 5, 2019 Page 4 of 4 EXHIBIT “C” COMPENSATION, AMENDMENT NO.5 (AMENDED, REPLACES PREVIOUS) The CITY agrees to compensate the CONSULTANT for professional services performed in accordance with the terms and conditions of this Agreement, and as set forth in the budget schedule below. Compensation shall be calculated based on the hourly rate schedule attached as exhibit C-1 up to the not to exceed budget amount for each task set forth below. The compensation to be paid to CONSULTANT under this Agreement for services described in Exhibit “A” (“Basic Services”) and reimbursable expenses shall not exceed $110,222.22 per year. CONSULTANT agrees to complete all Basic Services, including reimbursable expenses, within this amount. Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to the CITY. CONSULTANT shall perform the tasks and categories of work as outlined and budgeted below. The CITY’s project manager may approve in writing the transfer of budget amounts between any of the tasks or categories listed below provided the total compensation for Basic Services, including reimbursable expenses, does not exceed $110,222.22 per year. BUDGET SCHEDULE NOT TO EXCEED AMOUNT Task 1 $1.35/cite/first three years (Citation Processing) $1.37/cite/year four $1.39/cite/year five Task 2 $0.65/letter/first three years (Notices Letters – includes postage) $0.68/letter/year four $0.71/letter/year five Task 3 $1.05/transaction/first three years (Internet Payments) $1.07/transaction/year four $1.09/transaction/year five Sub-total Basic Services $110,222.22 per year Total Not-to-Exceed for Basic Services for nine years at $110,222.22, per year. Maximum Total Compensation $992,000 Docusign Envelope ID: 265B673D-FDF6-4E9A-9DCA-E3F95875E903 Item 5 Attachment A - Amendment No. 5 to Contract No. C17164727 Item 5: Staff Report Pg. 6 Packet Pg. 66 of 227 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: City Manager Meeting Date: January 13, 2025 Report #:2412-3867 TITLE Approval of Contract Amendment Number 2 to Contract Number C23183770 with Townsend Public Affairs, Inc. to Extend Term for an Additional Year of Service (the second of four (4) annual options to renew) for State and Federal Legislative Advocacy and Grant Consulting and Compliance Services; CEQA Status - Not a Project RECOMMENDATION Staff recommends the City Council approve and authorize the City Manager or designee to execute Amendment No. 2 (Attachment A) to Contract #C23183770 with Townsend Public Affairs, Inc. (TPA) to extend term for an additional year of service and exercise the second of four (4) annual options to renew for State and Federal legislative advocacy services and grant consulting and compliance services. This amendment does not change the total contract not-to- exceed amount of $558,000 over a 5-year period. BACKGROUND On February 27, 2023, the City Council approved a contract with Townsend Public Affairs, Inc. TPA) after the completion of a request for proposals process and extensive City Council discussion1. The City Council approved the contract as a one (1) year contract with four (4) options to renew the contract for one year each. In addition to approving the contract, the City Council also established a time-limited Legislative Matters Ad Hoc Committee which met in 2023. On December 4, 2023, the City Council approved Amendment 1 with TPA2. The City Council approved the amendment as a one (1) year extension for State and Federal Legislative 1 February 27, 2023 City Council Meeting (Item 9): 2 December 4, 2023 City Council Meeting (Item 7) Item 6 Item 6 Staff Report Item 6: Staff Report Pg. 1 Packet Pg. 67 of 227 Advocacy and grant consulting and compliance services after TPA’s first year of successful services. ANALYSIS Provided more frequent updates to City Council and staff Helped advocate to the Housing and Community Development Department regarding Palo Alto Homekey Kept the City abreast of potential impacts to the City with pending legislation Drafted the updated legislative guidelines / legislative platform with staff Helped secure grant funding for the City and assisted staff with compliance requirements Other duties defined in the contract scope of work FISCAL/RESOURCE IMPACT Item 6 Item 6 Staff Report Item 6: Staff Report Pg. 2 Packet Pg. 68 of 227 STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 6 Item 6 Staff Report Item 6: Staff Report Pg. 3 Packet Pg. 69 of 227 Vers.: Aug. 5, 2019 Page 1 of 5 AMENDMENT NO. 2 TO CONTRACT NO. C23183770 BETWEEN THE CITY OF PALO ALTO AND TOWNSEND PUBLIC AFFAIRS, INC. This Amendment No. 2 (this “Amendment”) to Contract No. C23183770 (the “Contract” as defined below) is entered into as of December 30, 2024, by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and TOWNSEND PUBLIC AFFAIRS, INC, a California Corporation, located at 1401 Dove Street, Ste. 330, Newport Beach, California, 92660 (“CONSULTANT”). CITY and CONSULTANT are referred to collectively as the “Parties” in this Amendment. R E C I T A L S A. The Contract (as defined below) was entered into by and between the Parties hereto for the provision of representing CITY in all federal and state legislative advocacy matters including grant seeking and funding advocacy, as detailed therein. B. The Parties entered into Amendment No.1 in order to update the scope of services, revise the compensation schedule, and extend the contract term by twelve months through December 31, 2024, without any additional cost to the CITY, as detailed therein. C. The Parties now wish to amend the Contract in order to (1) extend the contract term by an additional twelve-month period through December 31, 2025, and (2) revise the compensation schedule to reflect the extension, at no additional cost to the CITY, as detailed herein. NOW, THEREFORE, in consideration of the covenants, terms, conditions, and provisions of this Amendment, the Parties agree: SECTION 1. Definitions. The following definitions shall apply to this Amendment: a. Contract. The term “Contract” shall mean Contract No. C23183770 between CONSULTANT and CITY, dated January 1, 2023, as amended by: Amendment No.1, dated November 2, 2023 b. Other Terms. Capitalized terms used and not defined in this Amendment shall have the meanings assigned to such terms in the Contract. SECTION 2. Section 2, Entitled “TERM” of the Contract is hereby amended to read as follows: Docusign Envelope ID: 00996123-627A-439D-BD5A-122E64B46C0E Item 6 Attachment A - Amendment #2 to Contract #C23183770 with Townsend Public Affairs Item 6: Staff Report Pg. 4 Packet Pg. 70 of 227 Vers.: Aug. 5, 2019 Page 2 of 5 “The term of this Agreement shall be from the date of its full execution through December 31, 2025, with the option to extend for two (2) more periods of one (1) year each, unless terminated earlier pursuant to Section 19 (Termination) of this Agreement. CITY shall notify CONSULTANT of its intent to exercise its option to renew in writing no later than ninety (90) days before the end of the term of this Agreement.” SECTION 3. The following exhibit(s) to the Contract is/are hereby amended or added, as indicated below, to read as set forth in the attachment(s) to this Amendment, which is/are hereby incorporated in full into this Amendment and into the Contract by this reference: a. Exhibit “C” entitled “COMPENSATION, AMENDMENT NO. 2”, AMENDED, REPLACES PREVIOUS. SECTION 4. Legal Effect. Except as modified by this Amendment, all other provisions of the Contract, including any exhibits thereto, shall remain in full force and effect. SECTION 5. Incorporation of Recitals. The recitals set forth above are terms of this Amendment and are fully incorporated herein by this reference. (SIGNATURE BLOCK FOLLOWS ON THE NEXT PAGE.) Docusign Envelope ID: 00996123-627A-439D-BD5A-122E64B46C0E Item 6 Attachment A - Amendment #2 to Contract #C23183770 with Townsend Public Affairs Item 6: Staff Report Pg. 5 Packet Pg. 71 of 227 Vers.: Aug. 5, 2019 Page 3 of 5 SIGNATURES OF THE PARTIES IN WITNESS WHEREOF, the Parties have by their duly authorized representatives executed this Amendment effective as of the date first above written. CITY OF PALO ALTO City Manager APPROVED AS TO FORM: City Attorney or designee TOWNSEND PUBLIC AFFAIRS, INC. Officer 1 By: Name: Christopher Townsend Title: President Officer 2 By: Name: Christopher Townsend Title: Secretary Attachments: EXHIBIT C: “COMPENSATION, AMENDMENT NO. 2” (AMENDED, REPLACES PREVIOUS) Docusign Envelope ID: 00996123-627A-439D-BD5A-122E64B46C0E Item 6 Attachment A - Amendment #2 to Contract #C23183770 with Townsend Public Affairs Item 6: Staff Report Pg. 6 Packet Pg. 72 of 227 Vers.: Aug. 5, 2019 Page 4 of 5 EXHIBIT C COMPENSATION, AMENDMENT NO. 2 (AMENDED, REPLACES PREVIOUS) CITY agrees to compensate CONSULTANT for Services performed in accordance with the terms and conditions of this Agreement, and as set forth in the budget schedule below. Compensation shall be calculated based on the rate schedule attached as Exhibit C-1 up to the not to exceed budget amount for each task set forth below. CITY’s Project Manager may approve in writing the transfer of budget amounts between any of the tasks or categories listed below, provided that the total compensation for the Services, including any specified reimbursable expenses, and the total compensation for Additional Services (if any, per Section 4 of the Agreement) do not exceed the amounts set forth in Section 4 of this Agreement. CONSULTANT agrees to complete all Services, any specified reimbursable expenses, and Additional Services (if any, per Section 4), within this/these amount(s). Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth in this Agreement shall be at no cost to the CITY. BUDGET SCHEDULE – Annually and Total TASK Year 1 (2023) Year 2 (2024) Year 3 (2025) Year 4 (2026 – If approved) Year 5 (2027 – If approved) NOT TO EXCEED AMOUNT Task 1 (Grant Consulting and Compliance Services) $48,000 ($4,000/mo) $48,000 $48,000 $48,000 $48,000 $240,000 Task 2 (Federal Legislative Advocacy Services) $72,000 ($6,000/mo) $72,000 $72,000 $72,000 $72,000 $360,000 Task 3 (State Legislative Advocacy Services) $114,000 ($9,500/mo) $114,000 $114,000 $114,000 $114,000 $570,000 Less: Discount for Bundled Cost Structure (Tasks 1, 2, and 3) ($48,000) ($4,000/mo) ($48,000) ($48,000) ($48,000) ($48,000) ($240,000.00) Sub-total for Services $186,000 $186,000 $186,000 $186,000 $186,000 $558,000.00 Reimbursable Expenses (if any) $0 $0 $0 $0 $0 $0.00 Docusign Envelope ID: 00996123-627A-439D-BD5A-122E64B46C0E Item 6 Attachment A - Amendment #2 to Contract #C23183770 with Townsend Public Affairs Item 6: Staff Report Pg. 7 Packet Pg. 73 of 227 Vers.: Aug. 5, 2019 Page 5 of 5 Total for Services and Reimbursable Expenses $186,000 $186,000 $186,000 $186,000 $186,000 $558,000.00 Additional Services (if any, per Section 4) $0 $0 $0 $0 $0 $0.00 Maximum Total Compensation $186,000 $186,000 $186,000 $186,000 $186,000 $558,000.00 REIMBURSABLE EXPENSES CONSULTANT’S ordinary business expenses, such as administrative, overhead, administrative support time/overtime, information systems, software and hardware, photocopying, telecommunications (telephone, internet), in-house printing, insurance and other ordinary business expenses, are included within the scope of payment for Services and are not reimbursable expenses hereunder. Reimbursable expenses, if any are specified as reimbursable under this section, will be reimbursed at actual cost. The expenses (by type, e.g. travel) for which CONSULTANT will be reimbursed are: NONE up to the not-to-exceed amount of: $0.00. Docusign Envelope ID: 00996123-627A-439D-BD5A-122E64B46C0E Item 6 Attachment A - Amendment #2 to Contract #C23183770 with Townsend Public Affairs Item 6: Staff Report Pg. 8 Packet Pg. 74 of 227 Certificate Of Completion Envelope Id: 00996123627A439DBD5A122E64B46C0E Status: Completed Subject: Complete with Docusign: FINAL C23183770 Townsend Amendment #2.pdf Source Envelope: Document Pages: 5 Signatures: 2 Envelope Originator: Certificate Pages: 2 Initials: 0 Alice Harrison AutoNav: Enabled EnvelopeId Stamping: Enabled Time Zone: (UTC-08:00) Pacific Time (US & Canada) 250 Hamilton Ave Palo Alto , CA 94301 Alice.Harrison@CityofPaloAlto.org IP Address: 71.204.184.225 Record Tracking Status: Original 12/13/2024 4:21:49 PM Holder: Alice Harrison Alice.Harrison@CityofPaloAlto.org Location: DocuSign Security Appliance Status: Connected Pool: StateLocal Storage Appliance Status: Connected Pool: City of Palo Alto Location: DocuSign Signer Events Signature Timestamp Christopher Townsend ctownsend@townsendpa.com President & Secretary Townsend Public Affairs, Inc. Security Level: Email, Account Authentication (None) Signature Adoption: Uploaded Signature Image Using IP Address: 72.219.129.141 Signed using mobile Sent: 12/13/2024 4:25:18 PM Viewed: 12/15/2024 1:53:33 AM Signed: 12/15/2024 1:53:55 AM Electronic Record and Signature Disclosure: Not Offered via DocuSign In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Amanda Conklin aconklin@townsendpa.com Business Manager Townsend Public Affairs, Inc. Security Level: Email, Account Authentication (None) Sent: 12/15/2024 1:53:56 AM Electronic Record and Signature Disclosure: Not Offered via DocuSign Ingrid Velasquez ingrid.velasquez@cityofpaloalto.org Administrative Assistant City of Palo Alto Security Level: Email, Account Authentication (None) Sent: 12/15/2024 1:53:57 AM Viewed: 12/16/2024 9:04:30 AM Electronic Record and Signature Disclosure: Not Offered via DocuSign Item 6 Attachment A - Amendment #2 to Contract #C23183770 with Townsend Public Affairs Item 6: Staff Report Pg. 9 Packet Pg. 75 of 227 Carbon Copy Events Status Timestamp Chantal Gaines chantal.gaines@cityofpaloalto.org Assistant to City Manager City of Palo Alto Security Level: Email, Account Authentication (None) Sent: 12/15/2024 1:53:58 AM Electronic Record and Signature Disclosure: Not Offered via DocuSign Witness Events Signature Timestamp Notary Events Signature Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 12/13/2024 4:25:18 PM Certified Delivered Security Checked 12/15/2024 1:53:33 AM Signing Complete Security Checked 12/15/2024 1:53:55 AM Completed Security Checked 12/15/2024 1:53:58 AM Payment Events Status Timestamps Item 6 Attachment A - Amendment #2 to Contract #C23183770 with Townsend Public Affairs Item 6: Staff Report Pg. 10 Packet Pg. 76 of 227 City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: City Manager Meeting Date: January 13, 2025 Report #:2412-3936 TITLE Retail Committee Recommendation to: (1) Revise the Fiscal Year 2025 Budget Appropriation at Mid-Year to Enhance Cleanliness Efforts in Both Downtowns; (2) Revise the Ongoing Parklet Regulations to Require Consent to Expand Beyond Own Frontage; and (3) Refer Staff to Follow- up on Revising the Temporary Use Zoning Rules and Exploring Improvements to Downtown Infrastructure and Experience RECOMMENDATION The Ad Hoc Retail Committee recommends that the City Council confirm direction to staff to: 1. Revise the Fiscal Year 2025 Budget Appropriation at Mid-Year to enhance cleanliness efforts in both downtown areas, as outlined in attachment A included with this report 2. Revise the ongoing parklet program so that parklets’ extensions into adjacent frontages may only occur with the consent of the adjacent property owner 3. Refer staff follow-up on the below items recommended by the Retail Committee: a. Developing a revision to the temporary use permit rules b. Exploring a plan for improvements to downtown infrastructure and experience BACKGROUND AND ANALYSIS During the December 18 Ad Hoc Retail Committee meeting1, the committee reviewed the recommendation presented by staff following the November Study Session on addressing retail vacancies in the University Avenue Downtown. The recommendation following the study session included efforts to enhance cleanliness in the downtowns, potential revisions to the 1 December 18 Retail Committee Agenda: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=15632 Item 7 Item 7 Staff Report Item 7: Staff Report Pg. 1 Packet Pg. 77 of 227 ongoing parklet program, and potential opportunities to better facilitate temporary uses. Following the discussion, the committee unanimously approved the following motion2: 3 of the committee confirmation is available on the Retail Committee website4. The memorandum includes the Retail Committee Staff Report to provide additional context. The proposed recommendations are intended to support efforts to address retail vacancies. FISCAL/RESOURCE IMPACT 2 Retail Committee Action Minutes: https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=15633&compileOutputType =1 3 December 18 Retail Committee Meeting Full Video: https://www.youtube.com/watch?v=GyaPcr1bem4&t=2s 4 Retail Committee Website: https://www.cityofpaloalto.org/Departments/City-Clerk/City-Council- Committees/Retail-Committee Item 7 Item 7 Staff Report Item 7: Staff Report Pg. 2 Packet Pg. 78 of 227 STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 7 Item 7 Staff Report Item 7: Staff Report Pg. 3 Packet Pg. 79 of 227 Retail Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: December 18, 2024 Report #:2411-3839 TITLE Recommendations to Council and Staff Following the Committee’s November Study Session Addressing Retail Vacancies in the University Avenue Downtown, Including: (1) Enhanced Cleanliness Efforts; (2) Revisions to the Parklet Program; and (3) Increasing Temporary Uses RECOMMENDATION Based on feedback from the Council and stakeholders during the November Study Session, staff recommends the Ad Hoc Retail Committee provide feedback on: a) efforts to enhance cleanliness in the downtowns b) potential revisions to the ongoing parklet program c) potential opportunities to better facilitate temporary uses BACKGROUND The Ad Hoc Retail Committee has met regularly since its creation in December 2023. It became a Brown-Act body in March 2024 and has met monthly, with the exception of June and July. Discussions about retail vacancies have arisen in multiple Committee meetings, and staff identified a focused study session on this topic could help advance any recommendations from the Committee to the full Council. During the October Ad Hoc Retail Committee meeting, the committee and staff discussed how to facilitate a study session in November to address retail vacancies in the University Avenue downtown. The discussion included potential areas for consideration, such as the entitlement (planning) and development process, uncertainty around plans and parking, trends in brick-and- mortar retail, a potential vacancy tax, interim activation of vacant storefronts, and the business improvement district. Potential structures, formats, and participant outreach for the study session were also discussed. After receiving direction at the October meeting, staff convened a study session to address retail vacancies along University Avenue in Downtown Palo Alto on November 20, 2024. This Item 7 Attachment A - Retail Committee Staff Report #2411-3839 Item 7: Staff Report Pg. 4 Packet Pg. 80 of 227 session focused on the City’s permitting process, the retail landscape, opportunities for greater partnership with the private sector, and the activation of vacant storefronts. Ad Hoc Retail Committee held a panel discussion with stakeholders to address retail vacancies along University Avenue in downtown Palo Alto. The panel was facilitated by Aaron Aknin from the Good City Company and included: •Brad Ehikian, Partner at Premier Properties; •Matt Sweeney, Executive Director at The Econic Company; •Steve Levy, Palo Alto resident and Director & Senior Economist for Center for Continuing Study of the California Economy; •John Shenk, with Thoits Bros., Inc.; •Charlie Weidanz, CEO of the Chamber of Commerce; and •Faith Bell, owner of Bell's Books. ANALYSIS Item 7 Attachment A - Retail Committee Staff Report #2411-3839 Item 7: Staff Report Pg. 5 Packet Pg. 81 of 227 Base Service Levels and Costs: Cleaning activities and costs for the University Ave and California Ave downtowns are part of the City’s operating budget. Public Works manages the cleaning activities, which includes services delivered both through in-house staff and contracted vendors. Cleaning services performed include: street sweeping, pressure washing, litter removal, emptying of garbage containers, cleaning garbage can surfaces, lids, and liners, surface cleaning of news racks and furniture, biohazard debris clean-up, and graffiti, poster, and sticker removal. The total amount spent on cleaning services at the base level is approximately $94,000 per month: $56,000 for contractors and $38,000 for in-house staff. This is broken down by service and delivery below: •$30,000 is the monthly cost for contracted street sweeping, which takes place three times a week in the University Avenue and California Avenue downtowns1 and once per week in garages. $17,000 is the monthly cost for the 80 in-house staff hours per week sweeping in parking lots not covered by contracts and manual blowing to supplement the contracted sweeping. •$11,000 is the cost per month for pressure washing, which takes place monthly on University Avenue and monthly for part of the year (May through October) on California Avenue There is no in-house support for pressure washing •$15,000 per month is the cost for surface cleaning and litter removal through the Downtown Streets Team, which includes 104 hours of labor week on these cleaning activities There is an additional $17,000 per month spent on in-house staff for these activities. There is an additional 20 hours of in-house staff time per week spent on graffiti, poster, flyer and sticker removal at a cost of approximately $4,000 a month. : Public Works has been able to leverage overtime and reassign staff to enhance services and accomplish a greater level of downtown cleanliness since March 2024. These enhanced service levels include additional litter removal, surface cleanings, and additional manual leaf-blowing. The City has also worked with its pressure washing contractor to add an additional cleaning per month, doubling the cleanings per month from one to two. The total amount spent on these is 1 The Car-Free portion of California Avenue is swept once a week; the rest of the California Avenue commercial core is swept three times a week. Item 7 Attachment A - Retail Committee Staff Report #2411-3839 Item 7: Staff Report Pg. 6 Packet Pg. 82 of 227 an additional $28,500 per month broken down by service and task, the majority of which is overtime labor hours of in-house staff. •$25,000 in marginal costs for in-house staff to provide enhanced litter removal and surface cleaning of trash cans, news racks, furniture, and biohazard debris clean-up •$1,000 in marginal costs for in-house staff for additional blowing •$2,500 in marginal costs for the contractor to provide an additional pressure washing of University Avenue Ad Hoc Retail Committee heard from brokers, property owners, and retailers on the importance of ‘certainty’ when it comes to the frontage of their properties and stores. In previous parklet discussions, restauranteurs have described how parklets have been an effective means of attracting and retaining customers. 2, parklets are allowed to extend beyond their store’s frontage without a letter of consent from the neighboring store so long as they do not have a roof. Constructing a roofed parklet beyond a stores’ frontage requires a letter of consent from the neighboring business. This represented an approach that attempted to minimize visibility impacts on neighboring retailers. 2 Ongoing Parklet Program: https://www.cityofpaloalto.org/Departments/Public-Works/Engineering- Services/Ongoing-Parklet-Program Item 7 Attachment A - Retail Committee Staff Report #2411-3839 Item 7: Staff Report Pg. 7 Packet Pg. 83 of 227 Transition. In response to the issues raised by retailers and other stakeholders during the November Study session, staff proposes revising the ongoing parklet program to better balance the competing needs of restaurants and retailers. •Should parklet extension in front of adjacent frontages be more limited, such only with adjacent owners’ consent? •If so, should existing parklets be allowed to remain until permit renewal, or other date? •How should this affect the development of outdoor dining guidelines for the car-free street portions of Ramona Street and Cal. Ave? Duration: Application Requirements and Fee Level: Building and Safety Codes: Item 7 Attachment A - Retail Committee Staff Report #2411-3839 Item 7: Staff Report Pg. 8 Packet Pg. 84 of 227 was designed to how it is intended to be used on a temporary basis will influence the permitting requirements, application processing time and costs, which all escalate based on complexity. Establishing temporary food uses raises other regulatory requirements from the County Health Department. Signs and Aesthetics: FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Ed Shikada, City Manager Item 7 Attachment A - Retail Committee Staff Report #2411-3839 Item 7: Staff Report Pg. 9 Packet Pg. 85 of 227 City Council Staff Report Report Type: CONSENT CALENDAR Lead Department: City Clerk Meeting Date: January 13, 2025 Report #:2412-3864 TITLE SECOND READING: Ordinance of the Council of the City of Palo Alto Amending Sections of Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move the Appointment of Members to the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly (FIRST READING: December 2, 2024 PASSED 7-0) BACKGROUND The City Council heard this item on December 2, 2024 for a first reading and approved it on a 7- 0 vote. No changes were made to the ordinance, and it is now before the City Council for a second reading. ATTACHMENTS Attachment A - Ordinance of the Council of the City of Palo Alto Amending Sections of Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move the Appointment of Members to the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly APPROVED BY: Mahealani Ah Yun Item 8 Item 8 Staff Report Item 8: Staff Report Pg. 1 Packet Pg. 86 of 227 NOT YET APPROVED Attachment A 118_20241018_ts24 1 Ordinance No. Ordinance of the Council of the City of Palo Alto Amending Sections of Title 2 (Administrative Code) of the Palo Alto Municipal Code to Move the Appointment of Members to the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly The Council of the City of Palo Alto ORDAINS as follows: SECTION 1. Findings and declarations. The City Council finds and declares as follows: A. The City has several statutory boards and commissions. See Palo Alto Municipal Code Chapters 2.18 et seq.; B. Existing PAMC section 2.16.070 requires that the City Council make regularly-scheduled appointments to boards and commissions in April of each year; C. The City Council intends to move the appointment process to November for three commissions: the Public Art Commission, the Human Relations Commission, and the Parks and Recreation Commission; and D. The City Council intends that the extensions of terms made in this ordinance are in addition to those made in Ordinance 5529 that were effective January 1, 2022. SECTION 2. Section 2.16.070 (Schedule of appointments) of Chapter 2.16 (Boards and Commissions Generally) of Title 2 (Administrative Code) is hereby amended as follows (additions are in underline, deletions are in strikethrough): 2.16.070 Schedule of appointments. (a) The City Council shall review applications to fill vacancies in the following boards and commissions in by April of each year: (1) Human Relations Commission (Chapter 2.22) (2) Public Art Commission (Chapter 2.18) (31) Utilities Advisory Commission (Chapter 2.23) (42) Architectural Review Board (Chapter 2.21) (53) Historic Resources Board (Chapter 2.27) (6) Parks and Recreation Commission (Chapter 2.25) (74) Planning and Transportation Commission (Chapter 2.20) (b) The City Council shall review applications to fill vacancies in the following boards and commissions by November of each year: (1) Public Art Commission (Chapter 2.18) (2) Human Relations Commission (Chapter 2.22) (3) Parks and Recreation Commission (Chapter 2.25) Item 8 Attachment A - Ordinance Amending Sections Title 2 (Administrative Code) to Move the Appointment of Members of the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly Item 8: Staff Report Pg. 2 Packet Pg. 87 of 227 NOT YET APPROVED Attachment A 118_20241018_ts24 2 (bc) The City Council shall fill vacancies in all other boards and commissions, if any, in April of each year or at another time, at its discretion. (cd) The City Council may fill mid-term vacancies during the next regularly scheduled recruitment for the board or commission or may hold a special recruitment, at its discretion. Special recruitments shall be subject to the requirements of Section 2.16.060. SECTION 3. Section 2.18.040 (Term of office) of Chapter 2.18 (Public Art Commission) is hereby amended as follows: 2.18.040 Term of office. Terms of office on the Public Art Commission shall be three years. Effective January 1, 2022, terms of office due to expire on May 31 of each year shall be extended to expire on the March 31 of the following year, and thereafter terms of office shall commence on April 1. Effective January 1, 2025, terms of office due to expire on March 31 of each year shall be extended to expire on October 31 of the same year, and thereafter terms of office shall commence on November 1. If a successor is unavailable, a member may remain in office until his or her successor is appointed, subject to the limits in Section 2.16.080. SECTION 4. Section 2.22.020 (Term of office) of Chapter 2.22 (Human Relations Commission) is hereby amended as follows: 2.22.020 Term of office. Terms of office on the Human Relations Commission shall be three years. Effective January 1, 2022, terms of office due to expire on May 31 of each year shall be extended to expire on the March 31 of the following year, and thereafter terms of office shall commence on April 1. Effective January 1, 2025, terms of office due to expire on March 31 of each year shall be extended to expire on October 31 of the same year, and thereafter terms of office shall commence on November 1. If a successor is unavailable, a member may remain in office until his or her successor is appointed, subject to the limits in Section 2.16.080. SECTION 5. Section 2.25.030 (Term of office) of Chapter 2.25 (Parks and Recreation Commission) is hereby amended as follows: 2.25.030 Term of office. Terms of office on the parks and recreation commission shall be three years. Commission appointments shall be staggered so that in each three-year cycle three members are appointed to serve during the first year, four members are appointed to serve during the second year, and no members are appointed to serve during the third year. Effective January 1, 2022, terms of office due to expire on December 15 of each year shall be extended to expire on March 31 of the following year, and thereafter terms of office shall commence on April 1. Effective January 1, 2025, terms of office due to expire on March 31 of each year shall be extended to expire on Item 8 Attachment A - Ordinance Amending Sections Title 2 (Administrative Code) to Move the Appointment of Members of the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly Item 8: Staff Report Pg. 3 Packet Pg. 88 of 227 NOT YET APPROVED Attachment A 118_20241018_ts24 3 October 31 of the same year, and thereafter terms of office shall commence on November 1. If a successor is unavailable, a member may remain in office until his or her successor is appointed, subject to the limits in Section 2.16.080. SECTION 6. A term of office extended by this Ordinance and/or Ordinance 5529 shall still be considered one term for the purpose of determining term limits under PAMC section 2.16.080 (Term Limits). SECTION 7. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the Ordinance would be subsequently declared invalid or unconstitutional. SECTION 8. The Council finds that adoption of this Ordinance is exempt from the California Environmental Quality Act as it is not a “project” within the meaning of CEQA. // // // // // // // // // Item 8 Attachment A - Ordinance Amending Sections Title 2 (Administrative Code) to Move the Appointment of Members of the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly Item 8: Staff Report Pg. 4 Packet Pg. 89 of 227 NOT YET APPROVED Attachment A 118_20241018_ts24 4 SECTION 9. This Ordinance shall be effective 31 days after adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: NOT PARTICIPATING: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Assistant City Attorney City Manager ____________________________ City Clerk ____________________________ Director of Community Services Item 8 Attachment A - Ordinance Amending Sections Title 2 (Administrative Code) to Move the Appointment of Members of the Public Art Commission, Human Relations Commission, and Parks and Recreation Commission to November of Each Year and Extending Existing Terms Accordingly Item 8: Staff Report Pg. 5 Packet Pg. 90 of 227 City Council Staff Report Report Type: CONSENT CALENDAR Lead Department: City Clerk Meeting Date: January 13, 2025 Report #:2412-3929 TITLE SECOND READING: Adoption of an Ordinance Approving a Plan for Park Improvements at the City’s Baylands for Santa Clara Valley Water District's Palo Alto Flood Basin Tide Gate Structure Phase 1: Seismic: Retrofit and Rehabilitation Project; Approval of Addendum to the Mitigated Negative Declaration for the Project Prepared by Santa Clara Valley Water District (SCH # 2020090237). (FIRST READING: December 9, 2024 PASSED 7-0) BACKGROUND The City Council heard this item on December 9, 2024 for a first reading and approved it on a 7- 0 vote. No changes were made to the ordinance, and it is not before the City Council for a second reading. ATTACHMENTS Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands APPROVED BY: Mahealani Ah Yun, City Clerk Item 9 Item 9 Staff Report Item 9: Staff Report Pg. 1 Packet Pg. 91 of 227 Attachment A *NOT YET APPROVED* 1 122_20241121_ts24 ORDINANCE NO. _____ Ordinance of The Council of The City of Palo Alto Approving a Plan for Park Improvements at the City’s Baylands: Authorizing the Santa Clara Valley Water District’s Palo Alto Flood Basin Tide Gate Structure Phase 1: Seismic Retrofit and Rehabilitation Project The Council of the City of Palo Alto does ORDAIN as follows: SECTION 1. Findings and Improvements. The City Council finds and declares that: (a) Article VIII of the Charter of the City of Palo Alto and Section 22.08.005 of the Palo Alto Municipal Code (PAMC) require that, before any substantial building, construction, reconstruction or development is commenced or approved, upon or with respect to any land held by the City for park purposes, the Council shall first cause to be prepared and by ordinance approve and adopt a plan therefor. (b) The Palo Alto Flood Basin Tide Gate Structure (Structure) is part of the Adobe Creek Loop Trail (Trail). The Structure is located in the City’s Baylands, which is dedicated parkland (See PAMC § 22.08.020 et seq.) (c) The City of Palo Alto intends to authorize Santa Clara Valley Water District (Valley Water) to perform a seismic retrofit and rehabilitation of the 1957-built Structure. The retrofit intends to reduce seismic vulnerabilities and the rehabilitation aims to extend the existing Structure’s service life. Based on the Conditional Structural Assessment of the existing Structure and reduced functionality, the Structure is planned to be seismically retrofitted and rehabilitated. (d) The plan of improvements (Plan) shall comprise, as follows: (1) The Project will install a deep foundation system on each end of the existing Structure consisting of two reinforced concrete piles topped with a rectangular- shaped reinforced concrete pile cap. The pile cap contains steel dowels to positively connect the deep foundation system to the side of the existing Structure. Select plan sheets showing the in-progress design are attached as Exhibit “A”. (2) The Project will repair large cracks and spalls in the concrete surface of the existing structure and then apply a Polyester Polymer Concrete (PPC) overlay for added protection. Select plan sheets showing the in-progress design are attached as Exhibit “A”. (3) The Project will replace the existing 42” tall fence with a new 48” tall fence. Select plan sheets showing the in-progress design are attached as Exhibit “A”. Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 2 Packet Pg. 92 of 227 Attachment A *NOT YET APPROVED* 2 122_20241121_ts24 (4) The Project will create improved maintenance access from the deck to the flood basin with ladders and an opening in the trash rack. Select plan sheets showing the in-progress design are attached as Exhibit “A”. (5) The Project will require temporary closures to portions of the Trail to accommodate construction of the seismic retrofit and rehabilitation work. A diagram illustrating anticipated Trail closures is attached as Exhibit “B”. If the seismic retrofit and rehabilitation work to the Structure is not constructed, future degradation of the existing Structure will occur and would eventually require closure of the Trail for an unknown duration of time. (e) The Project described above and as otherwise depicted in the attached exhibits is consistent with “park, playground, recreation or conservation purposes” as required under PAMC section 22.08.020 et seq. (f) The City Council desires to approve the Plan for the Project described above and as depicted in Exhibit "A" and Exhibit “B”. SECTION 2. The City Council hereby approves the Plan for construction of the Palo Alto Flood Basin Tide Gate Structure Phase 1: Seismic Retrofit and Rehabilitation Project as described in this Ordinance. SECTION 3. Valley Water is the Lead Agency for the Project under the California Environmental Quality Act (CEQA). Valley Water performed an Initial Study and determined that a Mitigated Negative Declaration (MND) is the appropriate level of review for the previous Project scope of a Structure replacement. A resolution adopting the Final MND (Resolution) was signed by Valley Water’s Board on April 27, 2021. Since the work for the Seismic Retrofit and Rehabilitation Project is smaller in scope and has less impacts, an addendum to the Final MND has been completed stating that the modifications to the original Structure replacement project will not result in new significant impacts or increase the severity of the already disclosed impacts. On October 22, 2024, Valley Water’s Board considered the addendum to the Final MND and approved the Modified Palo Alto Tide Gate Replacement Project. The CEQA documents are available online from the project website: https://www.valleywater.org/pafbtidegates. The City Council finds that the City of Palo Alto is a responsible agency under CEQA for the Project and certifies that it has reviewed and considered the information contained in Valley Water’s MND as updated by the addendum. Valley Water will apply for new regulatory permits or amend the existing regulatory permits from six resource agencies and will be working with the resource agencies for updated mitigation requirements and permit conditions. Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 3 Packet Pg. 93 of 227 Attachment A *NOT YET APPROVED* 3 122_20241121_ts24 SECTION 4. This ordinance shall be effective on the thirty-first day after the date of its adoption. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Assistant City Attorney City Manager ____________________________ Director of Community Services Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 4 Packet Pg. 94 of 227 EXHIBIT A PAGE 1 OF 4 EXHIBIT A Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 5 Packet Pg. 95 of 227 EXHIBIT A PAGE 2 OF 4 EXHIBIT A Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 6 Packet Pg. 96 of 227 EXHIBIT A PAGE 3 OF 4 EXHIBIT A Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 7 Packet Pg. 97 of 227 EXHIBIT A PAGE 4 OF 4 EXHIBIT A Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 8 Packet Pg. 98 of 227 EXHIBIT B PAGE 1 OF 2 5000 ft N ➤➤ N Image © 2024 A irbusImage © 2024 A irbus Byxbee Park Parking Lot PROJECT LOCATION Palo Alto Airport Palo Alto Flood Basin HW Y 1 0 1 Sa n A n t o n i o R d ±0.8 MILES TRAIL SEGMENTS CLOSED FOR 5 MONTHS (SEPTEMBER 2025 TO JANUARY 2026) OTHER TRAIL ROUTES & DETOUR OPEN ALL THE TIME Existing Tide Gate Structure FLAGGERS WILL BE PRESENT DURING HEAVY EQUIPMENT MOBILIZATION/DEMOBILIZATION ⚑ ⚑ ⚑ FLAGGERS WILL BE PRESENT DURING HEAVY EQUIPMENT MOBILIZATION/DEMOBILIZATION ⚑ ⚑ Coast Casey Pump Station ⚑ Emb a r c a d e r o R d E B a y s h o r e R d Fab e r P l Ado b e C r e e k Loo p T r a i l Bay Trail TRAIL CLOSURE Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 9 Packet Pg. 99 of 227 SIGN SIZE 4’ x 4’ 48” x 48” 5’ x 3” Construction Sign for Palo Alto Flood Basin Project EXHIBIT B PAGE 2 OF 2 Item 9 Attachment A - Ordinance Approving a Plan for Park's Improvements at City's Baylands Item 9: Staff Report Pg. 10 Packet Pg. 100 of 227 City Council Staff Report Report Type: CONSENT CALENDAR Lead Department: City Clerk Meeting Date: January 13, 2025 Report #:2412-3932 TITLE SECOND READING: Adoption of Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws (FIRST READING: December 16, 2024 PASSED 7-0) BACKGROUND The City Council heard this item on December 16, 2024 and approved it on a 7-0 vote. No changes were made to the ordinance, and it is now before the City Council for a second reading. ATTACHMENTS Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws APPROVED BY: Mahealani Ah Yun, City Clerk Item 10 Item 10 Staff Report Item 10: Staff Report Pg. 1 Packet Pg. 101 of 227 *NOT YET APPROVED* 0160161_kb2_20241204_ay16 1 Ordinance No. Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws The Council of the City of Palo Alto ORDAINS as follows: SECTION 1. Findings and Declarations. The City Council finds and declares as follows: A. On September 19, 2024, the Governor of the State of California signed Senate Bill 937, effective January 1, 2025. SB 937 allows housing developers to defer payment of impact fees until issuance of a certificate of occupancy and freezes fees at the level in effect at the time of building permit issuance for certain “designated residential development projects,” as defined in the bill. B. On September 19, 2024, the Governor signed Assembly Bill 2694, effective January 1, 2025. AB 2694 expands the definition of a “senior citizen housing development” in the Density Bonus Law to include a residential care facility for the elderly, as defined. C. On September 22, 2024, the Governor signed Assembly Bill 3116, effective January 1, 2025. AB 3116 added a definition of “student housing development” to the Density Bonus Law and amended provisions of the Density Bonus Law related to the percentage density bonus and incentives or concessions certain student housing developments must receive. D. On September 19, 2024, the Governor signed Senate Bill 1211, effective January 1, 2025. SB 1211 allows up to 8 detached accessory dwelling units (ADUs) on parcels with existing multifamily development and provides that cities can no longer require replacement parking for uncovered parking spaces that are removed for an ADU. E. On September 19, 2024, the Governor signed Senate Bill 450, effective January 1, 2025. SB 450 amends SB 9 (codified at Sections 65852.21 and 66411.7 of the California Government Code) to create a 60-day timeframe for approval or denial of an SB 9 application and requires that SB 9 projects be subject to only those objective standards that apply uniformly in the underlying zone. F. There is insufficient time for consideration of and recommendation on the necessary amendments to Title 18 by the Planning and Transportation Commission (PTC) prior to action by the City Council. The Council therefore declares that an interim ordinance, pursuant to Palo Alto Municipal Code (PAMC) Section 18.80.090 is an appropriate measure, pending consideration of a permanent ordinance by the PTC. Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 2 Packet Pg. 102 of 227 2 SECTION 2. Section 16.64.030 (Deferred Payment) of Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; deletions struck-through): 16.64.030 Deferred Payment For residential development only, payment of a fee may be deferred to the date of final building inspection approval of the development, the development is approved for occupancy. If the development contains more than one dwelling, the fee shall be paid on a pro rata basis for each dwelling when it is approved for occupancy. The fees may be deferred only if provided the owner of the real property for which the fees are required enters into a recordable agreement with the city prior to issuance of the building permit for the development, which from the date of recordation, shall constitute a lien on the property and shall be enforceable against successors in interest to the property owner. The agreement shall provide that final occupancy approval shall not be given until the fees are paid. The director of planning and development services may execute the agreement on behalf of the city in a form acceptable to the city attorney. SECTION 3. Section 16.64.040 (Calculation of Fee) of Chapter 16.64 (Development Fee and In-Lieu Payment Administration) of Title 16 (Building Regulations) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; deletions struck-through; unchanged text omitted by bracketed ellipses): 16.64.040 Calculation of Fee A fee shall be payable at the rate specified in the council-adopted municipal fee schedule in effect on the date the fees are paid, except: (1) an that the applicant for a vesting tentative map for a development project shall pay the fees in effect on the date the application for the vesting tentative map is deemed complete., and (2) an applicant that defers fees for a designated residential redevelopment project, as defined in California Government Code Section 66007, may elect to pay the fees in effect at the time of building permit issuance. SECTION 4. Section 18.15.020 (Definitions) of Chapter 18.15 (Density Bonus) of Title 18 (Zoning) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; deletions struck-through; unchanged text omitted by bracketed ellipses): 18.15.020 Definitions […] (w) “Senior citizen housing development” means a Development consistent with the California Fair Employment and Housing Act (Government Code Section 12900 et. seq., including 12955.9 in particular), which has been “designed to meet the physical and social needs of senior citizens,” and which otherwise qualifies as “housing for older persons” as that phrase is used in Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 3 Packet Pg. 103 of 227 3 the federal Fair Housing Amendments Act of 1988 (P.L. 100-430) and implementing regulations (24 CFR, part 100, subpart E), and as these phrases are used in California Civil Code Sections 51.2, 51.3, and 51.12. For purposes of this Chapter, “senior citizen housing development” includes a shared housing building development and a residential care facility for the elderly, as defined in California Health and Safety Code Section 1569.2. […] (y) “Shared housing unit” means one or more habitable rooms, not within another dwelling unit, that includes a bathroom, sink, refrigerator, and microwave, is used for permanent residence, that meets the “minimum room area” specified in Section R304 of the California Residential Code (Part 2.5 of Title 24 of the California Code of Regulations), and complies with the definition of “guestroom” in Section R202 of the California Residential Code. If a local ordinance further restricts the attributes of a shared housing building beyond the requirements established in this section, the local definition shall apply to the extent that it does not conflict with the requirements of this section. “Shared housing unit” for purposes of a residential care facility for the elderly, as defined in California Health and Safety Code Section 1569.2, includes a unit without an individual kitchen where a unit may be shared by unrelated persons, and a unit where a room that may be shared by unrelated persons meets the “minimum room area” requirements specified in Section R304 of the California Residential Code. (z) “Student housing development” means a development that contains bedrooms containing two or more bedspaces that have a shared or private bathroom, access to a shared or private living room and laundry facilities, and access to a shared or private kitchen. (y)(aa) "Total units" or "total dwelling units" means a calculation of the number of units that: (1) Excludes a unit added by a density bonus awarded pursuant to this section or any local law granting a greater density bonus. (2) Includes a unit designated to satisfy an inclusionary zoning requirement of a city, county, or city and county. For purposes of calculating a density bonus granted pursuant to this section for a shared housing building, "unit" means one shared housing unit and its pro rata share of associated common area facilities. (z)(ab) "Very low vehicle travel area" means an urbanized area, as designated by the United States Census Bureau, where the existing residential development generates vehicle miles traveled per capita that is below 85 percent of either regional vehicle miles traveled per capita or city vehicle miles traveled per capita. For purposes of this paragraph, "area" may include a travel analysis zone, hexagon, or grid. For the purposes of determining "regional vehicle miles traveled per capita" pursuant to this paragraph, a "region" is the entirety of incorporated and unincorporated areas governed by a multi- county or single-county metropolitan planning organization, or the entirety of the incorporated and unincorporated areas of an individual county that is not part of a metropolitan planning organization. Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 4 Packet Pg. 104 of 227 4 SECTION 5. Section 18.15.030 (Density Bonuses) of Chapter 18.15 (Density Bonus) of Title 18 (Zoning) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; deletions struck-through; unchanged text omitted by bracketed ellipses): 18.15.030 Density Bonuses This section describes the density bonuses that will be provided, at the request of an applicant, when that applicant provides restricted affordable units as described below. [...] (c) The city shall grant a thirty-five percent (35%) density bonus when an applicant for a student housing development of five (5) or more dwelling units seeks and agrees to construct in accordance with the requirements of this section and Government Code Section 65915: (1) At, in which at least twenty percent (20%) of the total dwelling units will be restricted and used for lower income students. For each one percent (1%) increase in the percentage of restricted lower income units between twenty and twenty-four percent (20-24%) of total units, a development will receive an additional three and three-quarters percent (3.75%) density bonus up to fifty percent (50%) of the maximum residential density. (2) (1) For purposes of calculating a density bonus granted pursuant to this subparagraph, the term “unit” as used in this subparagraph means one rental bed and its pro rata share of the associated common area facilities. The units described in this subparagraph shall be subject to an affordability restriction of 55 years, which shall not tie any rental bed reserved for lower income students to a specific bedroom. Notwithstanding any other law, an affordability restriction provision, state or county law or policy, or property management policy shall not prevent a lower income student from sharing a room or unit with a non-lower income student. Any attempted waiver of the requirements of this clause is void as against public policy. (3) (2) All units will be used exclusively for undergraduate, graduate, or professional students enrolled full time at an institution of higher education accredited by the Western Association of Schools and Colleges or the Accrediting Commission for Community and Junior Colleges. (4) (3) The applicant must submits evidence that the applicant entered into an operating agreement or master lease with one or more institutions of higher education for the institution(s) to occupy all units of the student housing development with students from that institution(s) or has established a system for confirming its renters’ status as students to ensure that all units of the student housing development are occupied with students from an institution of higher education. (5) (4) The rent provided in the applicable units of the development for lower income students shall be calculated at thirty percent (30%) of sixty-five percent (65%) of the area median income for Santa Clara County for a single-room occupancy unit type. (6) (5) The applicant will provide priority for the applicable affordable units for lower income students experiencing homelessness. A homeless service provider, as defined in paragraph (3) of subdivision (e) of Section 103577 of the Health and Safety Code, or institution of higher education that has knowledge of a person's homeless status may verify a person's status as homeless for purposes of this subclause. (6) The student housing development must not be located on a site that pursuant to Section 65915(c)(3) of the California Government Code would require replacement units for projects with Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 5 Packet Pg. 105 of 227 5 greater than a 35 percent density bonus. […] (i) An Except as provided in subsection (c)(6) of this Section, an applicant (or project) shall be ineligible for a density bonus or any other incentives or concessions under this chapter if the housing development is proposed on any property that includes a parcel or parcels on which rental dwelling units are located or, if the dwelling units have been vacated or demolished in the five-year period preceding the application, have been subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of lower or very low income; subject to any other form of rent or price control through the City’s valid exercise of its police power; or occupied by lower or very low income households, unless the proposed housing development replaces those units, and either of the following applies: (1) The proposed housing development, inclusive of the units replaced pursuant to this paragraph, contains affordable units at the percentages set forth in Section 18.15.030. (2) Each unit in the development, exclusive of a manager’s unit or units, is affordable to, and occupied by, either a lower or very low income household. […] SECTION 6. Section 18.15.050 (Development Concessions and Incentives) of Chapter 18.15 (Density Bonus) of Title 18 (Zoning) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; deletions struck-through; unchanged text omitted by bracketed ellipses): 18.15.050 Development Concessions and Incentives This section includes provisions for providing concessions or incentives pursuant to Government Code Section 65915. (a) By right parking incentives. Upon request by the applicant, a development that is eligible for a density bonus may provide parking as provided in this subsection (a), consistent with Government Code Section 65915(p), inclusive of parking for persons with a disability and guests: (1) Zero to one bedroom unit: one on-site parking space; (2) Two to three bedroom unit: one and one-half on-site parking spaces; (3) Four or more bedroom unit: two and one-half parking spaces.; (4) One bedspace in a student housing development: zero parking spaces. If the total number of spaces required results in a fractional number, it shall be rounded up to the next whole number. For purposes of this subsection, this parking may be provided through tandem parking or uncovered parking, but not through on-street parking. […] (c) Other incentives and concessions. A development is eligible for other concessions or incentives as follows: (1) One concession or incentive for a development that makes at least ten percent (10%) of the total dwelling units affordable to lower income households; or at least five percent (5%) of the Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 6 Packet Pg. 106 of 227 6 total dwelling units affordable to very low income households; or at least ten percent (10%) of the total dwelling units affordable to moderate income households in a development in which the units are for sale; or at least twenty percent (20%) of the total units in a student housing development for low income students, as provided for in 18.15.030(c). (2) Two concessions or incentives for a development that makes at least seventeen percent (17%) of the total dwelling units affordable to lower income households; or at least ten percent (10%) of the total dwelling units affordable to very low income households; or at least twenty percent (20%) of the total dwelling units affordable to moderate income households in a development in which the units are for sale; or at least twenty-three percent (23%) of the total units in a student housing development for low income students, as provided for in 18.15.030(c). SECTION 7. Section 18.42.180 (Standards for Two Units on Single Family Zoned Lots Pursuant to Senate Bill 9) of Chapter 18.42 (Standards for Special Uses) of Title 18 (Zoning) of the Palo Alto Municipal Code is amended to read as follows (additions underlined; deletions struck-through; unchanged text omitted by bracketed ellipses): 18.42.180 Standards for Two Units on Single Family Zoned Lots Pursuant to Senate Bill 9. (a) Purpose. This section sets forth special regulations applicable to the construction of two dwelling units on single family lots in the R-1 (and R-1 subdistricts) and R-E zone districts, pursuant to California Government Code Sections 65852.21 and 66411.7 (SB 9, 2021). In the event of a conflict between the provisions of this section and the generally applicable regulations of Chapters 18.10, 18.12, and 18.52-18.80, inclusive, the provisions of this section the more permissive provision shall prevail. (b) Definitions. As used in this section: (1) “Specific, adverse impact” means a significant, quantifiable, direct, and unavoidable impact, based on objective, identified written public health or safety or physical environmental standards, policies, or conditions as they existed on the date the application was deemed complete. Inconsistency with the zoning ordinance or general plan land use designation shall not constitute a specific, adverse, impact. (2) “Sufficient to allow separate conveyance” means the two dwelling units constitute clearly defined, separate, and independent housekeeping units without interior access points to the other dwelling unit. (3) “Two dwelling units” means the development proposes two new units on a vacant lot or proposes to add one new unit to one existing unit on a lot. This does not include the development of a single dwelling unit on a vacant lot. (4) “Unit” means any dwelling unit, including, but not limited to a primary dwelling unit, an accessory dwelling unit, or a junior accessory dwelling unit. (c) Applicability. When an application is submitted that includes both (1) the construction of two dwelling units under this section and (2) other redevelopment work that is not integral to creation of a new dwelling unit and would generally require discretionary review, only the portions required for construction of dwelling units shall be reviewed ministerially. In addition, this section shall not apply in any of the following circumstances: Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 7 Packet Pg. 107 of 227 7 (1) Parcels described California Government Code Section 65913.4, subdivisions (a)(6)(B) through (a)(6)(K) inclusive, as that section read on September 16, 2021. Such parcels include, for example, parcels located in wetlands, in very high fire severity zones (unless the site has adopted certain fire hazard mitigation measures), and in special flood hazard areas or regulatory floodways (unless the site meets certain federal requirements for development). (2) Parcels on which an owner of residential real property has exercised the owner’s rights under state law to withdraw accommodations from rent or lease within the past 15 years. (3) The development would require alteration or demolition of any of the following types of housing (A) Housing that is subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of moderate, low, or very low income. (B) Housing that is subject to any form of rent or price control through a public entity’s valid exercise of its police power. (C) Housing that has been occupied by a tenant in the last three years. (4) The development would result in the demolition of more than 25 percent of the existing exterior structural walls of a site that has been occupied by a tenant in the last three years. (5) (4) The development is located within a historic district or property included on the State Historic Resources Inventory, as defined in California Public Resources Code Section 5020.1, or within a site that is designated or listed on the City’s historic inventory. (6) (5) The building official finds that the development would have a specific, adverse impact on public health and safety or the physical environment that cannot be feasibly mitigated or avoided. (d) Application Process. (1) The Director is authorized to promulgate regulations, forms, and/or checklists setting forth application requirements for the development of dwelling units under this section. (2) The City shall ministerially approve or disapprove an application pursuant to this section. (3) The director of planning shall consider and approve or deny an application for a proposed housing development pursuant to this section within 60 days from the date the City receives a completed application. If the director has not approved or denied the completed application within 60 days, the application shall be deemed approved. (4) If the director denies an application for a proposed housing development pursuant to this section, the director shall, within 60 days of receipt of the completed application, return in writing a full set of comments to the applicant with a list of items that are defective or deficient and a description of how the applicant can remedy the application. Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 8 Packet Pg. 108 of 227 8 (e) Development Standards. (1) A project proposing two dwelling units on a parcel in the R-1 or RE districts shall be subject to the development standards set forth in Chapters 18.12 and 18.10, respectively except as provided herein. (2) All construction pursuant to this section shall comply with objective design standards adopted by the City Council for two-story development, except to the extent necessary to construct a unit of 800 square feet. However, an applicant seeking to deviate from the objective design standards (except to the extent necessary to construct a unit of 800 square feet) may elect to submit an application for under the base requirements of Chapters 18.10, or 18.12, including, if applicable, Single Family Individual Review. (3) If the application of any development standard or design standard would necessarily require that one or more proposed units be less than 800 square feet, such standard shall be relaxed to the minimum extent necessary to allow construction of a unit or units of at least 800 square feet. The Director may publish regulations governing the order in which objective standards shall be waived or relaxed in such circumstances. (4) Setbacks from side and rear property lines, including street-side property lines, shall be no less than four feet, except in the case of existing non-complying structures or structures reconstructed in the same location and to the same dimensions as an existing structure, in which case existing setbacks less than four feet may be maintained. No setback is required from an internal lot line newly created pursuant to Chapter 21.10, for adjacent or connected structures separated by the new lot line, provided that the structures meet building code safety standards and are sufficient to allow separate conveyance. (5) Off-street parking shall be provided pursuant to Chapters 18.52 and 18.54. (6) In the event that a project is proposed on a site that has been subject to an Urban Lot Split under Chapter 21.10, and the project would result in three or more detached units across the two parcels created by the urban lot split, any new units shall not exceed 800 square feet. (7) (6) Accessory structures, such as garages and shed are permitted consistent with the provisions of the zoning district; however, no accessory structure shall have a floor area exceeding 500 square feet. (8) (7) The Director of Public Works may promulgate standards for adjacent public improvements, such as curb cuts and sidewalks, in relation to development pursuant to this Section. (f) General Requirements. (1) A maximum of two units may be located on any parcel that is created by an Urban Lot Split under Chapter 21.10. Accessory dwelling units and junior accessory dwelling units shall not be permitted on any such parcel already containing two units. (2) On parcels that are not the result of an Urban Lot Split under Chapter 21.10, accessory dwelling units may be proposed in addition to the primary dwelling unit or units, consistent with Chapter 18.09, provided, however, that ADUs associated with projects proceeding under this Section shall not receive any exemption from Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 9 Packet Pg. 109 of 227 9 Floor Area Ratio except to the minimum extent required by California Government Code Section 65852.2. (3) A rental of any unit created pursuant to this Section shall be for a term longer than 30 consecutive days. (4) For residential units connected to an onsite wastewater treatment system, a percolation test completed within the last 5 years, or, if the percolation test has been recertified, within the last 10 years. (5) Each unit shall have a permanent street address. (6) The owner and all successors in interest in the subject property shall agree to participate in any City survey of properties that have constructed dwelling units pursuant to this Section. (g) Effective Dates. This section shall remain in effect until such time as Government Code Section 65852.21 is repealed, or superseded, or invalidated by a court of competent jurisdiction, or its requirements for ministerial approval of no more than two units on a single family zoned lot are materially amended, whether by legislation or initiative, at which time this section shall become null and void. SECTION 8. Chapter 21.10 (Urban Lot Splits) of Title 21 (Subdivisions and Other Divisions of land) of the Palo Alto Municipal Code is amended to read as follows (additions underlined; deletions struck-through): Chapter 21.10 PARCEL MAPS FOR URBAN LOT SPLITS IN SINGLE-FAMILY ZONES Section 21.10.010 Purpose Section 21.10.020 Definitions Section 21.10.030 Applicability Section 21.10.040 General Requirements Section 21.10.050 Application and Review of an Urban Lot Split Section 21.10.060 Effective dates Section 21.10.010 Purpose This chapter sets forth special regulations applicable to the subdivision of a single family lot in the R-1 district (and R-1 subdistricts) or R-E district into two new lots, pursuant to California Government Code Section 66411.7 (SB 9, 2021). Section 21.10.020 Definitions As used in this chapter: (a) “Acting in concert” means pursuing a shared goal to split adjacent lots pursuant to an agreement or understanding, whether formal or informal. (b) “Specific, adverse impact” means a significant, quantifiable, direct, and unavoidable impact, based on objective, identified written public health or safety or physical environmental standards, policies, or conditions as they existed on the date the application was deemed Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 10 Packet Pg. 110 of 227 10 complete. Inconsistency with the zoning ordinance or general plan land use designation shall not constitute a specific, adverse, impact. (c) “Unit” means any dwelling unit, including, but not limited to, a unit or units created pursuant to Section 18.42.180, a primary dwelling unit, an accessory dwelling unit, or a junior accessory dwelling unit. (d) “Urban Lot Split” means the subdivision of an existing legal parcel in the R-1 district (and R- 1 subdistricts) or R-E district to create no more than two new parcels of approximately equal area, pursuant to this Chapter and California Government Code Section 66411.7. Section 21.10.030 Applicability The provisions of this chapter shall apply only to lots in the R-1 district (and R-1 subdistricts) or R-E zone district. Except as modified by this Chapter, all provisions of Title 21 shall apply to an application for urban lot split. An Urban Lot Split is not available in any of the following circumstances: (a) A parcel described California Government Code Section 65913.4, subdivisions (a)(6)(B) through (a)(6)(K) inclusive, as that section read on September 16, 2021. Such parcels include, for example, parcels located in wetlands, in very high fire severity zones (unless the site has adopted certain fire hazard mitigation measures), and in special flood hazard areas or regulatory floodways (unless the site meets certain federal requirements for development). (b) A parcel on which an owner of residential real property has exercised the owner’s rights under state law to withdraw accommodations from rent or lease within the past 15 years. (c) A parcel that was created by prior exercise of an Urban Lot Split. (d) A parcel adjacent to a parcel that was created by prior exercise of an Urban Lot Split by the owner, or a person acting in concert with the owner of the parcel sought to be split. (e) The Urban Lot Split would require alteration or demolition of any of the following types of housing: (1) Housing that is subject to a recorded covenant, ordinance, or law that restricts rents to levels affordable to persons and families of moderate, low, or very low income. (2) Housing that is subject to any form of rent or price control through a public entity’s valid exercise of its police power. (3) Housing that has been occupied by a tenant in the last three years. (f) The Urban Lot Split is located within a historic district or property included on the State Historic Resources Inventory, as defined in California Public Resources Code Section 5020.1, or within a site that is designated or listed on the City’s historic inventory. (g) The building official finds that the development would have a specific, adverse impact on public health and safety or the physical environment that cannot be feasibly mitigated or avoided. Section 21.10.040 General Requirements (a) The minimum size for a parcel created by an Urban Lot Split is 1,200 square feet. (b) The lots created by an Urban Lot Split must be of approximately equal area, such that no resulting parcel shall be smaller than 40 percent of the lot area of the original parcel proposed for subdivision. Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 11 Packet Pg. 111 of 227 11 (c) Where existing dwelling units on the property are to remain, no lot line may be created under this Chapter in a manner that would bisect any structure or that would result in more than two dwelling units on any resulting parcel. (d) Newly created lot lines shall not render an existing structure noncomplying in any respect (e.g. floor area ratio, lot coverage, parking), nor increase the degree of noncompliance of an existing noncompliant structure. (e) Each parcel shall comply with any objective lot design standards for Urban Lot Splits adopted by the City Council and consistent with Chapter 66411.7 of the Government Code. (f) Utility easements shall be shown on the parcel map, and recorded prior to, or concurrent with final parcel map recordation. (g) A covenant necessary for maintenance of stormwater treatment facilities shall be recorded prior to, or concurrent with final map recordation. (h) Existing driveways to be demolished shall follow the procedure(s) in 12.08.090 Elimination of abandoned driveway. (i) A maintenance agreement shall be recorded to ensure shared maintenance of any shared access easements, stormwater treatment, landscaping and private utilities, prior to final parcel map recordation. Section 21.10.050 Application and Review of an Urban Lot Split (a) The director of planning is authorized to promulgate regulations, forms, and/or checklists setting forth application requirements for a parcel map for an Urban Lot Split under this Chapter. An application shall include an affidavit from the property owner, signed under penalty of perjury under the laws of California, that: (1) The proposed urban lot split would not require or authorize demolition or alteration of any of the housing described in Section 21.10.030, subdivision (e). (2) The proposed urban lot split is not on a parcel described in Section 21.10.030. (3) The owner intends to occupy one of the housing units located on a lot created by the parcel map as their principal residence for a minimum of three years from the date of the recording of the parcel map. (4) The rental of any unit on the property shall be for a term longer than 30 consecutive days. (5) The resulting lots will be for residential uses only. (b) A parcel map for an Urban Lot Split must be prepared by a registered civil engineer or licensed land surveyor in accordance with Government Code sections 66444 – 66450 and this Chapter. Unless more specific regulations are adopted by the director of planning, the parcel map shall be in the form and include all of the information required of a Preliminary Parcel Map by Chapter 21.12, as well as any additional information required of a Parcel Map by Chapter 21.16. In addition, the face of the Parcel Map shall contain a declaration that: (1) Each lot created by the parcel map shall be used solely for residential dwellings. (2) That no more than two dwelling units may be permitted on each lot. (3) That rental of any dwelling unit on a lot created by the parcel map shall be for a term longer than 30 consecutive days. (4) A lot created by a parcel map under this Chapter shall not be further subdivided. Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 12 Packet Pg. 112 of 227 12 (c) Upon receipt of a parcel map for an Urban Lot Split, the director of planning shall transmit copies to the city engineer, chief building official, director of utilities, chief of police, fire chief, director of transportation, and such other departments of the city, and any other agencies, as may be required by law or deemed appropriate. (d) The director of planning shall cause a notice of the pending application to be posted at the site of the proposed Urban Lot Split and for notice to be mailed to owners and residents of property within 600 feet of the property. (e) The director of planning shall ministerially review and approve a parcel map for Urban Lot Split if they determine that the parcel map application meets all requirements of this Chapter. The director of planning shall deny a parcel map application that does not meet any requirement of this Chapter. (f) The director of planning shall consider and approve or deny an application for an urban lot split within 60 days from the date the City receives a completed application. If the director has not approved or denied the completed application within 60 days, the application shall be deemed approved. (g) If the director denies an application for an urban lot split, the director shall, within 60 days of receipt of the completed application, return in writing a full set of comments to the applicant with a list of items that are defective or deficient and a description of how the applicant can remedy the application. (h) (f) The Director of Planning shall determine the appropriate fee required for an application for parcel map for an Urban Lot Split, which may be the fee currently established for a Preliminary Parcel Map or Parcel Map. Section 21.10.060 Effective Dates. This chapter shall remain in effect until such time as Government Code Section 66411.7 is repealed or superseded or its requirements for ministerial approval of an Urban Lot Split on a single family zoned lot are materially amended, whether by legislation or initiative, at which time this chapter shall become null and void. SECTION 9. Section 18.10.040 (Development Standards) of Chapter 18.10 (Low Density Residential (RE, R-2, and RMD) Districts) of Title 18 (Zoning) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; and unchanged text omitted by bracketed ellipses): 18.10.040 Development Standards […] (i) Individual Review The Individual Review provisions of Section 18.12.110 of the Zoning Ordinance shall be applied to any single-family or two-family residence in the R-2 or RMD districts to those sides of a site that share an interior side lot line with the interior side or rear lot line of a property zoned for or used for single-family or two-family dwellings. The individual review criteria shall be applied only to the project’s effects on adjacent single-family and two-family uses. A project that complies with the objective standards for two-story development adopted by the City Council shall not be subject Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 13 Packet Pg. 113 of 227 13 to Individual Review. […] SECTION 10. Section 18.12.040 (Site Development Standards) of Chapter 18.12 (R-1 Single- Family Residential District) of Title 18 (Zoning) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; and unchanged text omitted by bracketed ellipses): 18.12.040 Site Development Standards […] (m) In addition to the standards contained in and referenced in this Chapter, single-family residential development, including the development of a primary residence and one or more accessory dwelling units and development pursuant to California Government Code Sections 65852.21 and 66411.7 shall comply with the objective standards for two-story development adopted by the City Council. However, an applicant seeking to deviate from the objective standards may submit an application for Single Family Individual Review pursuant to Section 18.12.110. SECTION 11. Section 18.12.110 (Single Family Individual Review) of Chapter 18.12 (R-1 Single- Family Residential District) of Title 18 (Zoning) of the Palo Alto Municipal Code is hereby amended as follows (additions underlined; and unchanged text omitted by bracketed ellipses): 18.12.110 Single Family Individual Review […] (b) Applicability The provisions of this Section 18.12.110 apply to the construction that does not comply with the objective standards for two-story development adopted by the City Council. Such projects include construction of a new singly developed two-story structure; the construction of a new second story; or the expansion of an existing second story by more than 150 square feet in the R-1 single family residential district. All second-story additions on a site after November 19, 2001 shall be included in calculating whether an addition is over 150 square feet. […] SECTION 12. If any section, subsection, clause or phrase of this Ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portion or sections of the Ordinance. The Council hereby declares that it should have adopted the Ordinance and each section, subsection, sentence, clause or phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid. SECTION 13. The Council finds that the Ordinance is exempt from the California Environmental Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 14 Packet Pg. 114 of 227 14 Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b)(3) because it can be seen with certainty that there is no possibility that updating the municipal code to implement existing changes in preemptive state housing law will have a significant effect on the environment. SECTION 14. This Ordinance shall be effective on the thirty-first day after the date of its adoption and shall expire on December 31, 2025, unless extended by the City Council or superseded by replacement legislation. INTRODUCED: PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED AS TO CONTENT: Assistant City Attorney City Manager Director of Planning and Development Services Item 10 Attachment A - Interim Ordinance of the Council of the City of Palo Alto Amending Various Chapters of Title 16 (Building Regulations) and Title 18 (Zoning) and Title 21 (Subdivisions and Other Divisions of Land) of the Palo Alto Municipal Code to Implement Recent State Housing Laws Item 10: Staff Report Pg. 15 Packet Pg. 115 of 227 City Council Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Clerk Meeting Date: January 13, 2025 Report #:2411-3774 TITLE Discussion regarding State and Federal Legislative Advocacy and Adoption of the Policy and Services Committee Recommendations on the 2025 State and Federal Legislative Guidelines. RECOMMENDATION The Policy and Services Committee recommends that the City Council adopt the 2025 State and Federal Legislative Guidelines (Attachment A) and receive a legislative update. BACKGROUND As part of the City’s state and federal legislative advocacy program, staff and Townsend Public Affairs, the City’s federal and state legislative advocates, work to identify and analyze potentially impactful legislation and communicate the City’s public advocacy positions to legislators. The program is guided by the Advocacy Process Manual1 and a City Council-approved set of Legislative Guidelines. The guidelines provide direction to staff and the City’s legislative advocates on issues that are important to the City Council and likely to become a legislative issue. In consultation with the Mayor, staff use the guidelines to respond to issues throughout the year. These guidelines allow for flexible and quick responses to emerging issues in the fast-paced legislative environment without returning to the City Council each time an issue arises. ANALYSIS Legislative Guidelines The Policy and Services Committee discussed the 2025 State and Federal Legislative Guidelines at its November 6, 2024 meeting2 and voted to advance the updated guidelines to the City Council for adoption. Updates reflect Committee direction, topics the City Council has expressed interest in and issues expected to be prominent in the upcoming legislative year. 1 Advocacy Process Manual: https://www.cityofpaloalto.org/files/assets/public/v/1/intergovernmental- affairs/advocacy-manual-updated-jan-2020.pdf 2 Policy and Services Committee, November 6, 2024; Agenda Item 1; Staff Report #2407-3241 https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=15686 Item 11 Item 11 Staff Report Item 11: Staff Report Pg. 1 Packet Pg. 116 of 227 Legislative Update As mentioned above, Townsend Public Affairs are the City’s legislative advocates in Sacramento and Washington, D.C. Townsend’s Update Memo (Attachment B) previews the upcoming legislative year for the state and federal governments, including anticipated issues, budget outlooks, and legislation that may be of interest to the City. FISCAL/RESOURCE IMPACT There is no fiscal impact associated with this action. The City Council budgets annually for the legislative advocacy services and these efforts are led by staff in the City Clerk’s Office in close collaboration with the City Manager’s Office with stakeholder support across other City departments on key issues. STAKEHOLDER ENGAGEMENT Staff from multiple departments meet regularly with Townsend to discuss legislative actions and advocacy that could impact the City. ENVIRONMENTAL REVIEW The City’s legislative advocacy activities are not a project under section 15378(b)(25) of the California Environmental Quality Act Guidelines (administrative activities that will not result in direct or indirect physical changes in the environment). ATTACHMENTS Attachment A - Draft 2025 State and Federal Legislative Guidelines Attachment B - Townsend Public Affairs Update Memo APPROVED BY: Mahealani Ah Yun, City Clerk Item 11 Item 11 Staff Report Item 11: Staff Report Pg. 2 Packet Pg. 117 of 227 Page 1 of 4 The City of Palo Alto’s 20245 Federal and State Legislative Guidelines Adopted January 22, 2024 These Guidelines reflect and activate the City Council’s priorities; they do not supplant them. They work to guide staff and the City’s legislative advocates on issues that are important to the City Council, and likely to become a legislative issue. These Guidelines are not rank‐ordered and are meant to allow for a flexible and quick response by staff and advocates, without the need to return to the City Council to seek guidance. The Guidelines work in conjunction with the City Council‐approved Advocacy Process Manual and the City Council action to do “Strategic Weighing in on Issues of Interest”1 (June 22, 2021 CMR 12344; Minutes). The City Council’s annual priorities are also guidance for the City’s legislative platform. The below Foundational Principles represent the ideals that form the core of the City’s policy agenda. The Legislative Guidelines all rise from and strengthen four foundational principles: 1.Promote Local Fiscal Sustainability: Support measures that promote fiscal stability, predictability, financial independence, and preserve the City’s revenue base and maximum control over local government budgeting. Also protect local revenue sources and prevent unfunded mandates. 2.Support Funding Opportunities: Protect, seek, and increase funding for programs, projects, and services. Seek opportunities that allow the City to compete for regional, state and federal funding. Support funding for programs including, but not limited to, economic development, infrastructure investment, housing, transportation projects (such as road improvements, rail grade separations, bicycle and pedestrian safety, multi‐modal transportation systems and transit‐oriented development), air quality, water quality and local water reliability, parks and recreation, historic preservation, natural resources, hazard mitigation, public safety and public health. 3.Preserve Local Control: Preserve and protect the City’s powers, duties, and discretion to enact and engage in local processes and policy making concerning local affairs and oppose efforts and legislation from state and regional bodies that preempt local authority and do not align with City priorities. Advocate for longer lead times for implementation of new legislation that adversely impacts Palo Alto. Oppose items that preempt or reduce the authority or ability of local government to determine how to effectively operate local programs, services, activities, and governance. 4.Protect the health and safety of the community: Support policies and funding that enrich the quality of life for the Palo Alto community with services that provide for a safe, fulfilling, and vibrant life. Support policies that promote equity. 1 City Council, June 22, 2021; Agenda Item # 7; Staff Report # 12344 https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=81546&dbid=0&repo=PaloAlto Item 11 Attachment A - Draft 2025 State and Federal Legislative Guidelines Item 11: Staff Report Pg. 3 Packet Pg. 118 of 227 Page 2 of 4 The City of Palo Alto’s 20245 Federal and State Legislative Guidelines Adopted January 22, 2024 The Legislative Guidelines create the framework for organizing the City’s policy interests, while guiding staff and contracted legislative advocateslobbyists in their advocacy efforts on behalf of the City. The items below provide direction for the City’s efforts when addressing reasonable government actions. Transportation The City supports government action that: • Deters single occupancy drivers and alleviates local traffic congestion • Supports local and regional public transportation • Regulates technology that diverts traffic into residential neighborhoods • Provides funding for rail grade separations, rail efficiency improvements, and other means of reducing the local impacts of regional transportation systems • Streamlines funding between the state, federal, and local governments that help reduce the amount of time and resources it takes to fund and complete transportation projects. • Sustains local, regional, and state funding sources for the development and maintenance of transportation and does not condition receipt of funds on non‐transportation related factors • Supports expansion and/or maintaining and operations of public transit options throughout Palo Alto, especially funding for transit • Supports state legislation that maximizes local control related to land use requirements near transit (especially if it impacts the City’s approach to planning for complete communities) Climate and Environment The City supports government action that: • Reduces GHG emissions and supports just, equitable, and cost‐effective progress toward GHG reduction, and carbon neutrality goals, and electrification • Maintains or expands funding resources for local governments to reduce GHG emissions • Reduces airplane noise, health impacts, and/or airplane emissions • Promotes residential, commercial, and vehicle electrification programs • Promotes workforce development to provide increased workforce needed for electrification and grid modernization • Promotes the use of renewable resources, water conservation, and the flexible use of existing resources • Continues support for a statewide ban on polystyrene containers and packaging materials • Provides opportunities for staff, in partnership with the San Francisquito Creek Joint Powers Authority and other regional stakeholders, to advance efforts to improve the creek’s watershed and floodplain (especially related to local bridges) • Supports efforts to protect local communities from sea level rise and other impacts of climate change Item 11 Attachment A - Draft 2025 State and Federal Legislative Guidelines Item 11: Staff Report Pg. 4 Packet Pg. 119 of 227 Page 3 of 4 The City of Palo Alto’s 20245 Federal and State Legislative Guidelines Adopted January 22, 2024 • Supports responsible processing of recyclables once removed from Palo Alto and other communities, including promoting processing facilities and recyclables markets within the United States • Strengthens and modernizes the State and Local electric grids and grid capacity • Supports the protection of our natural environment, including open space, trees/tree canopy, and biodiversity Financial The City supports government action that: • Supports the long‐term stability of CalPERS and the ability of local governments to mitigate and manage with flexibility its pension obligations • Protects the funding sources for the sustainable delivery of City services • Supports the continued deductibility of tax‐exempt municipal bonds and the restoration of Advance Refunding of Tax‐Exempt Municipal Bonds • Supports the continuance of tax credits available at the federal level to support low‐ income individuals in achieving housing affordability and financial stability • Supports the lowering or maintaining maintenance of voter thresholds for local revenue measures • Supports maximum flexibility for local government in contracting and contract negotiations • Supports reforms to local revenue financing tools for the purpose of supporting the development of affordable housing and public infrastructure • Supports efforts to attract and retain resources for current and future smaller businesses in Palo Alto • Preserves local discretion in the assessment, collection, and usage of development fees Governance, Transparency, and Human Resources The City supports government action that: • Preserves local government’s ability to manage its own employment issues, including, but not limited to hiring, evaluating, disciplining, and/or terminating and negotiating collective bargaining agreements with employees’ representatives • Supports reasonable regulatory efforts surrounding policies regarding cybersecurity, drones, shared mobility services, returning to Obama‐era net neutrality regulations, and smart city initiatives • Provides for the incremental and thoughtful integration of artificial intelligence technologies • Protects individual privacy and allows the City to safeguard customer information • Maintain existing records collection and retention requirements • Promote teleconferencing flexibilities under the Ralph M. Brown Act • Allows the City to support the collaborative work of regional partners, trade associations, Item 11 Attachment A - Draft 2025 State and Federal Legislative Guidelines Item 11: Staff Report Pg. 5 Packet Pg. 120 of 227 Page 4 of 4 The City of Palo Alto’s 20245 Federal and State Legislative Guidelines Adopted January 22, 2024 other local governments and organizations, and Joint Powers Authorities • Provides for the equal treatment of all individuals Housing The City supports government action that: • Supports reasonable housing policies that recognize local autonomy to maintain the local public process and preserve local government’s ability to determine land use policies and development standards • Provides flexible, ongoing funding for (a) affordable housing, (b) homelessness, and (c) infrastructure (such as parks, utilities, roads, and transit) required to support the increased housing production and keep pace with local development goals • Promotes the development and enhancement of safe and affordable housing and accessible housing within the City for all economic segments of the population • Promotes funding and tax incentives for the identification, acquisition, maintenance, adaptive reuse, and restoration of historic sites and vacant structures • Fosters reasonable ratios between jobs and housing • Supports the development and implementation of efficient and environmentally sustainable land use and building practices • Supports the provision of greater lead times for Palo Alto to implement state legislation when necessary to comply with new land use and housing requirements within the local context Public Safety The City supports government action that: • Supports efforts which seek to modify policing services, including but not limited to alternative public safety models and funding to address community mental health issues, expansion of requirements regarding police data and rules regarding prior employment information transparency, and expansion of data and communications including radio encryption • Provides for greater public safety support resources especially related to organized retail theft operations • Reduces weapons‐related violence via the enactment of common‐sense firearm reforms • Enhances fire and emergency training and response capabilities. Mitigate fire safety risks. Advocate for funding and policy to mitigate wildfire risks and funding for fire services in general as well as funding for emergency services. • Updates, implements, and refines processes, services, and programs affecting the City. This includes, but is not limited to, public safety reform efforts and streamlining reporting mandates • Support legislation that would address ongoing safety concerns and help prevent acts of violence motivated by hate, including improving data collection and reporting Item 11 Attachment A - Draft 2025 State and Federal Legislative Guidelines Item 11: Staff Report Pg. 6 Packet Pg. 121 of 227 1 6 4 8 1 M E M O R A N D U M To: The Honorable Greer Stone and Members of the Palo Alto City Council CC:Ed Shikada, City Manager Chantal Cotton Gaines, Deputy City Manager Christine Prior, Deputy City Clerk From: Townsend Public Affairs Christopher Townsend, President Niccolo De Luca, Vice President Alex Gibbs, Grants Director Carlin Shelby, Senior Associate Joseph Melo, Senior Federal Associate Date: December 30, 2024 Subject: State and Federal Legislative Updates Townsend Public Affairs, Inc. (TPA) has prepared this report for the City of Palo Alto to provide a summary of State, Federal, and funding efforts and highlight the current status of the legislative process. STATE LEGISLATIVE UPDATES Legislature Commences 2025-26 Session On December 3, the California State Assembly and Senate reconvened for an Organizational Session to welcome new legislators, adopt house rules, and elect their respective leadership teams. Overall, 29 newly elected Senators and Assembly Members were sworn in during the convening of the 2025-26 Legislative Session. This number is slightly less than the 37 new lawmakers that were sworn in at the beginning of the 2023-24 Session. This means that over half of the state’s 120 legislators began their tenures on or after 2023. One notable change to the Standing Rules in each house is a reduction in how many bills legislators may introduce during a two-year Session. Assemblymembers and Senators are now only permitted to introduce 35 bills, a change from 50 in the Assembly and 40 in the Senate, in order to allow more time for consideration of measures and improve the deliberative process. So far, approximately 140 bills, resolutions, and constitutional amendments have been introduced since December 2nd. Assemblymember Robert Rivas and Senator Mike McGuire were re-elected as Assembly Speaker and Senate pro Tempore, respectively, and both addressed their chambers kicking off their Regular and Special Sessions. Members from both houses introduced bills in the Special Session related to shoring up resources for the Department of Justice (DOJ) to pay for federal litigation expenses, one of which appropriates $500,000 to the Department. More details on the Special Session and funding to DOJ are anticipated to coincide with the Governor’s January Item 11 Attachment B - Townsend Public Affairs Update Memo Item 11: Staff Report Pg. 7 Packet Pg. 122 of 227 2 6 4 8 1 Budget. Next, we can expect changes to committee chairs and membership as members and staff get settled in. •Ensuring grade separation funding rescinded in last year’s budget is reinstated and the City’s projects can move forward: In 2022, the Budget Act allocated $113,790,000 from the Transit and Intercity Rail Capital Program (TIRCP) for critical grade separation initiatives in Burlingame, Mountain View, and Palo Alto. The City of Palo Alto was specifically awarded $23.79 million for the Connecting Palo Alto project, which focuses on grade separation at Churchill Avenue, Meadow Drive, and Charleston Road. •Protecting Locally Contracted Artists from Litigation: Local agencies, including the City of Palo Alto, have encountered difficulties in contracting with local artists using local funds due to different interpretations of state contracting law and the standards governing who is and is not a licensed artist. TPA will be working with the legislature and other local agencies to create clarity and allow the City to move forward with its robust local art program without the threat of costly litigation. •Brown Act Flexibility extension: Several statutes associated with remote meeting flexibilities for elected officials during times of emergency or other extenuating circumstances are set to expire during the 2025-26 legislative session. TPA will be working with the legislature and other local stakeholders to extend and/or expand these flexibilities to accommodate the needs of elected officials, public transparency, and even the cities non decision making bodies, such as subcommittees. •Proposition 36 Implementation: In the November 2024 election, voters overwhelmingly passed Proposition 36, which overturned certain provisions associated with penalizing serial theft offenses within Proposition 47 (2014). TPA will work with the legislature and local stakeholders on legislation aimed at the seamless implementation of some of the provisions contained within Proposition 36, including diversion programs and resources for repeat offenders with behavioral health or substance use disorders. State Budget Update: November Income Tax Withholdings Below Projections; 2025-26 Fiscal Outlook Highlights Budget Challenges Item 11 Attachment B - Townsend Public Affairs Update Memo Item 11: Staff Report Pg. 8 Packet Pg. 123 of 227 3 6 4 8 1 delayed from November to December due to the later Thanksgiving holiday. Encouragingly, the week following Thanksgiving saw collections rise approximately 20% over the same period last year, with this uptick likely bolstering December's totals. FEDERAL UPDATES Congressionally Directed Spending Submittal $1,250,000. This funding amount is reflective of bipartisan negotiations, budget topline numbers, and requests among all 50 states. It is anticipated that this funding will remain stabilized as the FY 25 Federal Appropriations process continues. TPA advocates will continue to advocate for its inclusion in subsequent appropriations process actions and will monitor the progress of the Senate. Item 11 Attachment B - Townsend Public Affairs Update Memo Item 11: Staff Report Pg. 9 Packet Pg. 124 of 227 4 6 4 8 1 Federal Appropriations Update After a week of rollercoaster negotiations, Congress has approved a legislative package to avert a government shutdown and extend current government funding levels until March 14, 2025. The bill, H.R.10545 also includes provisions providing more than $100 billion in disaster relief and several extensions of health care and agriculture programs. This final package comes after two previous attempts failed earlier in the week. The first proposal, which Republicans negotiated with Democrats, included measures to regulate pharmacy benefit managers, limit trade with China, and allow year-round sales of certain ethanol-blended fuels. However, this proposal was withdrawn after President-elect Donald Trump opposed it, urging Republican leaders to address the debt limit first. A second plan, which removed most of the provisions from the first, aimed to suspend the debt limit until January 2027. This plan was rejected on December 19, with a vote of 174-235, as 38 Republicans opposed it and only two Democrats supported it. The latest plan resembled the second but excluded the debt limit suspension and extensions for the Stephanie Tubbs Jones Child Welfare Services Program and the MaryLee Allen Promoting Safe and Stable Families Program. The House approved this plan by a vote of 366-34 with one member voting present. Relevance to Palo Alto: As a result of negotiations, the package was narrowly focused on four main provisions: 1. Extending current government funding until March 14, 2025. 2. Enacting supplemental appropriations for disaster relief efforts. 3. Extending certain expiring health care programs. As a result, impacts on the City are limited to avoiding the impacts of expiring programs and a lapse in funding. Summary of H.R. 10545, the American Relief Act, 2025 Spending Provisions •The legislative package included a continuing resolution (CR) extending current funding from Fiscal Year 2024 appropriations through March 14, 2025. •Anomalies (adjustments to funding that differ from FY24 appropriations) include: o Allocate an annualized $625 million to the National Oceanic and Atmospheric Administration to maintain the acquisition schedule for the Geostationary Earth Orbit weather satellite program. o Permit the Federal Aviation Administration to use funds necessary for air traffic operations, aviation safety oversight, and the hiring and training of air traffic controllers. o Authorize the Energy Department to utilize funds required for specialized security activities. o Grant the Education Department the flexibility to allocate funds needed to administer federal student loan and aid programs. •The bill blocks an automatic cost of living pay increase for Members of Congress, the Vice President, and other executive and senior-level government officials. Item 11 Attachment B - Townsend Public Affairs Update Memo Item 11: Staff Report Pg. 10 Packet Pg. 125 of 227 5 6 4 8 1 Extensions •Several programs that were set to expire are extended through March 14, 2025, these include: o The CFTC Whistleblower Program o The Domestic Trafficking Victims Fund o Temporary Assistance for Needy Families program. o Federal Emergency Management Agency’s National Flood Insurance Program. o DHS’ and the Justice Department’s authority to counter uncrewed aircraft systems that pose a credible threat. o The Homeland Security Department’s National Cybersecurity Protection System. o US Agency for International Development’s Food for Peace program. •The measure provides $12 billion for the Housing and Urban Development Department’s Community Development Block Grant-Disaster Recovery program to support long-term recovery efforts in communities affected by major disasters in 2023 and 2024. •It provides $8.1 billion for the Federal Highway Administration’s Emergency Relief Program. •It authorizes the use of funds to cover 100% of the costs associated with rebuilding the Francis Scott Key Bridge in Baltimore, which collapsed after being hit by a cargo ship in March. Any funds obtained by state and local authorities in Maryland from insurance or lawsuits related to the Key Bridge are used to reduce the federal government’s liability for the cost of reconstruction. •The measure provides $1.5 billion for the Army Corps of Engineers to address emergency situations and repair damage to Corps flood control projects, including $745 million to prepare for floods and hurricanes. •It allocates $3.3 billion for Environmental Protection Agency state and tribal assistance grants, including $3 billion for capitalization grants to help repair wastewater and drinking water infrastructure damaged by hurricanes or wildfires. •It provides $3.1 billion to the Interior Department for expenses related to natural disasters in 2024 and previous years, including $2.3 billion for the National Park Service. •The measure allocates $1 billion for the National Oceanic and Atmospheric Administration, including $399 million to acquire hurricane hunter aircraft, $344 million to replace or repair damaged property and equipment, and $300 million for fisheries disaster relief. Item 11 Attachment B - Townsend Public Affairs Update Memo Item 11: Staff Report Pg. 11 Packet Pg. 126 of 227 6 6 4 8 1 •It provides $1.5 billion for the Commerce Department’s Economic Development Administration to aid areas that received a major disaster designation in 2023 and 2024. •The bill allows recipients of FEMA disaster relief and preparedness grants to retain unspent administrative funds for up to five years. It also permits them to repurpose these funds to assist with other declared disasters or to enhance their capacity to respond to future emergencies. Health Programs The funding package includes several extensions and flexibilities for health programs, including: •An extension of flexibilities allowing for greater Medicare coverage of virtual telehealth services until March 31, 2025. These were set to expire at the end of 2024. •$1.1 billion from January 1 to March 31, 2025 for the Community Health Center Fund which provides federal funding for community health centers. Funding was set to expire on December 31, 2024. •The measure extends several expiring provisions through March 31, 2025 including: o Increased Medicare payments to low-volume hospitals. o Add-on payments for ground ambulances. o A floor on the geographic index used to calculate provider payment rates under Medicare. o The Medicare-dependent hospital program. •Other health programs extended through March 31, 2025 include: o The National Health Service Corps, which provides scholarships and loans to medical students. o The Teaching Health Center Graduate Medical Education Program. o The Special Diabetes Program and Special Diabetes Program for Indians. o The Personal Responsibility Education Program and Sexual Risk Avoidance Education Program. GRANT FUNDING UPDATES The TPA team works directly with City staff and department heads to discuss funding needs and match them with available priorities. Each month, TPA provides the City with a grant opportunities memo, which details upcoming funding opportunities with a focus on transportation and infrastructure, environmental sustainability, public safety, community services, and clean energy needs. Further, the TPA team regularly meets with City staff to discuss these opportunities in greater detail, along with other local/regional programs. TPA’s efforts in crafting, editing, and submitting competitive grant applications on behalf of the City include: Program Request Amount Description California Business, Consumer Services and Housing Agency – Encampment Resolution Fund $5,427,000 – PENDING (evaluating if the changed circumstances impact eligibility) Funding to be used for encampment clean up and connecting homeless individuals to supportive services. Item 11 Attachment B - Townsend Public Affairs Update Memo Item 11: Staff Report Pg. 12 Packet Pg. 127 of 227 7 6 4 8 1 Program Request Amount Description MTC – Transit Oriented Communities $3,100,000 – PENDING Application for additional electric vehicle charging stations to be installed within the City. CalRecycle Beverage Container Recycling Grant $165,000 – PENDING Application to install publicly accessible water refill stations throughout the City’s public spaces. CalOES State and Local Cyber Security Grant Program $250,000 – NOT AWARDED Funding to be used to improve local cybersecurity infrastructure capabilities to prevent fraud and attacks. Bureau of State and Community Corrections – Organized Retail Theft Grant $5,176,812 – AWARDED Successfully awarded to assist the City in combatting organized retail theft occurrences through increased public safety resource coordination. Item 11 Attachment B - Townsend Public Affairs Update Memo Item 11: Staff Report Pg. 13 Packet Pg. 128 of 227 City Council Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Administrative Services Meeting Date: January 13, 2025 Report #:2412-3846 TITLE Review and Accept the FY 2026-FY 2035 Long Range Financial Forecast (LRFF) and FY 2026 Budget Development Guidelines as Recommended by the Finance Committee, CEQA Status – Not a Project RECOMMENDATION The Finance Committee and Staff recommend the City Council accept the General Fund Long Range Financial Forecast (LRFF) for Fiscal Year 2026-2035 (Attachment I) and the FY 2026 annual Budget Development Guidelines (Attachment A in Attachment I) and direct staff to use this forecast as the starting point for the initiation of the FY 2026 budget process. EXECUTIVE SUMMARY The FY 2026-2035 Long Range Financial Forecast (LRFF) was reviewed with the Finance Committee on December 3, 2024 (Attachment I) along with the annual Budget Development Guidelines (Attachment A in Attachment I) and were unanimously approved by the Committee. The Base Case Long Range General Fund forecast projects a shortfall of $12.0 million in FY 2026, followed by shortfalls ranging from $7.9 million in FY 2027 down to $5.6 million in FY 2029. These amounts are fairly consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2025 Budget; however, the FY 2026 shortfall increased by $1 million due to various factors outlined in Attachment I. The proposed multi- year financial strategy addresses the FY 2026 shortfall of $12 million with uncertainty reserves of $6.1 million remaining for FY 2026 budget planning1 and $5.9 million from the FY 2024 Year- end review2. This report summarizes the key discussion points with the Finance Committee and 1 FY 2025 Adopted Operating Budget: Page 10 General Fund Budget Balancing Strategy: https://www.cityofpaloalto.org/files/assets/public/v/1/administrative-services/city-budgets/fy-2025-city- budget/adopted/palo-alto-adopted-operating-budget-book_final2.pdf 2 December 3, 2024 Finance Committee Meeting, FY 2024 Annual Comprehensive Financial Report (Staff Report 2404-2912): https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64722 Item 12 Item 12 Staff Report Item 12: Staff Report Pg. 1 Packet Pg. 129 of 227 includes additional information to provide context and/or additional data points of reference to the City Council. Lastly, Budget Development Guidelines inform the development of the FY 2026 budget; these are discussed at the end of the LRFF document (Attachment A in Attachment I). BACKGROUND •Base Case Long Range General Fund forecast projects a shortfall of $12.0 million in FY 2026, followed by shortfalls ranging from $7.9 million in FY 2027 down to $5.6 million in FY 2029. FY 2030 has a surplus of $2.0 million which continues to grow through FY 2035. This forecast maintains current service levels approved in FY 2025 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely “status quo” version of the future. These amounts are fairly consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2025 Budget; however, the FY 2026 shortfall increased by $1 million due to various factors outlined in Attachment I. •Alternate forecast scenario that reflects a 1% loss in economically sensitive revenue. Compared to the Base Case, this scenario reduces revenues by $2.3 million in FY 2026 and maintains and increases the projected shortfalls over the next ten years, ranging from $14.3 million in FY 2026 to $0.8 million in FY 2030. FY 2031 begins a surplus of $5.8 million which continues to grow through FY 2035. •Alternate forecast that reflects a 1% compensation adjustment (1%) in FY 2026. Compared to the Base Case, this scenario increases expenses by $1.1 million in FY 2026 and maintains and increases projected shortfalls over the next ten years, ranging from $13.1 million in FY 2026 to $6.8 million in FY 2029. FY 2030 begins a surplus of $0.8 million which continues to grow through FY 2035. Item 12 Item 12 Staff Report Item 12: Staff Report Pg. 2 Packet Pg. 130 of 227 These alternate forecasts were calculated with 1% impacts to demonstrate funding levels that could be used to scale the scenarios for larger potential impacts. In addition, these scenarios were calculated separately to show the impacts of each scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future. ANALYSIS Finance Committee Review •Revenue categories volatility in the past – The potential national economic conditions and shifting policies cause challenges in forecasting revenues for the upcoming period. Revenue categories in the city’s budget have demonstrated significant volatility during periods of economic downturn such as the COVID pandemic and Great Recession. Historical data shows that during the Great Recession of 2008 and 2009, revenue decreases ranged from a sharp -4% in the first year to a more moderate -1% in the second year across certain major tax revenues that are more economic sensitive, particularly sales tax, transient occupancy tax, and documentary transfer tax. This pattern underscores the potential for varying magnitudes of revenue loss depending on the severity and duration of the economic disruption. For context, for FY 2026, a 1% decrease in these more economic sensitive major tax revenues is roughly equivalent to a reduction of $1.7 million of resources for the city. This experience band provides a useful framework for scaling potential revenue impacts, suggesting that while Item 12 Item 12 Staff Report Item 12: Staff Report Pg. 3 Packet Pg. 131 of 227 immediate losses can be substantial, the long-term effects may moderate with economic recovery. While staff currently do not forecast a recession, the city remains prepared for the possibility of revenue reductions through fiscal diligence and planning. •Vacancies – For the FY 2026 to 2035 budgetary outlook, one significant assumption is the city's vacancy rate. Our financial forecast currently assumes a 5% vacancy factor, up from the previous 3%, which has tightened the overall budget. The City’s current vacancy rate of 10% reflects a decrease from the pre-COVID level of 12%. Vacancy savings is typically used through alternative expenses such as overtime or contractual services to maintain or manage service levels or allow for flexibility to support Council priority workplans. Public safety vacancy savings is offset with overtime to maintain safety service levels. As of the date of this report, the Police department has zero vacancies and citywide recruitment and retention continue to improve. For context, in FY 2024, the budget assumed vacancy savings of 3%; at the end of FY 2024, net vacancy savings of $2 million translate to just approximately 1% of the salary and benefits expenditures. Setting the vacancy assumption too high could lead to unrealistic target and may result in expenditures exceeding budgeted amount if vacancies are not realized. •Uncertainty Reserve – The Uncertainty Reserve (UR) was established as part of the FY 2023 Mid-Year Budget Review as a one-time source of funds of $14 million to bridge the funding needed to address community service needs in FY 2024 and FY 2025. The UR differs slightly from the Budget Stabilization Reserve (BSR) in that it can be approved for use with a simple majority vote rather than a 2/3 approval by Council. The UR is also meant to fund short-term budget gaps, while the BSR is meant to be maintained for emergency financial needs and critical budget adjustments needed throughout the fiscal year. As part of the budget development strategy for the FY 2024 and FY 2025 adopted budgets, the UR was used to fund shortfalls to maintain services and maintain the BSR at 20% in FY 2024 and 18.5% in FY 2025. Adoption of the FY 2025 Budget left $6.1 million in the UR to use for development of the FY 2026 Budget. Staff is recommending increasing the UR to $12.0 million by shifting $5.9 million in surplus savings from FY 2024 from the BSR to the UR. The $12.0 million UR could be used to balance the full $12.0 million shortfall projected in FY 2026 as part of the 2026-2035 LRFF. However, this course of action will eliminate the UR as a strategy to solve the projected $7.9 million gap in FY 2027, unless higher revenues, cost savings and/or other one-time resources are available. Item 12 Item 12 Staff Report Item 12: Staff Report Pg. 4 Packet Pg. 132 of 227 •Risk Mitigation Tools – In addition to the UR discussed above, there are several other tools that staff will explore to reduce the anticipated shortfall in FY 2026 and maintain more fiscal stability in the outer years of the LRFF. These other tools may include: o Investigating and recommending updates to existing revenue sources and/or new revenue sources that the City has not collected previously. The City is currently conducting a citywide cost of service study to update its municipal fees and also to identify any revenue sources that are not currently collected. Depending on the nature of the new revenues, it will take time to conduct the necessary analysis, public outreach and implement the new revenue. o Reviewing implementation of policies related to the BSR and funding long term liabilities such as pensions and retiree healthcare, and potentially rebalancing the funding from these priorities to increase funding for current services. The BSR is recommended to be maintained at 18.5% of the General Fund expense budget, but the funding level could be reduced closer to the lower end of the targeted 15 to 20% range. Similarly, the proactive funding for long term liabilities could be reduced in order to fund current services; however, this would prolong the City’s efforts to pay down the costs related to pension and retiree healthcare. o Using financing strategies such as Certificate of Participation (COP) to fund costs related to new capital infrastructure projects. These financing strategies could re-allocate funding dedicated to capital needs, such as reducing the base transfer from the General Fund to the Capital Fund and putting those funds towards operating services and maintenance/upkeep of current infrastructure. There would be associated costs for debt administration and longer-term repayment may ensure the City could maintain fiscal sustainability with this strategy. o Reviewing service delivery models, approaches and/or innovations to reduce costs or enhance capacity with current resources. While this analysis is performed in each budget development cycle, it will be re-emphasized. •Fiscal discipline – Over the past couple years, the City has been strategically increasing service levels to invest in Council priorities. However, in order to maintain these service levels ongoing as the economy and financial resources stagnate coupled with potential higher uncertainty, continued fiscal discipline will need to be exercised throughout the FY 2026 budget development. Priorities not funded will need to be evaluated against current services to determine if the current services should be augmented with existing and/or additional resources. As stated in the 2026-2035 LRFF report, development of the FY 2026 budget and planning for the subsequent years outlined in the forecast will need to be done strategically over the next several months to balance the increased service level desired by the community with the financial resources currently projected. Item 12 Item 12 Staff Report Item 12: Staff Report Pg. 5 Packet Pg. 133 of 227 The City needs to maintain fiscal discipline and agility while monitoring the upcoming federal policies and their impacts on national and local economies. FISCAL/RESOURCE IMPACT Financial implications from this report and input from the City Council will be considered in the City Manager’s development of the Fiscal Year 2026 budget. Upcoming milestones related to the City’s fiscal standing and the FY 2026 Budget Process include: •February (Council) – FY 2025 Mid-Year Budget Review and Second Quarter Financial Report •March/April (Finance Committee and Utilities Advisory Commission or UAC) – Five Year Utility Financial Plans and FY 2026 Utility Rate Recommendations •April/May (Finance Committee) – Citywide Cost Allocation Plan and Municipal Fee Study •May (Council) – FY 2026 Proposed Operating and Capital Budgets Published •May (Finance Committee) – FY 2026 Proposed Budget Hearings, including Utility Rates, Municipal Fees, and Five-Year Capital Improvement Plan •June (Finance Committee) – FY 2025 Third Quarter Financial Report •June (Council) – Adoption of the FY 2026 Operating and Capital Budgets, Utility Rates, and Municipal Fees. STAKEHOLDER ENGAGEMENT The preliminary forecast for FY 2026 represents the beginning of the fiscal year 2026 budget development process. As in previous years, City Council discussion of the LRFF will provide guidance to staff in the budget development process. It is anticipated that conversations with City Council and the community will occur through public budget hearings in Spring 2025, according to the standard budget adoption process. ENVIRONMENTAL REVIEW This report is not a project for the purposes of the California Environmental Quality Act. Environmental review is not required. ATTACHMENTS Attachment I: FY 2026-2035 Long Range Financial Report (LRFF), CMR 2405-3068 APPROVED BY: Lauren Lai, Administrative Services Director Item 12 Item 12 Staff Report Item 12: Staff Report Pg. 6 Packet Pg. 134 of 227 CITY OF PALO ALTO Finance Committee Regular Meeting Tuesday, December 03, 2024 Agenda Item 2. Review and Forward Fiscal Year 2026-2035 Long Range Financial Forecast (LRFF) to City Council Late Packet Report, Staff Presentation Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 7 Packet Pg. 135 of 227 4 7 7 6 Finance Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Administrative Services Meeting Date: December 3, 2024 Report #:2405-3068 TITLE Review and Forward Fiscal Year 2026-2035 Long Range Financial Forecast to City Council RECOMMENDATION Staff recommends that the Finance Committee review and recommend that the City Council accept the General Fund Long Range Financial Forecast (LRFF) for Fiscal Year 2026-2035 and the FY 2026 annual Budget Development Guidelines (Attachment A) and direct staff to use this forecast as the starting point for the initiation of the FY 2026 budget process. EXECUTIVE SUMMARY Annually, the City presents a ten-year General Fund Long Range Financial Forecast (LRFF) in December that marks the beginning of the annual budget process. This preliminary forecast is based on the most current information available, actual revenues and expenses for FY 2024, and projected results through FY 2025 at the point in time of release. General Fund expenditures are based on current City Council approved service levels compared to projected revenues over the next year. The City service levels have increased during the 3-year period between FY 2024 to FY 2026, as the City continues to maintain a multi-year budget strategy, deliver excellent service level while supporting Council priority objectives and maintaining fiscal stability with anticipated upcoming volatility. The current outlook anticipates a modestly weak economy in 2025, followed by a gradual return to trend growth rates starting in 2026, assuming inflation continues to moderate, and consumer demand remains stable. The Base Case Long Range General Fund forecast projects a $12.0 million shortfall in FY 2026, followed by shortfalls ranging from $7.9 million in FY 2027 to $5.6 million in FY 2029. FY 2030 has a projected surplus of $2.0 million which continues to grow through FY 2035. This forecast maintains current service levels approved in FY 2025 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely “status quo” version of the future. These amounts are fairly consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2025 Budget, however, the FY 2026 shortfall increased by $1 million due to the various factors discussed in detail below. The proposed multi-year financial Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 8 Packet Pg. 136 of 227 4 7 7 6 strategy addresses the FY 2026 shortfall of $12 million with uncertainty reserves of $6.1 million from FY 2023 Mid-Year review and $5.9 million from FY 2024 Year-end review. Staff modeled an alternate forecast scenario that reflects a 1% loss in economically sensitive revenue and the impact on the General Fund over the forecast period. Compared to the Base Case, this scenario increases the General Fund shortfall over the next ten years. FY 2026 changes from a shortfall of $12.0 million to $14.3 million, and revenues are not anticipated to be able to fund the annual expenditures until FY 2031. Staff modeled an alternate forecast that reflects a one-time compensation adjustment (1%) in FY 2026 and the impacts on the General Fund over the next ten years. Compared to the Base Case, this scenario increases expenses by $1.1 million in FY 2026 and increases projected shortfalls in the forecast, ranging from $13.1 million in FY 2026 to $6.8 million in FY 2029. FY 2030 has a projected surplus of $0.7 million which continues to grow through FY 2035. These alternate forecasts were done separately to show the impacts of each scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future. Consistent with the projections in the FY 2025 Adopted Budget, this LRFF reflects deficits in the near term with revenues falling below expenses. As previously recommended, the shortfall in FY 2025 will be addressed by the Uncertainty Reserve, that was proactively set aside during the prior year for this purpose. Development of the FY 2026 budget and planning for the subsequent years outlined in the forecast will need to be done strategically over the next several months to balance the increased service level desired by the community with the financial resources currently projected. With these variables, ongoing revenues are unable to keep pace with expenses over the next several years. The LRFF is a tool to model financial forecasting assuming resources and services are operating at the current authorized levels. City staff will continue to review and refine these projections to establish the FY 2026 budget and use this forecast to begin internal planning for budget balancing solutions. Individual fiscal years will vary from this forecast such as changes in revenue estimates or operating transfers. These circumstances, specific to a given year, typically represent one-time resources that are factored into the annual budget planning process. More detailed guidelines or Budget Policies to inform the development of the FY 2026 budget are discussed at the end of this document (Attachment A). Included in this report and subsequent documents are the following: The Economy: discussion of the current financial climate of the United States to the local economy of the City of Palo Alto (details can be found in Attachment B) Summary Long Range Financial Forecast including Revenue and Expense assumptions in FY 2026-2035 (details can be found in Attachments C and D) Financial status of the General Fund as of the FY 2025 Adopted Budget Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 9 Packet Pg. 137 of 227 4 7 7 6 Brief discussion of FY 2024 surplus funding Updated revenue assumptions based on current projections FY 2026 Budget Development Guidelines to inform the Budget process (Attachment A) Summary of Assumptions Not Included in Forecast (Attachment E) Alternate scenarios to the base case forecast to demonstrate financial impacts to the City from: Impacts from a moderate recession Impacts from a citywide 1% increase of salaries and benefits BACKGROUND Annually the Office of Management and Budget produces a ten-year General Fund Long Range Financial Forecast (LRFF). The LRFF reflects staff’s best estimates on the projected revenues and expenditures over the next ten years based on the information that is currently available. It is important to note that the LRFF is a planning document and is separate and distinct from the development of the City’s annual Operating and Capital Budgets. There are assumptions and parameters modeled in the LRFF, and these assumptions are revised and refined as more information becomes available through the budget development process. The LRFF contains a high-level comprehensive review of the costs to provide current City Council approved service levels, including current contracts, updates to salaries and benefits based on the current population of employees, and the current labor contracts in effect. The LRFF also reviews the status of the current economy and various economically sensitive revenues such as Sales Tax, Documentary Transfer Tax, Property Tax, and Transient Occupancy Tax to explain key trends in those areas. This Forecast allows staff and City Council to look at both the short-term and long-term financial status of current service levels in the General Fund to inform daily policy decisions and evaluate long-term goals and ongoing challenges. The Economy The economy continues to demonstrate resiliency to a formal recession and this forecast reflects a continued level of stagnation offset by inflation. Risks remain due to world conflicts and potential local economy impacts. At the national level, economic growth through the third quarter of calendar year 2024 has been driven by resilient consumer spending, although inflationary pressures remain elevated and borrowing costs continue to weigh on economic activity. The Federal Reserve’s monetary policy actions have kept interest rates at historically high levels, with the federal funds rate holding near its highest levels in over two decades. The Fed is maintaining its tight stance in an effort to achieve a “soft landing”, aiming for a slowdown in economic growth that avoids recession while containing inflation. Despite these efforts, inflation remains sticky, particularly in sections such as housing and services, leading to ongoing economic uncertainty. The current outlook anticipates a modestly weak economy in 2025, followed by a gradual return to trend growth rates starting in 2026, assuming inflation continues to moderate and consumer demand remains stable. Risks that will continue to be monitored include escalating political tensions, and political landscape shaped by the recent presidential election, all of which could lead to shifts in national economic policies in 2025 and beyond. These factors are creating heightened complexity in financial forecasting and budget development. The Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 10 Packet Pg. 138 of 227 4 7 7 6 City must navigate the challenge of addressing growing fiscal needs while ensuring long-term fiscal sustainability. Nationally, as of October 2024, the consumer price index (CPI) which measures changes in the prices paid by consumers for a basket of goods and services, is 2.6%, down from 3.7% in October 2023, but still indicating persistent inflation. Assumptions in the LRFF report for general cost increases are using a CPI of 3% in FY 2026 and FY 2027 and 4% for FY2028 and beyond. The unemployment rate stands at 4.1% up from 3.7% in January of 2024, signaling a potential economic slowdown. Despite these pressures, GDP, a measure of all goods and services produced in the economy, grew at an annualized rate of 2.8% through third quarter of 2024, driven primary by strong consumer spending. The UCLA Anderson outlook predicts weak economic growth in 2025, with GDP growth expected to range from 1% to 2%, with a return to trend growth of 2% to 3% starting in 2026. Locally, the economy continues to show resilience, with no recession expected due to strong employment. However, real personal income is projected to remain flat in 2024, with modest growth of 1% to 2% forecasted through 2025. California’s unemployment rate has risen to the 5.3% slightly above the 5.0% level at the same time last year. It is important to recognize that while the local economy within the City may exhibit trends similar to those at the state or national levels, its unique economic makeup will result in distinct variations. Staff is using the current available information to inform this forecast, which will change as new information becomes available and adjustments may be necessary to reflect evolving conditions. Additional details on economic statistics such as Gross Domestic Product (GDP), unemployment, and Consumer Price Index (CPI) can be found in Attachment B in greater length. ANALYSIS Palo Alto serves a diverse community with a broad range of unique services that adds to the complexity of managing a balanced budget and healthy fiscal outlook. This annual General Fund Long Range Financial Forecast is being developed at a time of perceived economic stagnation and geo-political unrest. It is important to recognize that while the local economy within the City may exhibit trends similar to those at the state or national levels, its unique economic makeup may result in distinct variations. As new information becomes available, adjustments may be necessary to reflect evolving conditions. As with all forecasts, there is uncertainty regarding the revenue and expenditure estimates contained in this document. Instead of a recession, this forecast assumes economic stagnation at the beginning of the ten-year period, in line with current projections from UCLA Anderson. Major tax revenues have rebounded from the impacts of the Covid-19 pandemic and projected to be at or above pre-pandemic levels through the ten-year forecast. Expenses are programmed to maintain service levels based on Council approval. As a result, some limited term programs are not extended through the entire ten-year forecast but discussed in this report to indicate that continuing the programs would require additional resources. Investments in Capital projects are consistent with the 2025-2029 Capital Improvement Plan with continued focus on Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 11 Packet Pg. 139 of 227 4 7 7 6 completing the Council approved 2014 Infrastructure Plan projects as well as maintaining and upkeeping the City’s current facilities and infrastructure. The Uncertainty Reserve that was established as part of the FY 2023 Mid-Year Review was used to balance the FY 2025 Adopted Budget, but as planned and approved by Council, still has funding available to solve the projected shortfall in FY 2026. Strategic planning and fiscal discipline will be needed to solve the estimated shortfalls in the subsequent years of the forecast. Base Case Table 1 displays the projected General Fund revenues and expenditures over ten years and the cumulative net operating margin. The operating margin reflects the variance between the projected General Fund revenues and expenditures for each year of the forecast or the annual surplus or shortfall. The net operating margin is presented on a one-time basis, as the annual surplus or shortfall for a given year, and on an incremental basis. The incremental forecast assumes that each shortfall is addressed completely with ongoing solutions in the year it appears and that each surplus is completely expended with ongoing expenditures. It is the City’s goal to remain in balance on an ongoing basis, so the incremental figure is useful to illustrate the additional surplus and/or shortfall attributed to a particular fiscal year. To the extent a shortfall is not resolved, or a surplus is not expended on an ongoing basis, it is important to understand that the remaining budget shortfall or surplus will remain and be pushed to the following year. The Base Case financial forecast projects a shortfall of $12.0 million in FY 2026, followed by shortfalls ranging from $7.9 million in FY 2027 down to $5.6 million in FY 2029. FY 2030 has a projected surplus of $2.0 million which continues to grow through FY 2035. Based on these assumptions, the cumulative net operating margin, or ongoing surplus, during the forecast period is a surplus of $25.4 million. TABLE 1: FY 2026 – 2035 Long Range Financial Forecast (Base Case) Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 12 Packet Pg. 140 of 227 4 7 7 6 TABLE 2: FY 2026 – 2035 Long Range Financial Forecast Net Operating Margin (Base Case) Revenue Assumptions The FY 2024 Annual Comprehensive Financial Report (ACFR), scheduled for review by the Finance Committee on December 3, 2024, reported General Fund revenues as compared to the prior year; most major tax revenues experienced growth back to pre-pandemic levels due to the improved local economy, high price trends, and inflation (CMR 2404-29121). Major tax revenues have continued to grow moderately through the first quarter (Q1) of FY 2024 and is projected to come in at the FY 2025 Adopted Budget level totaling 287.6 million. Further discussion of changes to specific categories can be found in Attachment C. Overall, revenues are projected to increase by $11.0 million in FY 2026, mainly in Property Tax, Transient Occupancy Tax, and Utility Users Tax. As part of the FY 2025 Mid-Year Budget Review, staff will be returning to Council to recommend using the FY 2024 budget saving to increase the budget uncertainty reserve to help mitigate impacts from a potential recession, as well as smooth the near-term shortfalls seen in this LRFF. A summary of revenue assumptions is discussed here, extensive information regarding each revenue category can be found in Attachment C. Tax revenues constitute approximately 60% of General Fund resources. In FY 2026, the forecast projects a $7.6 million or 4.5% increase from FY 2025 projected levels ($169.8 million to $177.4million). This increase is primarily attributed to higher anticipated receipts across all categories, with Property Tax, Transient Occupancy Tax (TOT), and Utility Users Tax (UUT) accounting for the largest increases. Property Taxes makes up the largest source of General Fund’s revenue, approximately 25%. In FY 2026, this revenue is anticipated to increase $3.1 million or 4.5% from FY 2025 ($68.6 million to $71.7 million). Steady residential property sales resulting in higher property tax assessed valuation is projected to continue to grow this source annually. 1Finance Committee, December 3, 2024; Agenda Item #2; Staff Report #2404-2912, https://cityofpaloalto.primegov.com/portal/viewer?id=9637&type=3 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 13 Packet Pg. 141 of 227 4 7 7 6 Transient Occupancy Taxes are impacted by business and other leisure/non-leisure travel and experienced significant reductions in the past few years due to a number of factors resulting from the pandemic. However, this revenue was able to return to pre- pandemic levels in FY 2023. In FY 2026, this revenue is anticipated to increase $1.3 million or 4.6% from FY 2025 ($27.9 million to $29.1 million). Utility Users Tax (UUT) is levied on electric, gas, and water consumption, as well as telephone usage. Revenue in this category is impacted by consumption levels and has continued to recover as the local economy recovered and workers returned to the office starting in FY 2023. In FY 2026, UUT revenue is anticipated to increase by $1.6 million or 7.9% from FY 2025 ($19.9 million to $21.5 million). The forecast for non-tax revenues projects a $3.5 million or 3.9% increase in FY 2026 from FY 2025 adopted levels. This increase is primarily attributable to charges for services and investment income. These increases are partially offset by decreases in limited term revenue from other agencies such as the Staffing for Adequate Fire and Emergency Response (SAFER) Grant Program and decreased reimbursement revenue from other funds for centralized and administrative services. The changes by revenue category can be seen in Tables 3 and 4 below. Major tax revenue trends are shown in Table 5 and discussed in greater detail in Attachment C. TABLE 3: General Fund Revenue Forecast Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 14 Packet Pg. 142 of 227 4 7 7 6 TABLE 4: General Fund Revenue Forecast Year to Year Percentage Change TABLE 5: City of Palo Alto Major General Fund Revenues Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 15 Packet Pg. 143 of 227 4 7 7 6 Expense Assumptions As part of developing the FY 2026-2035 Forecast expenditure budget, the General Fund expense categories have been adjusted by removing FY 2025 Adopted Budget one-time expenses and updating major cost elements such as salary and benefits costs. Table 6 below displays the expense forecast and when compared to the FY 2025 Adopted Budget, growth of 4.2% is expected in FY 2026. The overall annual growth is due mainly to increases in expense categories such as Salary and Benefits, Contractual Services, and Transfers to Other Funds. A summary of expense assumptions is discussed here, extensive information regarding each expense category can be found in Attachment D. Salary and Benefits are projected to increase $8.4 million or 4.7% from the FY 2025 ($179.9 million to $188.3 million). This is primarily attributable to increases salaries ($4.5 million), retiree healthcare costs ($1.9 million) and pension costs ($1.4 million). A general wage adjustment of 2% is included for all employees starting in either January 2025 or July 2025 for all years of the forecast since no MOA’s would be in effect at that time. A reserve is included for potential changes to future labor costs including, changes in vacancy rates, labor and benefit rate variability, and inflation assumptions. A staff vacancy assumption of 5% is assumed, which is an increase from 3% assumption most recently a few years ago, creating a tighter budget forecast as the City continues to improve its actual vacancy rate through successful recruitment and retention programs. Long Term contributions to pension and other post-employment benefits reflect increases over the prior year and capital investments are being phased through the first three to five years of the forecast: Pension 115 Trust contributions are calculated using a lower 5.3% discount rate for normal cost as compared to CalPERS 6.8%. Through FY 2025, it is expected that $87.4 million ($56.4 million in the General Fund) in supplemental principal contributions will be made to the Pension Trust. The FY 2026 budget estimates $14.1 million ($8.5 million in the General Fund) in supplemental contributions, a $0.2 million or 1.0% decrease from FY 2025 Adopted levels of $14.2 million. This slight reduction is the result of the economic and demographic assumptions used in the annual CalPERS Valuation reports, including but not limited to investment returns. California Employers’ Retiree Benefit Trust (CERBT) Fund contributions for Retiree medical costs are calculated using a lower 5.75% discount rate as compared to a 6.25% assumption. Through FY 2025, it is expected that $14.7 million in supplemental principal contributions will be made to the CERBT Trust. The FY 2025 Budget estimates $12.4 million in the General Fund for ADC, an approximate $1.9 million or 18.4% increase from FY 2025 levels of $10.5 million. Capital Infrastructure transfers reflect the goal established as part of the 2022- 2026 Capital Improvement Plan (CIP) to restore the base portion of this transfer to pre-pandemic levels by FY 2026. The local economy has recovered from the Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 16 Packet Pg. 144 of 227 4 7 7 6 COVID-19 pandemic, and estimated transfers from TOT revenues in FY 2026 are currently projected to increase to $14.2 million and the base transfer to increase to $17.2 million, along with estimated interest earnings of $2.0 million, for a total $33.4 million transfer to the Capital Improvement Fund. Inflationary assumptions in this long range reflect lower inflation being seen at present. A 3% annual inflation is assumed in FY 2026 and FY 2027 and increases to 4% in FY 2028 through the end of the ten-year forecast to estimate cost increases for non-salary services and equipment. Some limited term programs are not extended through the entire ten-year forecast, but discussed later in this report to indicate that continuing the programs would require additional resources. This LRFF also includes the City’s committed investment of $7.0 million in operating expenses for the partnership with LifeMoves and Project Homekey site services ($1.0 million annually from FY 2025 through FY 2031). The timing of the funding was shifted as a result of $2.0 million from FY 2023 and FY 2024 being approved by the Council to be used to fund expenses related to the Homekey Facilities capital project (PE-24005). Staff will monitor operating funding needs in FY 2025 to align allocations based on the timing of the completion of PE-24005. TABLE 6: General Fund Expense Forecast and Year to Year Percentage Change Budget Stabilization Reserve The City's Budget Stabilization Reserve (BSR) serves as the primary General Fund reserve. By policy, the BSR is maintained in the range of 15 to 20% of General Fund operating expenditures, with a target of 18.5%. As part of the FY 2025 Adopted Budget, the Council approved a targeted BSR of 18.5% or $54.4 million as part of the budget balancing strategy. Any reduction to the reserve below 15% requires City Council approval. At the discretion of the City Manager, any BSR balance above 18.5% may be transferred to the Infrastructure Reserve (IR) in the Capital Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 17 Packet Pg. 145 of 227 4 7 7 6 Improvement Fund and the City's Section 115 Pension Trust Fund, as outlined in the Retiree Benefit Policy. The BSR is used to fund unanticipated one-time costs as opposed to ongoing or recurring operating expenditures; ongoing revenue or expense trends are updated as part of the annual budget process to adjust ongoing needs. The City's intent is to fund ongoing programs and services with ongoing dollars. Maintaining the BSR at 18.5% or higher provides flexibility for the City to deal with unforeseen issues that may arise. Furthermore, establishing, and following, sound fiscal reserve policies has been a strong factor in the City being rated AAA by rating agencies. Based on information reported in the FY 2024 Annual Comprehensive Financial Report (ACFR) CMR 2404-29122, the City’s current BSR balance is $65.9 million, approximately $8.9 million above the 18.5% target of $54.4 million for FY 2025. The proposed allocations are for the Capital Fund Infrastructure Reserve (IR) of $3.0 million and Budget Uncertainty Reserve of $5.9 million. While it is a departure from the current policy, this allocation provides flexibility to fund capital cost uncertainties and adequate funding to address the projected FY 2026 budget shortfall, ensuring the City maintains high quality service level. Staff anticipates returning to Council in February 2025 with the FY 2025 Mid-Year Review and recommendations in alignment with the allocation below for the appropriation of BSR funds above the 18.5% level. These actions will leave the BSR at $54.4 million per the 18.5% Council recommended level. 2Finance Committee, December 3, 2024; Agenda Item #2; Staff Report #2404-2912, https://cityofpaloalto.primegov.com/portal/viewer?id=9637&type=3 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 18 Packet Pg. 146 of 227 4 7 7 6 TABLE 7: Budget Stabilization Reserve (BSR) Summary (in millions) General Fund BSR Balance, June 30, 2024 $65.9 FY 2025 Approved Adjustments to the BSR Balance FY 2025 Adopted Budget ($2.6) Subtotal: Approved Adjustments to the BSR Balance ($2.6) Subtotal: BSR Balance, After Approved Adjustments $63.3 FY 2025 RECOMMENDED Adjustments to the BSR Balance (to be appropriated in FY 2025 Mid-Year Budget Review) Transfer to Infrastructure Reserve (IR) in the Capital Improvement Fund ($3.0) Increase Uncertainty Reserve ($5.9) Subtotal: RECOMMENDED Adjustments to the BSR Balance ($8.9) Current Projected FY 2025 BSR Level, (June 30, 2025)$54.4 As mentioned previously, major tax revenues have continued to grow moderately through the first quarter (Q1) of FY 2025 in alignment with projections and are expected to come in at the FY 2025 Adopted Budget levels. In FY 2025, staff estimates total revenues to be consistent with the Adopted Budget of $287.6 million. Further discussion of changes to specific categories for FY 2026 can be found in Attachment C. Staff will continue to monitor revenues especially amongst significant sources with anticipated increases and decreases and provide another update in FY 2025 mid-year budget update (February 2025). In addition to the BSR, funding of approximately $6.1 million remains in an Uncertainty Reserve that was established as part of the FY 2023 Mid-Year Review to fund the two-year budget strategy for FY 2024 and FY 2025. These funds are one-time in nature so once they are spent, they are not available for ongoing needs. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 19 Packet Pg. 147 of 227 4 7 7 6 Assumptions NOT Included in Forecast It should be noted that this forecast does not include several potential impacts to the FY 2026- 2035 LRFF that are outlined in Attachment E. These items are known projects or areas of investment that are priorities but have not been fully developed in terms of costs and timelines. This is not intended to be a comprehensive list nor in any priority order. FY 2026 Budget Development Guidelines As discussed earlier in this document, this preliminary forecast represents the initial steps of the FY 2026 budget development process. Due to the clear overlap of projecting the City’s fiscal condition and the need to shape service level expectations, staff recommends that the inclusion of Budget Development Guidelines be incorporated into the discussions at the beginning of an annual budget process. The FY 2026 Budget Development Guidelines, which are detailed in Attachment A, are meant to reflect the anticipated fiscal condition of the City and to provide high-level budgetary direction to the organization. These guidelines will shape and inform the annual financial planning and the allocation of resources across the organization, especially in the General Fund. Pairing Budget Development Guidelines with the forecast at the beginning of the budget process links the anticipated fiscal condition of the organization with the necessary context regarding service delivery prioritization and resource allocation that will be further explored through the process. This also ensures that the City is able to proactively address anticipated changes in its fiscal condition through the budget process. Conclusion This forecast maintains current service levels approved in FY 2025 and should be used for planning purposes to assist in gauging effects of major policy interventions against a likely “status quo” version of the future. The level of uncertainty in this forecast is similar to where it was a year ago in terms of impacts from economic and geo-political uncertainty and evaluating potential impacts on the local economy. Expense savings and uptick in several revenue categories that occurred in FY 2024 caused a one-time surplus of $8.9 million. These revenue trends continue in the forecast, although increases in the near term may be flattened due to economic stagnation. Staff will return to Council in February 2025 with the FY 2025 Mid-Year Review, recommending that the $8.9 million surplus be allocated to the Infrastructure Reserve d ($3.0 million) and Budget Uncertainty Reserve ($5.9 million) to help bridge the FY 2026 budget gap, in accordance with Council policy allowing the City Manager to direct amounts exceeding the BSR target. The LRFF Base Case assumes a weak economy in 2025, followed by a return to trend growth rates starting in 2026 and through the remaining ten-year forecast period. Revenue growth is anticipated to stagnate through the end of FY 2025, and potentially into FY 2026, as inflationary pressures remain elevated and borrowing costs continue to weigh on economic activity. As a result, the LRFF projects a shortfall of $12.0 million in FY 2026, followed by shortfalls ranging from Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 20 Packet Pg. 148 of 227 4 7 7 6 $7.9 million in FY 2027 to $5.6 million in FY 2029. FY 2030 has a projected surplus of $2.0 million which continues to grow through FY 2035. These amounts are fairly consistent with previous projections used as part of the two-year budget balancing strategy when adopting the FY 2025 Budget. Additionally, this LRFF projects $287.6 million in total revenues in FY 2025, consistent with the adopted budget. Funding of approximately $6.1 million remains in an Uncertainty Reserve that was established as part of the FY 2023 Mid-Year Review to fund the two-year budget strategy for FY 2024 and FY 2025. This forecast includes the addition of $5.9 to the Budget Uncertainty Reserve, bringing the total amount of the reserve to $12.0 million, These funds are one-time in nature so once they are spent, they are not available for ongoing needs. In addition to the Base Case Forecast, staff modeled alternate forecast scenarios that are discussed below. The first alternative reflects a 1% loss in economically sensitive revenue in FY 2026 compared to the Base Case, and increases the General Fund shortfall over the next ten years. FY 2026 increases from a shortfall of $12.0 million to $14.3 million, and revenues are not anticipated to be able to fund the annual expenditures until FY 2030. Staff also modeled an alternate forecast that reflects a 1% compensation adjustment and the impacts on the General Fund over the next ten years. The shortfall in FY 2026 increases by $1.1 million, the shortfall in FY 2027 grows to $9.0 million from $7.9 million in the Base Case. These alternate forecasts were done separately to show the impacts of each scenario in isolation; however, aspects of both alternate forecasts may occur in conjunction in the future. Alternative Scenarios for Consideration Alternative Forecast Scenario A: Economically Sensitive Revenue Loss This alternative forecast models the impact of a 1% revenue loss on economically sensitive revenue. Since it is difficult to predict the timing of a recession, this scenario shows the cost of a revenue loss in FY 2026 and how it would impact the subsequent years of the forecast. The major taxes, charges for services, and permits and licenses revenue categories are typically impacted by economic changes, so the impact has been calculated on these revenue sources. The 1% loss from these revenue sources would reduce the overall revenue in FY 2026 by $2.3 million. The Base Case projected that by FY 2030, the City would begin to have a positive surplus; this alternative forecast changes the surplus of $2.0 million in FY 2030 to a shortfall of $0.8 million. In this alternative, the General Fund would have a shortfall of approximately $14.3 million in the first year of the forecast. The summary table for this alternative forecast and the Net Operating Margin graph for this alternative forecast are below. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 21 Packet Pg. 149 of 227 4 7 7 6 TABLE 8: FY 2026 – FY 2035 Long Range Financial Forecast Alternative Forecast A TABLE 9: FY 2026 –2035 Long Range Financial Forecast Net Operating Margin Alternative Forecast A Alternative Forecast B: One-time Compensation Adjustment, Additional 1% Consistent with City Council direction and past practice, the Base Case assumes a 2% general wage adjustment in the years beyond the terms of existing Memorandum of Agreements (MOAs). As of the timing of this forecast, MOAs are in effect through January 2025 (Service Employees International Union) (SEIU) and June 2025 (all other full-time labor groups). To support ongoing efforts for competitive wages and other terms of employment, the Base Case forecast includes a reserve for potential changes in new labor agreements, pension, or other benefits. Offering competitive compensation plans aligns with industry standards for attracting and retaining a skilled and motivated workforce and better positions the City of Palo Alto as an Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 22 Packet Pg. 150 of 227 4 7 7 6 employer of choice. This level of funding is intended to offset potential future costs and may differ from actual outcomes. Negotiations for new labor agreements are anticipated to occur in FY 2025 for new terms beginning in FY 2025 and FY 2026. This alternative scenario models the impact of a one-time adjustment in FY 2026 to increase compensation by an additional 1% above assumptions in the Base Case; this is the first full fiscal year for new MOA terms with all labor groups. As with other assumptions in the LRFF, this model is for forecasting purposes and does not reflect future commitment. The one-time compensation adjustment would increase expenditures in FY 2026 by $1.1 million. The Base Case projected that by FY 2030, the City would begin to have a positive surplus; this alternative forecast increases the operating shortfalls in the near-term, resulting in budget gaps ranging from $13.1million in FY 2026 to $6.8 million in FY 2029. The summary table for this alternative forecast and the Net Operating Margin graph for this alternative forecast are below. TABLE 10: FY 2026 – FY 2035 Long Range Financial Forecast Alternative Forecast B TABLE 11: FY 2026 – 2035 Long Range Financial Forecast Net Operating Margin Alternative Forecast B Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 23 Packet Pg. 151 of 227 4 7 7 6 FISCAL/RESOURCE IMPACT Financial implications from this report and input from the Finance Committee and City Council will be considered in the City Manager’s development of the Fiscal Year 2026 budget. STAKEHOLDER ENGAGEMENT The preliminary forecast for 2026-2035 represents the beginning of the fiscal year 2026 budget development process. Information provided in this report will be discussed with the City Council after the Finance Committee reviews and provides recommendations. Those conversations will provide direction to staff in the budget development process. It is anticipated that conversations with City Council and the community will occur through public budget hearings in Spring 2025, according to the standard budget adoption process. The community can track previous and upcoming FY 2026 budget discussions and information at www.cityofpaloalto.org/budget ENVIRONMENTAL REVIEW This report is not a project for the purposes of the California Environmental Quality Act. Environmental review is not required. ATTACHMENTS Attachment A: FY 2026 Budget Policy Guidelines Attachment B: The Economy Attachment C: General Fund Base Case Revenue Assumptions Attachment D: General Fund Base Case Expense Assumptions Attachment E: Assumptions Not Included in Forecast Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 24 Packet Pg. 152 of 227 4 7 7 6 APPROVED BY: Lauren Lai, Administrative Services Director Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 25 Packet Pg. 153 of 227 Attachment A – FY 2026 Budget Development Guidelines 1) Develop a structurally balanced budget that brings ongoing revenues and expenses into alignment. Develop a plan for any structural imbalance to ensure that the City maintains fiscal sustainability over the short, medium, and long-term. 2) Allocate one-time resources for one-time needs rather than committing one-time resources to ongoing services. Examine appropriate uses of revenue surpluses that exceed forecasted levels such as planning for recession needs, restoration needs, and strategic investments. 3) Review resource allocation for the City Council’s existing priorities and identify priority funding needs. 4) Focus on business process redesign to enhance quality, flexibility, and cost-effectiveness of service delivery (include examining opportunities to streamline, simplify, reorganize, and reallocate resources to avoid duplication of effort). 5) Explore alternative service delivery models (such as partnerships with non-profits or other public/private sector groups) to minimize overlap, maximize cost share, and effectively use resources. 6) Continue to thoroughly analyze non-personnel/equipment/other costs, such as contract services, for cost savings opportunities or realignment with current needs. 7) Explore the expansion of existing revenue sources or the addition of new revenue sources, including the alignment of existing charges for services and the opportunity to establish new fees, when appropriate. 8) Continue to analyze and prioritize resource augmentations, seeking to offset augmentations with reductions elsewhere for net-zero impacts to the budget whenever possible; however, ensuring when resource augmentations are added, it is in alignment with one-time and ongoing forecasted sources. 9) Continue to prioritize proactively funding long term liabilities including but not limited to debt obligations, pension obligations, and capital infrastructure in accordance with City policies as approved by the City Council. FY 2026 Budget Development Guidelines Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 26 Packet Pg. 154 of 227 ATTACHMENT B The Economy At the national level, economic growth through the third quarter of calendar year 2024, was led by GDP (gross domestic product) growth and strong consumer (retail) spending despite lower yet still higher than preferred inflation rates and borrowing costs with interest rates. The gross domestic product (GDP), a measure of all goods and services produced in the economy, increased at an annualized rate of 2.8% in the third quarter of 2024, in between the first quarter of 1.6% and second quarter of 3.0% growth. As of October 2024, the consumer price index (CPI), which measures changes in the prices paid by consumers for a basket of goods and services, was 2.6%. This is lower than the 3.2% CPI from a year ago. Assumptions in the LRFF report for general cost increases are using a CPI of 3% in FY 2026 and FY 2027 and 4% for FY2028 and beyond. The unemployment rate, as of October 2024, is 4.1% which is up from 3.7% at the beginning of the 2024 calendar year and is consistent with a “soft-landing” economic slowdown. The unemployment rate in the past six months has been in the low 4% range as a result of the economy slowing down. As expected, the slowdown in economic growth intends to avoid recession for the purpose of stopping the economy from overheating and continuing to experience higher inflation. There are factors to monitor that could change the expected economic growth pattern such as the election results and changing national economic policies and geopolitical events. The local economy continues to show sluggish performance in the calendar year 2024 with higher than U.S. growth expected in 2025 and 2026 led by technology and aerospace; however, recent election results has added additional market uncertainty to this outcome. The UCLA Anderson outlook states, “The California economy is expected to grow faster than the national economy in 2025 and 2026, but not by much. The risks to the forecast are political and geopolitical, and on the downside, the interest rates could potentially still disrupt the current expansion and, on the upside, international immigration and accelerated onshoring of technical manufacturing could increase growth.” According to the U.S. Bureau of Economic Analysis (BEA), the US economy expanded an annualized 2.8% in the third (calendar) quarter of 2024, below 3% in the second quarter. Personal spending increased at the fastest pace since the first quarter of 2023 (2.8%), boosted by a 6.0% surge in consumption of goods and a robust spending on services, mostly prescription drugs, motor vehicles and parts, outpatient services and food services and accommodations. Government consumption also rose more, led by defense spending, and investment in equipment increased. In addition, the contribution from net trade was less negative, with increases in both exports and imports, led by capital goods, excluding autos. On the other hand, private inventories dragged from the growth, and fixed investment slowed, led by a decline in structures and residential investment. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 27 Packet Pg. 155 of 227 Table 1: National Gross Domestic Product (GDP) Real GDP: Percent Change from Preceding Quarter U.S. Bureau of Labor Statistic The national inflation rate remained steady but still slightly high compared to the 2% rate targeted by the federal reserve at 2.6% in October 2024, up from September (2.4%) which was the lowest rate since May 2020 (0.1%). It marks the first increase in inflation in seven months, as energy costs declined less, mainly due to gasoline and fuel oil while natural gas prices rose, the same as in September. Also, inflation for shelter steadied at 4.9%. On the other hand, inflation slowed for food and transportation and prices continued to fall for new vehicles and used cars and trucks. On a monthly basis, CPI rose by 0.2%, consistent with the previous three months. The index for shelter rose 0.4%, accounting for over half of the monthly increase. Meanwhile, core inflation remained steady at 3.3% as expected. Table 2: National Inflation Rate (aka Consumer Price Index (CPI)) Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 28 Packet Pg. 156 of 227 The nation’s unemployment rate is 4.1% as of October 2024, compared to a record high of 14.7% at the height of the pandemic in April 2020. The number of unemployed individuals was broadly unchanged at 7 million. Among those without employment, permanent unemployment rose slightly to 1.8 million, while temporary layoffs were little changed at 846,000. In turn, long-term unemployment was little changed from the previous month at 1.6 million. In the meantime, the labor force participation rate eased by 0.1 percentage points to 62.6%. Per the State of California's Employment Development Department, the state’s unemployment rate as of September 2024 is 5.3% with the prior year being 5% and the County of Santa Clara is 4.1%. Historically, the Bay Area job growth has been led by the Peninsula for the past several years. The unemployment rate for the San Francisco Peninsula and Palo Alto is 4.2% and 3.5% respectively as of September 2024; last year it was 4% and 3.3%, respectively. Table 3: U.S. Unemployment Rate U.S. Bureau of Labor Statistic The elevated inflation rate has resulted in the continued erosion of purchasing power; however, there is still growth in U.S. consumer spending. Personal consumption expenditures (PCE) are the primary measure of consumer spending on goods and services in the U.S. economy. It accounts for about two-thirds of domestic final spending, and thus it is one of the main factors that indicates future economic growth. Strength in PCE spending tends to prompt additional business spending. Personal spending in the United States rose by 0.5% from the previous month to an annualized rate of $20.024 trillion in September 2024, accelerating from the 0.3% increase in the previous month, and ahead of market expectations of a 0.4% increase. The result extended the period of resilience of the US consumer to higher interest rates, adding leeway for the Federal Reserve to hold rates at a restrictive level to combat inflation. The rise was owed to higher spending in goods, amid increases for durable goods and non-durable goods, consistent with the jump in spending for services. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 29 Packet Pg. 157 of 227 Table 4: Personal Consumption Spending Growth Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 30 Packet Pg. 158 of 227 ATTACHMENT C Table 1: General Fund Base Case Revenue Assumptions Sales Tax Compared to FY 2019 pre-pandemic actuals of $36.5 million, sales tax revenue declined by $7.4 million, or 20.2%, during the pandemic in FY 2021. The recovery, which began in the last quarter of FY 2021, resulted in the FY 2022 and FY 2023 receipts increasing by $3.6 million or 12.3% and $4.2 million or 12.9%, respectively. The FY 2024 receipts increased by $0.6 million or 1.5%. With the economic “soft-landing”, the FY 2025 receipts is expected to be relatively flat; however, with the expected opening of a new car dealership at the end of this calendar year, a modest increase may develop compared to FY 2024. The general retail, food products (includes restaurants), transportation, and business to business (includes car leasing) categories experienced increases. This economic trend was mixed in the San Francisco Bay Area and in California. A few municipalities had single digit increases in FY 2024 while most had single or double digit decreases. The FY 2025 Adopted Budget for Sales Tax is $39.6 million, a $2.1 million or 5.6% increase from FY 2024 actuals of $37.5 million. Staff continues to monitor the FY 2025 sales tax trends. Revenue for FY 2026 is projected at $39.8 million, a slight $0.2 million or 0.6% increase over the FY 2025 Adopted Budget due to many uncertainties surrounding the economy. The Base Case assumes 2.3% to 4% growth over the length of the forecast with a 10-year compound annual growth rate (CAGR) of 3.4%. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 31 Packet Pg. 159 of 227 TABLE 2: City of Palo Alto Sales Tax Revenues through FY 2035 Property Tax Property tax revenue is the General Fund’s largest revenue source and represents approximately 25% of the total revenues. Historically, the 10-year compound annual growth rate (CAGR) was 8.1%, with a low of 4.9% in FY 2022 and a high of 11.5% in FY 2015. During economic downturns, impacts to property tax occur a year later, as a result, the $2.8 million or 4.9% growth in FY 2022 was the lowest in the past decade. This category also includes receipts for excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa Clara. ERAF is the fund used to collect and disburse property taxes that are shifted to/from cities, the County, and special districts prior to their reallocation to K-14 school agencies. When the state shifts more local property tax than required to support schools, these funds are returned and known as excess ERAF. As a result of the volatility of ERAF, it is not considered a permanent local revenue source even though it has performed strongly in the past decade. ERAF Reserve: Since FY 2021, the City has engaged in several disputes over the calculation and disbursement of excess ERAF Funds. In response, the City established reserves for potential estimated losses at 25% of total Excess ERAF receipts. There were favorable resolutions with the State and Santa Clara County, followed by the State and California School Board Association, for two prior disputes. The associated reserves have been released to the Budget Stabilization Reserve (BSR) or consolidated for potential future at-risk amounts. A few years ago,, the State Controller’s Office issued a negative audit finding against Marin County. The state asserts that former Redevelopment Agency funds, which are now part of the regular property taxes, should be excluded from the excess ERAF calculation. Marin County is challenging this finding and the County of Santa Clara has filed a lawsuit. The estimate is, if this audit finding is sustained, 22% of excess ERAF is at risk for fiscal years 2021, 2022, 2023, and 2024. If the finding holds, the County of Santa Clara, as well as other Excess ERAF counties, would be negatively impacted in FY 2025 and beyond. In FY 2024, $5.6 million was set aside for the Reserve of excess ERAF for the at-risk amount. In addition, 22% or $1.5 million in FY 2025 budget Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 32 Packet Pg. 160 of 227 has been reduced by this amount. Staff will continue to monitor the status of this audit finding and report on any significant developments. TABLE 3: City of Palo Alto Property Tax Actuals and Forecast through FY 2035 Transfer of ownership has been a significant driver of past growth; however, that growth did moderate in FY 2024 which is expected to continue in FY 2025 due to the economic slowdown. For example, the median sales price of single family residential in the first (fiscal year) quarter of FY 2025 increased by 4% over the prior year. The FY 2025 Adopted Budget for Property Tax is $68.6 million, a $2.3 million or 3.5% increase over the FY 2024 actuals of $66.3 million. In FY 2026, this revenue is anticipated to increase to $71.7 million, a $3.1 million or 4.5% increase over the FY 2025 Adopted Budget amount. The Base Case assumes 5.2% to 6.4% growth over the length of the forecast with a 10-year CAGR of 5.9%. Transient Occupancy Tax (TOT) Revenue in this category is impacted by business and other leisure/non-leisure travel and experienced significant reductions in FY 2020 and FY 2021 due to public health orders, travel restrictions, and diminishing business and personal travel plans resulting from the pandemic. TOT revenue declined by $20.5 million or 79.8% in FY 2021, when comparing the FY 2019 pre- pandemic actuals of $25.6 million. As public health conditions improved and travel resumed, this revenue began to recover, significantly grew in FY 2022, and in FY 2023, currently, this revenue has recovered to pre-pandemic levels. The opening of the two Marriott hotels in mid and late FY 2021 and the re-opening of multiple hotels in FY 2021 and FY 2022 were positive developments that helped drive recovery for this tax revenue. The FY 2025 Adopted Budget for TOT revenue is $27.9 million, a $0.1 million or 0.4% increase over FY 2024 actuals of $27.8 million. In FY 2026, this revenue is anticipated to increase to $29.1 million. Year-to-date (as of August 2024), daily average room rates increased by 0.5% from $220 per day to $221 per day while occupancy rate decreased by 9.9% from 76.6% to 69.0%. Revenue Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 33 Packet Pg. 161 of 227 in this category is experiencing a near term stagnation; however, it’s anticipated to grow in FY 2026 and beyond at a projected rate of 1.3% to 5.3% over the length of the forecast, or a 4.9% 10-year CAGR. TABLE 4: City of Palo Alto Transient Occupancy Tax Actuals and Forecast through FY 2035 Note: January 2015, TOT Rate went from 12% to 14% April 2019, TOT Rate went from 14% to 15.5% Utility User’s Tax (UUT) The UUT is levied on electric, gas, and water consumption, as well as on telephone usage. Revenue in this category is impacted by consumption levels and has experienced reductions in prior periods due to water conservation programs and reduced workforces and business closures during the pandemic. This revenue has recovered as the local economy recovered and workers returned to the office in FY 2023. In addition, higher utility commodity costs resulted in sizable utility rate increases and higher UUT revenues. The FY 2025 Adopted Budget for UUT is $19.9 million, $0.9 million or 4.7% higher than the FY 2024 actuals of $19.0 million. In FY 2026, this revenue is anticipated to increase to $21.5 million, a $1.6 million or 7.9% increase over the FY 2025 budgeted amount. Revenue in this category is expected togrow at 2.5% to 9.8% over the length of the forecast, or a 10-year CAGR of 4.0%. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 34 Packet Pg. 162 of 227 TABLE 5: City of Palo Alto Utility Users Tax Actuals and Forecast through FY 2035 Documentary Transfer Tax (DTT) Revenue in this category is highly volatile and dependent on sales volume and the mix of commercial and residential sales. DTT experienced record receipts in FY 2021 and FY 2022 at $10.6 million and $12.0 million, respectively,which was followed by a sharp decline in FY 2023 at $5.8 million. In both record years, the primary drivers werelarge commercial transactions, six in FY 2021 and nine in FY 2022, and robust residential sales. In FY 2023, sales activities normalized, dropping revenue to $5.8 million, but the FY 2024 receipts were $7 million, a 10.1% increase in transactions. The FY 2025 Adopted Budget for DTT is $7.3 million, $0.3 million or 3.5% higher than FY 2024 actuals. In FY 2026, this revenue is projected to increase to $7.9 million, a $0.6 million or 9.4% increase, from the FY 2025 budgeted amount of $7.3 million. As in past years, this revenue source is challenging to forecast and can fluctuate month to month depending on real estate transactions. The number of transactions through October 2024 (217) is 14.2% higher than October 2023, with the total revenue from these transactions increasing by 14.2%. The Palo Alto housing market remains strong, as discussed in the Property Taxes section, single family residential median sales price in Palo Alto has increased, which is an expected occurrence as the predicated economic soft landing and lower mortgage rate will impact property sales activity in FY 2025. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 35 Packet Pg. 163 of 227 TABLE 6: City of Palo Alto Documentary Transfer Tax Actuals and Forecast through FY 2035 Business Tax (BT) In November 2022, voters approved Measure K (Business Tax) to provide additional funding for critical public safety needs, transportation safety improvements and grade separations, and affordable housing and unhoused services. The first BT payment was due on January 1, 2024, for calendar year 2023. As a result, the FY 2024 receipt of $5.3 million represents a year and half of collection. However, the initial collection was based on a BT rate of 3.75 cents per square foot which will increase to 7.5 per square foot starting on January 1, 2025. The tax applies to non- exempt businesses above 10,000 square feet with an annual single business cap of $500,000. Both the rate and the cap will be increased annually by 2.5% beginning in FY 2027. A limited number of businesses have the option to offset this tax by their sales/use tax collection. After the initial first payment, filings will be submitted on a quarterly basis. The FY 2025 Adopted Budget for BT is $4.8 million, a $0.5 million or 9.9% lower than the FY 2024 actuals of $5.3 million. In FY 2026, this revenue is anticipated to increase to $6.5 million. Revenue in this category, after an initial double-digit growth due to the rate increase, is expected to experience growth at 3% to 3.8% over the length of the forecast, with a 10-year CAGR of 5.6%. Since this is a relatively new revenue source, staff continues to monitor collections and will make revisions if needed as part of FY 2026 budget process. Return on Investment The return-on-investment category reflects the interest earnings on the City’s investment portfolio. This category is a combination of past investments, new investments at current market rates, and available investable cash which fluctuates seasonally and annually. As of the timing of this LRFF, the Federal Open Market Committee (FOMC) has cut the federal funds rate twice totaling 0.75% to 4.75% (75 basis points). It is expected that further interest rates cuts will occur. The actual FY 2024 interest earning was $3.7 million, higher than expected due an increasing interest rate environment. The average portfolio rate of return for the first quarter of FY 2025 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 36 Packet Pg. 164 of 227 was 2.46%, and a 2.59% average yield as of the fourth quarter of FY 2024. The adopted General Fund FY 2025 budget for interest earning is $3.3 million, and is projected at $3.8 million for FY 2026, with a 4.2% CAGR over the ten-year period. TABLE 7: Palo Alto Historical Investment Portfolio Yields and Citywide Interest Earnings Rental Income Rental Income of $16.4 million in FY 2026 primarily reflects rent paid to the General Fund from the City’s Enterprise Funds and tenants at the Cubberley Community Center. Rental income is projected to remain flat compared to the FY 2025 Adopted Budget. This revenue category will be further reviewed and revised subsequent to this forecast, typically based on the December- to-December California Consumer Price Index (CCPI) in the San Francisco Bay Area. Charges for Services and Permits and Licenses Revenues in the Charges for Services and the Permits and Licenses categories are anticipated to be $41.3 million and $11.6 million, respectively, in FY 2026. Together, these amounts total $52.9 million and are approximately $3.6 million higher than the FY 2025 Adopted Budget of $49.3 million. Increases in these categories are primarily due to revenue adjustments for the agreement with Stanford to provide Fire and Dispatch services, and higher forecasts for permit and plan review services processed through the Development Center. The revenue estimates in these categories are based on current activity levels, and these revenue sources are primarily driven by the cost of staff to provide services to the community. To ensure alignment with target cost recovery levels, the City has engaged a consulting firm to assist with a Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 37 Packet Pg. 165 of 227 comprehensive cost allocation plan and municipal fee study during FY 2025, with implementation anticipated in FY 2026. Staff will evaluate and bring forward recommendations to align fees with target cost recovery levels to cover general salary and benefits increases and CPI trends. These efforts aim to improve fee transparency and ensure equitable cost distribution across City services. One exception to this is Development Services activities and related revenue. Development Services fees are fully cost-recoverable, and the department has been modeled as cost-neutral in this forecast. Charges for Service - Stanford Fire and Dispatch Services: The City and Stanford have two separate agreements for the provision of fire response and emergency dispatch services. The fire response services agreement became effective in July 2018 and outlines service level terms and a new cost allocation methodology as the baseline for agreement costs. The term extended through June 2023, with annual renewals in effect through June 2028 unless otherwise terminated. The agreement includes a staffing deployment model for suppression and medical services, which was approved by the City Council in October 2017 and deployed in January 2018. This forecast aligns with the new staffing model; and, in accordance with the agreement, adjustments to revenue from Stanford have been aligned with the year-over-year changes to the operating expenses in the Fire Department over the forecast period. Similarly, changes to the revenue received for dispatching services have been aligned with the operating expenses in the Technical Services Division of the Police Department where the costs to provide these services are budgeted. For fire and police revenue, additional adjustments may be applicable if new labor agreements are negotiated for the forecast period. Revenues for these services are based on current anticipated changes in salary and benefits costs within the Fire Department and Police Department Dispatch Unit. Charges to Other Funds The main source of revenues in this category is General Fund administrative cost allocation plan charges to the Enterprise and Internal Service Funds. Internal support departments such as Administrative Services, Human Resources, and Council Appointed Offices provide services to Enterprise and Internal Service Funds. The costs for these services are recovered through the administrative cost allocation plan charges. The FY 2026 estimate for Charges to Other Funds of $15.1 million remains flat compared to the FY 2025 budgeted amount. To ensure alignment with target cost recovery levels, the City has engaged a consulting firm to assist with a comprehensive cost allocation plan and municipal fee study in FY 2025, with targeted implementation in FY 2026. Staff will evaluate and bring forward cost allocation recommendations. Operating Transfers-in Operating Transfers-in materialize as expenses in other funds throughout the City and as a revenue in the General Fund. This budget category includes repayment of a previous loan from the General Fund to the Airport Fund, funding for police patrol in the downtown area, and the equity transfer from the Electric and Gas funds. Overall, the Operating Transfers-in are estimated to be $29.1 million for FY 2026. While this matches the total for FY 2025, the prior year included a one-time $2.0 million transfer from the General Benefits Fund. This transfer was a refund of allocated charges paid by General Fund departments into the General Benefits Fund in prior years, which had accumulated in fund balance. Additionally, the Electric Fund equity transfer Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 38 Packet Pg. 166 of 227 increased from $15.1 million to $18.3 million, while the Gas Fund equity transfer decreased from $10.9 million to $9.7 million, reflecting updated revenue forecasts for each fund. In accordance with the methodology approved by the City Council in June 2009, the Electric Fund’s equity transfer to the General Fund equity transfer has been calculated by applying a rate of return on the capital asset base of the Electric Fund. This rate of return is based on PG&E’s rate of return on equity as approved by the California Public Utilities Commission (CPUC). The Gas Fund’s equity transfer calculation was updated based on the passage of Measure L on the November 2022 ballot. As outlined in the ballot measure language, the Gas Fund equity transfer can be up to 18% of annual gross gas retail revenue. This LRFF increases the transfer to 18% in FY 2026, where it is projected to remain through 2035. Other Revenue and Revenue from Other Agencies Revenues in these two categories is projected at $3.6 million in FY 2026, $0.9 million lower than the FY 2025 adopted budget of $4.5 million. These two revenue categories mainly account for grants or reimbursements from the federal and state governments or other local jurisdictions. Other Revenue decreased slightly by $0.2 million in FY 2026 as a result of limited time funding in FY 2025 from LifeMoves, ,for reimbursement related to the Homekey Facility. Revenue from Other Agencies decreases by $0.7 million in FY 2026, because FY 2025 is the last year of the Staffing for Adequate Fire and Emergency Response (SAFER) grant funding awarded to the City in FY 2022. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 39 Packet Pg. 167 of 227 ATTACHMENT D General Fund Base Case Expense Assumptions Salary and Benefits Consistent with prior years, the FY 2026 salaries and benefits costs represent approximately 60% of the General Fund budget expenditures. Salary and Benefits are projected to increase $8.4 million or 4.7% from the prior year, from $179 .9 million to $188 .3 million. Discussed in the following sections, this is primarily attributable to increases in salaries ($4.5 million), retiree healthcare costs ($1.9 million) and pension costs ($1.4 million). Salary Consistent with the City’s salary budget methodology for recent budgets, positions are budgeted at the actual rate of pay of employees including benefit selections as of Fall 2024. Then, by position, salary costs are updated in accordance with applicable Memorandum of Agreements (MOA’s) between the City and its labor groups and the Management and Professional Personnel and Council Appointees Compensation Plan(s). In FY 2023, the City Council engaged with labor groups to negotiate new agreements for wages, benefits, and other terms and conditions of employment. These agreements extend through January 2025 (SEIU) and June 2025 (all other labor groups) for full-time staffing and include target market adjustments to align salaries with benchmark studies, Cost of Living Adjustments (COLAs), and other benefits such as a flexible compensation benefit. The forecast assumes step increases for employees in applicable positions, including Service Employees International Union (SEIU), International Association of Fire Fighters (IAFF), and Palo Alto Peace Officers’ Association (PAPOA), and merit increases for Management and Professional employees including Utilities Management & Professional Association of Palo Alto (UMPAPA). A general wage adjustment of 2% is included for all employees starting in either January 2025 or July 2025 for all years of the forecast since no MOA’s would be in effect at that time. This is consistent with prior Council direction in previous LRFF reporting to use the 2% increase as a forecasting assumption, not as a commitment to future negotiations. The FY 2025 Budget includes MOA terms for a 4% COLA adjustment (all labor groups), 2% market alignment (Safety only), and increase in flexible compensation payment from $100 to $200 per month (all labor groups except SEIU). A reserve is included for potential changes to future labor costs including changes in vacancy rates, labor and benefit rate variability, and inflation assumptions. Offering c ompetitive compensation plans aligns with industry standards for attracting and retaining a skilled and motivated workforce and better positions the City of Palo Alto as an employer of choice. This level of funding does not reflect a commitment to future negotiations and may differ from actual outcomes. Negotiations for new labor agreements are anticipated to occur in the next year for new terms beginning in FY 2025-26. An alternative scenario is included in this report for increases beyond the assumptions described above. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 40 Packet Pg. 168 of 227 Additionally, the budget includes vacancy savings that are expected to materialize as positions are vacated and new employees are hired through the normal course of business. As of the timing of this LRFF, the vacancy rate is approximately 10%. Vacancy savings from public safety positions are typically exhausted by uses such as backfill, hire ahead programs, and overtime. Consistent with changes in the previous LRFF, this forecast assumes a vacancy rate of 5% in all years. This results in additional savings of approximately $5.1 million in FY 2026 and increases to $6.5 million annually over the forecast period. Consistent with past practice, the vacancy assumption is lower than the actual vacancy rate to allow departmental use of those savings for other staffing strategies, such as filling staffing gaps by contracting for professional services, hiring ahead to allow overlap and smooth transitions, piloting new technologies to increase efficiency in the absence of staff, and supporting a summer internship program. Benefits Pension: Pensions are budgeted based on CalPERS determined rates as of the June 30, 2023 valuation for the City’s miscellaneous and safety plans (CMR 2405-3062 1). CalPERS determines the City’s total contributions for a given Fiscal Year as the sum of two factors: Normal Cost (NC) and Unfunded Accrued Liability (UAL). Together the NC and the UAL expressed as a percentage of payroll is the ‘blended rate’ and is used to represent total costs in the discussion below. The Normal Cost (NC) is expressed as a percentage of payroll and is paid as part of the payroll reporting process of active employees. Commonly referred to as the ‘pay-go’ cost, the NC is variable and increases or decreases directly with the salary levels of the City. It represents the necessary funding for the City to pay for employees presuming that CalPERS meets the current set of assumptions. In a year that CalPERS does not meet assumptions, due to plan changes, assumption changes, method changes, or plan experience (including investment gains/losses), there is an increase or decrease to the Unfunded Accrued Liability (UAL). Commonly referred to as the ‘catch-up’ cost, the UAL is expressed as a dollar amount and is calculated over an amortized period with defined annual payments, similar to a mortgage. The contributions for UAL are billed as a flat dollar amount as opposed to a percentage of payroll due to potential funding issues that could arise from a declining payroll or number of active members in the plan. However, CalPERS provides an estimated percentage of payroll for UAL to allow a consistent comparison of total costs. The miscellaneous plan total costs are projected to decrease from the current 47.4% in FY 2025 to 43.7% in FY 2026. In the safety plan, total costs are projected to decrease from the current 83.1% in FY 2025 to 81.7% in FY 2026. These rates do not consider the employee pick-up of the 1 Finance Committee, September 17, 2024; Agenda Item #1; CMR 2405-3062, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=64617 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 41 Packet Pg. 169 of 227 employer share; that pick-up materializes as savings in the City’s pension costs. Consistent with applicable MOAs, the LRFF presumes that the miscellaneous plan will pick up 1 to 2% of the employer pension cost and that safety plan members will pick up 3 to 4%. The FY 2024 and FY 2025 budgets were impacted by significant swings in investment gains and losses earned by CalPERS in the periods ending June 30, 2021 and 2022. The FY 2024 budget reflected significant investment returns of +21.3% (+6.8% target) and changes to economic and demographic assumptions resulting from the CalPERS Asset Liability Management (ALM) process and Experience Study completed in November 2021. As part of the ALM, the CalPERS board approved a reduction to the discount rate (from 7.0 to 6.8%), revised actuarial assumptions (price inflation from 2.5 to 2.3%), and a new asset allocation targeting 1/3 investment in private assets, 5% leverage, and reduced public equity exposure. FY 2025 on the other hand reflected an investment loss of -6.1% (+6.8% target), nearly offsetting the positive impacts experienced in the prior year’s investment gains. The current LRFF uses an investment return of 5.8% as indicated in the June, 30, 2023 valuation report. Since the issuance of the current valuation, CalPERS announced a preliminary investment return of +9.3% (+6.8% target) for the period ending June 30, 2024 2 which has been recently revised to 9.5%. These results will be included in the CalPERS valuation report issued in Fall 2025 to inform the development of the 2027-2036 LRFF and FY 2027 budget. The resulting liability from investment returns that did not meet target levels will be amortized over 20 years with a 5- year ramp-up period. To inform this LRFF, staff used the CalPERS Pension Outlook Tool to calculate the estimated impacts, resulting in additional costs of $0.2 million ($0.1 million in the General Fund) in FY 2026, and increasing to $1.2 million ($0.5 million in the General Fund) at the peak of the 5-year ramp in FY 2030. In the General Fund, it is anticipated the City will spend a total of $51.1 million on total pension costs in FY 2026, including both CalPERS contributions and supplemental Pension Trust Fund contributions. This is approximately $1.4 million higher than the prior year costs of $49.7 million, or a 2.9% increase. These expenses represent approximately 16% of the General Fund’s total expenses. TABLE 1: CalPERS’ Projected FY 2025-2035 Blended Retirement Rates FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 Miscellaneous Safety 2 CalPERS Reports Preliminary 9.3% Investment Return for 2023-24 Fiscal Year: https://news.calpers.ca.gov/calpers-reports-preliminary-9-3-investment-return-for-2023-24-fiscal- year/#:~:text=CalPERS%20today%20reported%20a%20preliminary,were%20valued%20at%20%24502.9%20billion. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 42 Packet Pg. 170 of 227 Retiree Healthcare/Other Post-Employment Benefits (OPEB): Retiree Medical is based on the June 30, 2023 actuarial study prepared by Foster & Foster (previously Bartel Associates), which is completed every two years. The most recent study was completed in June 2024 to inform the development of the FY 2026 and FY 2027 operating budgets (CMR 2406-3140 3). Consistent with City Council direction and the Retiree Benefit Funding Policy, this forecast continues the practice to budget the full payment of the Actuarial Determined Contribution (ADC) for retiree healthcare and uses alternative assumptions, such as a more conservative 5.75% discount rate (6.25% assumption), to transmit amounts above the recommended payment as an additional discretionary payment (“prefunding”) to the California Employers’ Retiree Benefit Trust (CERBT) Fund. CalPERS blends active employees with pre-Medicare retirees and charges the same medical premium, even though younger employees on average consume less healthcare. The higher premium to younger employees thereby subsidizes older employees and retirees who, on average, have higher claims and premiums. The LRFF estimates $12.4 million in the General Fund in FY 2026 for ADC, an approximate $1.9 million or 18.4% increase from FY 2025 levels of $10.5 million in the General Fund. The implied subsidy is $2.9 million in FY 2026 and effectively lowers the funding necessary to meet the ADC. TABLE 2: Retiree Medical General Fund Contributions FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 $10.5 $12.4 $12.8 $13.2 $13.6 $14.0 $14.5 $14.9 $15.4 $15.8 $16.3 Retiree Benefit Funding Policy (formerly “Pension Funding Policy”): The City has taken several proactive steps to address rising pension costs and long-term liabilities, including cost-sharing in labor agreements, establishing an irrevocable Section 115 Pension Trust (“Pension Trust”) and California Employers’ Retiree Benefit Trust (CERBT) Fund, and adopting a policy that guides financial planning of these benefits (CMR 11722 as modified by 2212-0513 4). The City initially contributed to the Pension Trust in FY 2017 on an ad-hoc basis, using one-time savings or excess revenues. Beginning in FY 2019, the City Council directed staff to use a more conservative discount rate as compared to CalPERS for the Normal Cost (NC) portion of the payment and transferring the supplemental funding beyond CalPERS required employer contributions to the Pension Trust. This practice was reinforced with Council approval of the Retiree Benefit Funding Policy, and as of FY 2024 the City’s NC discount rate is 5.3% as compared to CalPERS 6.8%. Additionally, one-time contributions continue to be made each year if excess 3 City Council, June 17, 2024; Agenda Item #28; CMR 2406-3140 (Attachment D), https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82926 4 City Council, November 30, 2020; Agenda Item #7; CMR 11722, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=80990 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 43 Packet Pg. 171 of 227 revenues or unspent savings are available, subject to City Council approval. As part of policy goals, the City seeks to reach a 90% funded status by FY 2036. Every four years, the City’s Retiree Benefit Funding Policy requires that staff consult with an actuary to inform the City Council of progress the City has made towards achieving a 90% funded status goal and assess and respond to changes impacting the City’s retiree benefit plans. This comprehensive review was most recently completed in FY 2023 and resulted in several policy revisions, most notably reducing the discount rate used to calculate supplemental contributions to the Pension Trust from 6.2% to 5.3% and extending actuary reporting from 3 to 4 years to align with the CalPERS ALM Study. Additionally, the title of the policy was revised from the Pension Policy to the Retiree Benefit Policy to recognize actions approved by the City Council to proactively plan for retiree healthcare plans in a similar manner to pensions, including the use of a lower 5.75% discount rate (CMR 2212-0513 5). The most recent actuary analysis projects that the City will meet a 90% funded goal for pension plans by FY 2034 (miscellaneous plan) and FY 2036-37 (safety plan); the City’s practice of transmitting excess one-time savings will help reach these goals sooner. In this forecast, approximately $8.5 million in the General Fund in supplemental contributions to the City’s Pension Trust is assumed in FY 2026. Through FY 2025, a total of $87.4 million ($56.4 million in the General Fund) in principal contributions are expected to be made to the Pension Trust for pension benefits. Through FY 2025, it is expected that $14.7 million in principal contributions will be made to the CERBT Fund for retiree healthcare benefits. Healthcare: Consistent with the most recent labor agreements between the City and its bargaining units, the City’s contribution amounts towards medical costs for employees are based on a flat rate contribution from the City, with the employee contributing towards the remaining medical plan premium. Like salaries, healthcare costs are updated in accordance with applicable Memorandum of Agreements (MOA) between the City and its labor groups and the Management and Professional Personnel and Council Appointees Compensation Plan(s). Workers’ Compensation: The budget appropriation for workers' compensation includes an estimate for claims incurred and reserves for current filings at an 85% confidence level, based on actuarial studies completed by Bickmore. Actuarial estimates completed in August 2023 informed FY 2025 budget levels of $7.6 million (approximately 72% in the General Fund). More recent actuary estimates completed in August 2024 project expense levels to increase, but the allocation between the General Fund and other funds to remain consistent. Staff will continue to monitor expenditures in the fund and bring forward adjustments as necessary. Claim estimates and reserves for FY 2026 are $9.0 million, representing a $1.4 million or 18.4% increase from the FY 2025 Adopted Budget. Estimates for workers' compensation increase in the forecast at rates consistent with general CPI increases. 5 City Council, February 6,2023; Agenda Item #3; CMR 2212-0513, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82218 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 44 Packet Pg. 172 of 227 Contract Services This forecast assumes contract services of $34.6 million in FY 2026, a 3.1% increase from the FY 2025 Adopted budget of $33.5 million. This increase for FY 2026 is driven primarily by known contractual increases and a general 3% CPI cost increase on contracts that do not have defined annual increases, based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August-to-August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust contract funding needs as part of the FY 2026 budget process. Contract Services - Committed Additions The Committed Additions included in this forecast account for anticipated operating and maintenance (O&M) costs in the General Fund for capital projects anticipated to come online within the ten-year forecast period. Costs for projects that came online in FY 2025 have been annualized into the ongoing General Fund operating budget as part of the LRFF. The preliminary total estimate is $50,800 for costs associated with the following projects anticipated to come online in FY 2026: Dog Park Installation (PG-18001), Fire Station 4 (PE-18004), Library Automated Materials Handling (LB-21000), and Park Restroom Installation (PG-19000). Additional cost increases of 3.0% annually are included throughout the ten-year forecast based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August-to-August period. Timing and analysis of the funding needs for these projects will be evaluated as part of the FY 2026 Budget process and development of the 2026-2030 Capital Improvement Plan (CIP). TABLE 3: FY 2026 – FY 2035 Committed Additions (Millions) FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 $0.05 $0.05 $0.07 $0.11 $0.12 $0.12 $0.14 $0.14 $0.16 $0.16 Supplies and Materials The FY 2025 Adopted Budget for the General Fund included $3.5 million for Supplies and Materials, which is anticipated to increase by a 3.0% CPI cost increase in FY 2026 to $3.6 million based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August-to-August period. This annual increase is adjusted to 4% starting FY 2028 through the ten-year forecast period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for supplies and materials as part of the FY 2026 budget process. General Expense This category includes costs for travel and meetings, telephone and non-city utilities, contingency accounts and reserves, bank card service charges, and subsidies and grants provided through the Human Services Resource Allocation Program (HSRAP). The FY 2025 Adopted Budget of $22.1 million is expected to decrease to $18.2 million in FY 2026, primarily reflecting a planned year over year reduction in appropriations for Green Case settlement payouts and the anticipated use Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 45 Packet Pg. 173 of 227 of the Budget Uncertainty Reserve to balance the FY 2026 budget. This reserve was partially used to balance the FY 2025 Adopted Budget ($6.1 million), leaving approximately $6.1 million to partially fund the anticipated gap in FY 2026 ($12.0 million). The reduction is partially offset by a 3.0% annual CPI cost increase on smaller items that do not have a set annual budget, based on a review of the changes in the California Consumer Price Index (CCPI) in the San Francisco Bay Area from the August-to-August period. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for general expense items as part of the FY 2026 budget process. General Expense – Project Homekey: On September 27, 2021 the City Council directed staff to apply for Project Homekey funding in conjunction with LifeMoves to build an emergency shelter at the former Los Altos Treatment Plant (LATP) site (CMR 13595 6). This project will deploy modular housing to provide interim housing opportunities for homeless individuals and families in the City of Palo Alto. Project Homekey is a program, funded by the State of California Department of Housing and Community Development, intended to provide grant funding and facilitate a partnership with the State to quickly acquire, rehabilitate, or master lease a variety of housing types. Once developed, these projects provide interim or permanent housing options for persons experiencing homelessness. The site will be operated for at least fifteen years as interim housing per the program’s durational requirement. This project will utilize a combination of funding sources including the Project Homekey Program for capital expenses and donations, grant funds, and City support for ongoing operations expenses. This LRFF includes the City’s committed investment of $7.0 million in operating expenses ($1.0 million annually FY 2025 through FY 2031). Some operating funding support is expected from Project Homekey as well as the County of Santa Clara. Any remaining gaps in funding will need to be closed by fundraising, operating cost containment strategies, and/or grant funds. General Expense - Cubberley Lease: Recently, a tentative agreement between the City and PAUSD has been developed that will amend the City’s leased portion of the Cubberley site. Although this agreement still needs to be approved by the City Council, this report assumes a reduction to the annual lease costs for Cubberley to $2.0 million plus the ongoing $0.8 million for child daycare sites and utilities. As part of the original lease agreement, the City Council approved creation of the Cubberley Infrastructure Improvements Fund supported by an annual $1.9 million transfer from the General Fund, which is classified as an Operating Transfer-Out and discussed in further detail in that section of this report below. Rents and Leases The Rents and Leases expense category for FY 2026 is estimated to increase from the FY 2025 Adopted Budget level by approximately 2.7% to $1.45 million. This is based on current lease terms that include previously negotiated lease increases This category includes the lease agreement for Development Services staff at locations outside City Hall (285 Hamilton and 526 6 City Council, September 27,2021; Agenda Item #10; CMR 13595: https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/agendas-minutes/city-council- agendas-minutes/2021/09-september/20210927/210927accsm-amended-final.pdf Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 46 Packet Pg. 174 of 227 Bryant) as well as lease with Stanford for El Camino Park. A new lease agreement was executed in December 2020 for the Development Services office location at 526 Bryant Street, limiting the space to the basement level (CMR 11426 7). The lease was amended in September 2022 to extend the term initially for 12 months with the right to automatically extend for four successive 12- month periods, potentially through January 31, 2028 (CMR 14713). In June 2021, the City entered into a seventh amendment for the Development Services office lease at 285 Hamilton Avenue to extend the term from February 2022 to January 2025 (CMR 12334 8). As expenses for rent for Development Services are adjusted, a corresponding revenue adjustment will be made to ensure Development Services maintains cost recovery levels. Facilities and Equipment Along with funding for various equipment needs across departments, this budget category includes subscription payments for equipment like public safety radios. The Facilities and Equipment expense category is expected to decrease from the FY 2025 Adopted level of $656,000 to $536,000 due to the elimination of one-time funding to replace fire equipment budgeted in FY 2025. It is expected that the estimated CPI increases will be substituted with department base budget requests to adjust funding for equipment needs as part of the FY 2026 budget process. Allocated Charges Allocated Charges represent expense allocations by the City’s Enterprise and Internal Service Funds for services and products they provide to other departments. The FY 2025 Adopted Budget for the General Fund included $26.9 million for these expenses, including utilities usage, general liability insurance, technology costs, vehicle equipment maintenance and replacement costs, and other charges for services provided by other City departments and funds. The FY 2026 allocated charges in the LRFF update the revenues and expenses for these various allocations based on the information available at the time of the LRFF development. FY 2025 is anticipated to experience an increase of 14.0% to a total of $30.7 million. This increase is primarily due to anticipated higher costs associated with technology services and utilities for City facilities such as water, electricity, and gas. Operating Transfers Out Operating Transfers Out include transfers from the General Fund to Debt Service Funds, the Technology Fund, and various other funds but excludes transfers to the Capital Improvement Fund, which are detailed in the following Transfer to Infrastructure section. The FY 2025 Adopted Budget included Operating Transfers Out of $6.3 million. In FY 2026, Operating Transfers Out are anticipated to increase to $6.4 million due to increases in the technology surcharge transferred to the Technology Fund to cover the General Fund’s portion of new technology costs. Consistent with the FY 2025 Adopted Budget, a total of $2.0 million across the University Avenue, California 7 City Council, December 14, 2020; Agenda Item #5; CMR 11426, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2020-2/id-11426.pdf?t=59979.32 8 City Council, June 21, 2021; Agenda Item #15; CMR 12334, https://www.cityofpaloalto.org/files/assets/public/agendas-minutes-reports/reports/city-manager-reports- cmrs/2021/id-12334.pdf Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 47 Packet Pg. 175 of 227 Avenue, and Residential Permit Parking Funds is factored into this LRFF. Staff will continue evaluating these funds as part of the FY 2026 budget development and will bring forward recommendations as needed to keep the parking permit funds solvent. Transfer to Infrastructure Recovery from the COVID-19 pandemic is reflected in improved revenue levels in the FY 2025 budget compared to the FY 2024 budget. The total General Fund transfer to the Capital Improvement Fund budgeted in FY 2025 is $30.2 million compared to the $24.7 million transferred in FY 2024. This is comprised of a $14.5 million base transfer, interest earnings of $2.0 million, and $13.7 million from TOT revenue generated through voter-approved rate increases and new hotels that is dedicated to the Capital Improvement Fund to support the 2014 Council Infrastructure Plan, consistent with City Council direction. Estimated transfers from TOT revenues in FY 2026 are currently projected to increase to $14.2 million and the base transfer to increase to $17.2 million, along with estimated interest earnings of $2.0 million, for a total $33.4 million transfer to the Capital Improvement Fund. This forecast continues the goal established as part of the 2022-2026 Capital Improvement Plan (CIP) to restore the base portion of this transfer to pre- pandemic levels by FY 2026. This budget category also includes the separate $1.9 million transfer to the Cubberley Property Infrastructure Fund. This transfer to the Cubberley Property Infrastructure Fund supports facility systems maintenance needs at the Cubberley Community Center facility as well as capital improvement projects to maintain and upkeep the facility. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 48 Packet Pg. 176 of 227 ATTACHMENT E Assumptions Not Included in Forecast It should be noted that this forecast does not include several potential impacts to the FY 2026- 2035 LRFF that are outlined below. These items are known projects or areas of investment that are priorities but have not been fully developed in terms of costs and timelines. This is not intended to be a comprehensive list nor in any priority order. Project Homekey: Homekey Palo Alto is a modular interim housing shelter for unhoused individuals and families codeveloped by the City of Palo Alto and LifeMoves. This LRFF includes the City’s committed investment of $7.0 million in operating expenses ($1.0 million annually for seven years) to fund Homekey Palo Alto. The City’s costs for this project could fluctuate throughout the ten-year period, but some of those costs could be funded by business tax revenue for affordable housing and homeless services that has not been fully allocated. Upon the completion of the 7 years, ongoing funding remains to be determined. Housing Growth Impacts: On August 20, 2024, the City’s FY 2023-31 Housing Element1 was certified, outlining the condition of the City’s current housing and future needs of its residents through citywide housing goals, objectives, and policies. The City is required to ensure adequate planning for its “fair share” of affordable and market rate housing, and must demonstrate a strategy for removing barriers to increase housing production and counter well-documented housing shortage. The City’s housing target for the eight-year planning period (January 31, 2023 to January 31, 2031) is defined by its RHNA allocation which assigns an additional 6,086 total units into four income categories. The financial implications of this housing growth would increase costs for land acquisition, planning and design, and construction, with offset by new revenues such as sales tax and other economic benefits derived from more affordable housing. The Housing Element2 and the associated Environmental Impact Report (EIR)3 provide more detail; however, such financial impacts, especially to the General Fund, have yet to be determined and incorporated into the LRFF. Geng Road Safe Parking Program: The Geng Road program began in early 2021 as a place for households dwelling in their vehicles to park their vehicles in a designated off-street parking lot. The City launched the program in partnership with Santa Clara County to offer recreational vehicle (RV) dwellers a safe place to park, case management, and assistance with finding permanent homes. On August 19, 2024, City Council approved the site expansion at 2000 Geng 1 City of Palo Alto FY 2023-31 Housing Element, https://paloaltohousingelement.com/wp- content/uploads/2024/08/Palo-Alto-Housing-Element.pdf 2 City of Palo Alto FY 2023-31 Housing Element, https://paloaltohousingelement.com/wp- content/uploads/2024/08/Palo-Alto-Housing-Element.pdf 3 Addendum to the 2030 Comprehensive Plan Environmental Impact Report, https://files.ceqanet.opr.ca.gov/80033-5/attachment/XqcKmj04NCYoJsEb- _sTj8ondOwUj0KbDwiMk56gQ1DCexjgecgNZzQ5LYmJyKBi2EBHmZ65ks5lb4s00 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 49 Packet Pg. 177 of 227 Road to increase the number of safe parking spaces by 10 (CMR 2407-3274 4). Staff is working to secure funding for this expansion through the California Department of Housing and Community Development’s (HCD) Permanent Local Housing Allocation Program (PLHA). Even if granted, PLHA funding is not expected to fully fund the expansion, and any balance of the costs may be funded by business tax revenue for affordable housing and homeless services that has not yet been fully allocated, or other sources as may be identified during the budget process. Sustainability and Climate Action Plan (S/CAP): In early 2020, the City launched an update of the Sustainability and Climate Action Plan (S/CAP) Framework to determine the goals and key actions needed to meet its sustainability goals, including the goal of reducing greenhouse gas (GHG) emissions to 80 percent below 1990 levels by 2030 (the “80x30” goal). Investments have been made across various City funds related to S/CAP including: a new Grid Modernization for Electrification capital project (EL-24000), realignment of staff to manage infrastructure improvement projects; scaling existing successful energy efficiency programs; performing and analyzing research in alternative energy sources, sustainable water supplies, carbon sequestration options; and increasing incentives for voluntary electrification programs. The S/CAP Three-Year Work Plan for 2023–2025, approved by Council in Spring 2023, provided a roadmap for these efforts, and the City has accounted for known capital projects and programmatic needs in its forecasts. However, there are uncertainties related to external factors that could impact the scope and scale of work needed to achieve the City’s long-term sustainability goals. These unknowns are not fully reflected in this forecast. Significant Code and Ordinance Updates: Updates to several significant programs, codes and ordinances are expected to be necessary in the near future. Some of these updates include: Seismic Inventory Ordinance and Program Development, Historic Building Survey and Ordinance Development, Zoning Code Updates, and the development of the 2040 Comprehensive Plan, the successor plan to the 2030 Comprehensive Plan. While some costs associated with zoning code updates and the preparation of the 2040 Comprehensive Plan were included in the forecast, additional resources may be required depending on future Council direction and the extent and pace of implementation efforts. Fee and Organizational Studies: The Planning and Development Services (PDS) Department is in the process of finalizing a fee study which is tentatively scheduled for Finance Committee in February 2025. At the same time, the City is conducting a Citywide Municipal Fee Study and Cost Allocation Plan, with plans to implement its recommendations in FY 2026. Periodically completing fee studies with an outside consultant is a best practice to ensure the City’s fees align with its cost recovery policies. Recently the Park, Community Center, and Library Development Impact Fees for residential development were converted from a per dwelling unit basis to a per square foot basis, aligning with AB 602 requirements for a more equitable distribution of fees based on 4 City Council, August 19, 2024; Agenda Item #10; Staff Report #2407-3274, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82980 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 50 Packet Pg. 178 of 227 development size. Additional impact fee modifications are anticipated, with a staff report providing further details expected in Spring. Labor Negotiations: As of the timing of this report, all labor agreements for full-time employees are scheduled to expire by June 2025 except for the Service Employees International Union (SEIU) agreement, which expires January 2025. Consistent with Council direction in previous LRFF’s, a general 2% assumption is included for all employees starting in either January or July 2025 for all years of the forecast since no MOA’s would be in effect at that time; this is not as a commitment to future negotiations and is for forecasting purposes. Additionally, this forecast includes a level of reserve for potential changes in employee compensation in future agreements for competitive wages and other terms of employment. Actual funding needs may differ, depending on outcomes of future labor negotiations. Additional information on salary and benefit assumptions and reserves for future agreements is included in Attachment D. Grade Separation: The grade separation project consists of four at-grade crossings along the Caltrain corridor in the City of Palo Alto located at Palo Alto Avenue, Churchill Avenue, Meadow Drive, and Charleston Road. As part of the FY 2024 Capital budget, the Council approved two capital projects to separate them, specifying the funding sources and costs associated with Churchill Avenue (PL-24001) and Meadow Drive and Charleston Road (PL-24000) which are being designed together. The Palo Alto Avenue project is currently on hold. In June 2024, City Council authorized staff to advance the project into Preliminary Engineering and Environmental Documentation (PE&ED) Phase (CMR 2404-2861 5) for the three crossings at Churchill Avenue Meadow drive, and Charleston Road. The phase will lead to the development of 35% plans, renderings, and cost estimates as well as completion of CEQA and NEPA documentation to obtain necessary environmental clearances. Currently, staff is working on developing a three-party cooperative agreement between the City, Valley Transportation Authority (VTA) and the Peninsula Corridor Joints Power Board (PCJPB) or also known as Caltrain to allocate $14.0 million from Santa Clara County 2016 Measure B Caltrain Grade Separation funding toward PE&ED phase. The 2016 Measure B program tax revenue amounts to a total of $700 million in 2017 dollars for all at-grade crossings in Santa Clara County, and the City anticipates an allocation of 50% of this funding. The VTA is currently programming these funds in two-year increments. As Grade Separation 2016 Measure B funding requires matching local funds as a result, additional funding sources will need to be identified to perform this work in upcoming years (FY 2025-FY 2033). Additional resources will need to be explored to plan and fund these grade separations, including City staff pursuing additional funding through grant opportunities as they become available and other financing mechanisms. 5 City Council, June 17, 2024; Staff Report #2404-2861, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82900 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 51 Packet Pg. 179 of 227 Parks Master Plan: The Parks, Trails, Natural Open Space and Recreation Master Plan 6 was adopted in 2017; and presents a long-term vision for the system. Potential funding mechanisms have been identified for several high-priority projects and programs, however, a strategy to fund implementation of the entire plan has not been completed. As such, this forecast does not yet contemplate the necessary investments to fully execute this plan. City-owned Assets Operated by Non-profit Organizations: This Forecast does not include any additional capital or operating investments for the Avenidas Senior Center, the Ventura Childcare Center, nor the Sea Scout Building. As costs around potential capital or operating investments for these assets solidify, staff will return to City Council to address them as appropriate. The Roth Building Rehabilitation Phase 1 capital project (PF-23001) is proceeding under a funding strategy outlined in the Tenant Work Letter and included in the LRFF; however, if costs for rehabilitating the facility further increase, additional sources of funding would need to be identified. Additionally, the City’s newly approved community center at 445 Bryant Street will operate with part-time use by La Comida for a senior nutrition program, alongside potential programming and shared uses coordinated by the Community Services Department. While La Comida’s rental terms are being defined, future revenue opportunities from shared programming or facility rentals remain uncertain. Cubberley Community Center Redevelopment: On October 7, 2024, the City Council (CMR 2409- 3500 7) approved the MOU with PAUSD for Cubberley Site purchase and lease. The LRFF includes the revised lease financial terms and maintains the Real Estate Investment Reserve of $1 million annually which will fund the critical professional service contracts (i.e. master plan, community outreach, polling, etc.) in the next 24 months, and also serve as a placeholder for future real estate investment appropriations. However, the LRFF does not reflect any General Obligation bond cashflow as that is yet to be determined and hopefully will have an insignificant net impact on the General Fund. The LRFF does not factor in other costs such as future Cubberley operating costs and/or repairs, as these fiscal impacts will be informed in the upcoming 24 months with the development of the proposed operational and financial models. Loans for Special Projects: From time to time the City’s General Fund will assist other City operations with modest cash flow loans to bridge fiscal years. For example, the City provided over $3 million in loans to the Airport Fund as it worked to secure significant grant funding from the Federal Aviation Administration (FAA) for capital improvement costs. As of FY 2020, the Airport Fund began paying back the loan to the General Fund. Additions and other initiatives funded in other funds may need financial support from the General Fund to ensure they are fully implemented. In FY 2023 the Residential Preferential Parking (RPP) Fund received a $0.4 million General Fund loan to remain solvent while continuing operations, given the sustained drop in parking demand during the pandemic. A similar loan for $50,000 to the Residential Preferential 6The Parks, Trails, Natural Open Space and Recreation Master Plan, 2017; https://www.cityofpaloalto.org/files/assets/public/public-works/palo-alto-parks-master-plan.pdf 7 City Council, October 7, 2024; Agenda Item #AA1; Staff Report #2409-3500, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=83032 Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 52 Packet Pg. 180 of 227 Parking (RPP) Fund and $450,000 to the California Avenue Parking Fund were approved as part of the FY 2024 budget. As parking continues to be impacted by effects from the Covid-19 pandemic and remote/hybrid work, additional loans from the General Fund of $2.0 million annually to the parking funds are assumed in this forecast. This LRFF also assumes repayment revenue to the General Fund from previous parking loans including $0.4 million (RPP) in FY 2033, $500,000 (RPP and California Avenue Parking Fund) in FY 2034, and $2.0 million (RPP, California Avenue Parking Fund, and University Avenue Parking Fund) in FY 2035. Staff will continue to review costs in the parking funds and revise funding needs and evaluate support as a loan or subsidy from the General Fund as part of the development of the FY 2026 budget. Legislative Updates: Various actions at the state and federal level that could impact the City of Palo Alto have not been incorporated into this forecast due to the changing context and uncertainty of the quantitative impacts of potential legislative changes. As the potential impacts of various legislative initiatives are clarified, appropriate adjustments will be identified and brought forward as part of future budget development cycles. Aging or Noncompliant Infrastructure: The City maintains indoor and outdoor facilities, many of which have been identified in the City’s ADA transition plan and by the Infrastructure Blue Ribbon Commission as requiring capital project work to bring them up to full ADA compliance and/or sufficient conditions. Facilities of concern include Cubberley Community Center, Foothills Park Restrooms, and Lucie Stern Community Theatre restrooms. Staff continues the program work needed in this area as part of the Americans with Disabilities Act Compliance capital project (PF- 93009); however, the entire scope of work needed in this area exceeds current resources. General Liability Umbrella Excess Premiums: The City’s General Liability Program provides funding to cover various insurance policies for City-owned equipment and machinery. The City is self- insured for the first $1.0 million in losses per occurrence and participates in a Joint Powers Authority for coverage up to $55 million per occurrence. These expenses are allocated to citywide departments. General Liability Umbrella Excess Premiums are anticipated to increase in future years due to significant national events and natural disasters such as claim costs for Hurricane Ian. Staff will bring forward adjustments for these costs as part of future budget cycles as they become available. Fire and Ambulance Service Expansion: On November 19, 2024, the Finance Committee reviewed and discussed fire and ambulance service expansion options (CMR 2406-3310). Staff continues to analyze these services, and any funding, appropriation and labor negotiation will be guided by future City Council direction, and as such not incorporated into the LRFF at this time. Fire Training Center: As part of the FY 2023 Adopted Capital Budget the City Council approved the Fire Training Facility Replacement capital project (FD-24000) to identify an appropriate site and construct a new fire training facility in Palo Alto. Funding was only appropriated for the feasibility study portion of the project in FY 2024, and additional resources will need to be appropriated in future budget cycles based on the results of the study. In addition, the Fire Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 53 Packet Pg. 181 of 227 Department is also evaluating opportunities to partner with other local jurisdictions for training needs, instead of building a permanent facility in Palo Alto. Staff from Public Works and Fire Departments are working on a scope of work to study the facility needs and potential locations for the center and plan on engaging a consultant in early 2025. Limited Term Programs: There are several programs currently in progress that are funded on a limited term basis per Council approval. If these programs are recommended to continue through the ten-year forecast period additional resources would be needed. • The Psychiatric Emergency Response Team (PERT) program in the Police Department pairs a police officer in plain clothes and a mental health clinician to respond to calls for mental health emergencies. In FY 2024, PERT funds were unspent due to the inability to source and supply a clinician. The funds were returned to the Stanford University Medical Center (SUMC) Fund and recommended to be used in the future to support the PERT program when the County can provide a clinician. The PERT program is recommended to be supported with SUMC funding through FY 2028. • PA Link, the on-demand transit service, is continuing its pilot program with grant funding from the Transportation Fund for Clean Air (TFCA) and contributions from the Stanford Research Project (SRP) in conjunction with CIty funding in FY 2025. Staff is looking for new funding sources including grant funding and potential strategic partnerships with companies. With the continuation of the SRP cost sharing agreement and current fare structure in FY 2026, it is estimated that an additional $0.4 million in funding is required to fully fund the program in FY 2026. Vehicle Fleet Electrification: Currently the City’s policy is to consider electric vehicles and then other alternative fuel vehicles when replacing existing vehicles. Transitioning the vehicle fleet to full Electric Vehicles (EVs) is part of the City’s sustainability goals. It has been estimated that at least $6.0 million across all funds will be needed annually ($2.4 million above the FY 2025 budget) in order to replace all City vehicles with EVs. Green Storm Infrastructure (GSI) Maintenance: The City is subject to the requirements of the Municipal Regional Stormwater National Pollutant Discharge Elimination System Permit in the San Francisco Bay Area (Order R2-2015-0049,) also known as the Municipal Regional Permit (MRP). The MRP applies to 79 municipalities and flood control agencies that discharge stormwater into the San Francisco Bay. MRP Provision C.3 requires “Regulated Projects,” defined as new development and redevelopment projects that exceed certain impervious surface size thresholds, to mitigate stormwater quality impacts by incorporating site design, pollution control measures, and stormwater treatment measures--typically known as green stormwater infrastructure (GSI). Section C.3.j.ii.(2) also requires that the City, by June 30, 2027, construct GSI that treats 3.92 acres of impervious surface (based on a required ratio of 3 acres/50,000 residents). Moreover, the City is required to integrate GSI into Capital Improvement Program projects when possible. Consequently, the City expects to have significantly more GSI and associated maintenance in the coming years, the cost of which is still being quantified. Attachment I Item 12 Attachment I - FY 2026- 2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 54 Packet Pg. 182 of 227 DECEMBER 3, 2024 www.cityofpaloalto.org FY 2026 – FY 2035LONG RANGE FINANCIAL FORECAST Finance Committee Item #2 Attachment IItem 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 55 Packet Pg. 183 of 227 2 OVERVIEW •Forecast the economy remains weak in 2025, returning to growth trend in 2026 o Stagnation, uncertainty and potential volatility at Federal level •Expense projections based on current approved service levels o Maintain funding for long-term liabilities and 18.5% BSR •LRFF is fairly consistent with FY 2025 Adopted Budget o Multi-year budget balancing strategy o One-time funding continues to be used for near-term fiscal stability o Continued strategic planning and fiscal discipline Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 56 Packet Pg. 184 of 227 3 Fiscal Year 2026 - 2035 Base Case Forecast •FY 2026 projected shortfall of $12.0 million, previously anticipated at $11.0 million •Uncertainty Reserve of a recommended $12M offsets projected FY 2026 shortfall •Annual Shortfall in FY 2027-2029 range from $7.9M to 5.6M •Budgeted revenues projected to support expenditures starting in FY 2030 Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 57 Packet Pg. 185 of 227 4 Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 58 Packet Pg. 186 of 227 3 BSR and Recommended FY24 Surplus Allocation 5 POLICY & STRATEGY: •Maintaining FY 2025 BSR at 18.5% target level •Multi-year strategy to balance anticipated shortfalls RECOMMENDATION: •$3.0M to Infrastructure Reserve and $5.9M to Budget Uncertainty Reserve APPROPRIATION ACTION: •FY 2025 Mid-Year Review (February 2025) Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 59 Packet Pg. 187 of 227 6 ALT SCENARIO A: ECONOMICALLY SENSITIVE REVENUE IN FY26 •Models the impact of a 1% loss in economically sensitive revenue categories starting in FY 2026 •Major Taxes, Charges for Services, and Permits and Licenses •Revenues decrease by $2.3M in FY 2026 and increase projected shortfalls •Gap of $14.3M in FY 2026 •Gaps of $10.2M to $0.8M in FY 2027 – FY 2030 Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 60 Packet Pg. 188 of 227 7 •Models the impact of a 1% compensation adjustment once negotiated agreements sunset •Maintains 5% Vacancy Factor •Increases reserve for potential changes to future labor costs and benefit rate variability •Expenses increase by $1.1M in FY 2026 and increase projected shortfalls •Gap of $13.1M in FY 2026 •Gaps of $9.0M to $6.8M in FY 2027 – FY 2029 ALT SCENARIO B: COMPENSATION ADJUSTMENT IN FY26 Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 61 Packet Pg. 189 of 227 7 FY 2026 BUDGET DEVELOPMENT GUIDELINES (Attachment A) •Develop a structurally balanced budget to maintain fiscal sustainability •Examine appropriate use of surpluses •Review resource allocation for City Council’s identified priorities •Focus on business process redesign and explore alternative service delivery models •Explore expansion of existing revenue sources or the addition of new revenue sources •Continue to prioritize proactively funding long term liabilities 8 Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 62 Packet Pg. 190 of 227 9 ASSUMPTIONS NOT INCLUDED IN FORECAST (Attachment E) List is not comprehensive nor in any priority order •Labor Negotiations (contracts expire in Jan/Jun 2025); LRFF includes an estimated reserve for changes in vacancy rates, labor and benefit variability, and inflation •Housing Growth Impacts •Cubberley Community Center Redevelopment •Fire and Ambulance Service Expansion •Parks Master Plan •Railroad Grade Separation •Vehicle Fleet Electrification Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 63 Packet Pg. 191 of 227 7 Next Steps Annual Budget Process •Jan 2025: Council review LRFF •Feb 2025: FY 2025 Mid-Year Budget •May 2025: FY 2026 Proposed Budget CONCLUSION AND NEXT STEPS 10 •2026-2035 LRFF is fairly consistent with FY 2025 Adopted Budget •Economic stagnation and potential volatility •Focus on investing in key areas of priority or urgent needs •Uncertainty Reserve and one-time surpluses are critical to manage the near-term fiscal stability and investments in priority initiatives •Strategic planning and fiscal discipline needed to solve estimated shortfalls in subsequent years of the forecast •Policy planning tool that informs the budget process. Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 64 Packet Pg. 192 of 227 11 RECOMMENDED ACTION Staff recommends that the Finance Committee: Review and recommend that the City Council accept the Fiscal Year 2026 – 2035 Long Range Financial Forecast Base Case and the FY 2026 Budget Development Guidelines (Attachment A). Direct staff to use this forecast as a starting point for the FY 2026 budget process. Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 65 Packet Pg. 193 of 227 Paul Harper Budget Manager Paul.Harper@CityofPaloAlto.org Kitty Dandan Budget Manager Kitty.Dandan@CityofPaloAlto.org Attachment I Item 12 Attachment I - FY 2026-2035 Long Range Financial Forecast (LRFF), CMR 2405-3068 Item 12: Staff Report Pg. 66 Packet Pg. 194 of 227 City Council Staff Report From: City Manager Report Type: INFORMATION REPORTS Lead Department: Planning and Development Services Meeting Date: January 13, 2025 Report #:2411-3781 TITLE Accessory Dwelling Unit (ADU) - 2024 Quarter 3 (July - September 2024) Report RECOMMENDATION This is an informational report, and no action is required. ANALYSIS This report transmits information related to application activity for accessory dwelling units (ADU), including junior accessory dwelling units (JADU) for quarters 1 through 3 of calendar year 2024. Since 2015, the City has received 772 ADU/JADU building permit applications and issued 642 building permits. In quarters 1 through 3 of 2024, the City received 108 new applications, issued 92 ADU permits, and provided an approved Final Inspection on 75 ADU/JADU permits. As it relates to the Housing Element, the data continues to support the anticipated housing unit production expected from ADU/JADUs for the current housing element cycle, which is an average of 64 units per year over the 8-year planning period or a total of 512 units. In the first 3 quarters of 2024, the ADU sizes of open applications in this period range from 165 to 1,000 square feet, with an average size of 559 square feet. Approximately 45% of applications are located north of Oregon Expressway, and 55% are located south of Oregon Expressway. Since 2017, the majority of ADU/JADU permits relative to the Oregon Expressway has shifted between north and south from year to year. Further details can be found in Table 1 of Attachment A. FISCAL/RESOURCE IMPACT This action has no fiscal impact. ATTACHMENTS Attachment A: Table 1 - Q3 2024 ADU Data APPROVED BY: Jonathan Lait, Planning and Development Services Director Item 13 Item 13 Staff Report Item 13: Staff Report Pg. 1 Packet Pg. 195 of 227 Table 1: Summary of ADU Permits from 2015-2024 (Q1-Q3) Category 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (Q1-Q3) New ADU Applications Filed1 10 9 28 55 75 78 136 151 122 108 (City Approved)2 8 5 12 39 62 46 112 127 135 96 Obtained)3 8 5 12 36 62 43 89 120 125 92 Approved4 3 4 9 12 33 46 37 62 101 75 (Submitted)5 20 35 52 52 80 80 48 45 (Submitted)6 8 20 23 20 56 44 43 40 Junior ADUs (Submitted)7 1 1 1 25 27 31 23 Item 13 Attachment A - Table 1 - Q3 2024 ADU Data Item 13: Staff Report Pg. 2 Packet Pg. 196 of 227 Category 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (Q1-Q3) Average Application Processing Time (Days Including Weekends)8 127 214 118 183 135 197 162 193 187 192 Time (Days Including Weekends)9 578 751 330 287 173 262 455 431 496 505 Collected for New ADUs10 $451,514 $402,012 $198,962 $44,057 $139,592 $540,453 $487,322 $389,253 ADU Location Relative to Oregon Expressway North 46% 49% 52% 55% 49% 52% 41% 45% South 54% 51% 48% 45% 51% 48% 59% 55% Source: City of Palo Alto Accela Data January 2015 through October 2024 Item 13 Attachment A - Table 1 - Q3 2024 ADU Data Item 13: Staff Report Pg. 3 Packet Pg. 197 of 227 Notes: 1. Any ADU/JADU Application SUBMITTED for the year 2. Any ADU/JADU application Permit 'READY TO Issue' for the year (regardless of when it was submitted) 3. Any ADU/JADU Permit ISSUED for the year (regardless of when it was submitted) 4. Any ADU/JADU Permit receiving a Final Inspection (Ready to Occupy) for the year, regardless of when the application wassubmitted. Years 2015-2017 data point not available. submitted. Years 2015-2016 data point not available. submitted. Years 2015-2016 data point not available. 2016 data point not available. application is pending due to applicant preparation of resubmittal or additional information from applicant. schedule the next required inspection; it also includes time related to the construction of a primary residence when the J/ADU is built at the same time. Item 13 Attachment A - Table 1 - Q3 2024 ADU Data Item 13: Staff Report Pg. 4 Packet Pg. 198 of 227 ADU/JADU Permits Submitted for CY 2024 (Q1) New Construction Conversion Type of Conversion # of Dwelling Project Zoning Other Acc. Structure # of Item 13 Attachment A - Table 1 - Q3 2024 ADU Data Item 13: Staff Report Pg. 5 Packet Pg. 199 of 227 # of Dwelling Project Zoning Other Acc. Structure # of # of Dwelling Project Zoning Structure # of Item 13 Attachment A - Table 1 - Q3 2024 ADU Data Item 13: Staff Report Pg. 6 Packet Pg. 200 of 227 # of Dwelling Project Zoning Date Other Acc. Structure # of # of Dwelling Project Zoning Structure # of Item 13 Attachment A - Table 1 - Q3 2024 ADU Data Item 13: Staff Report Pg. 7 Packet Pg. 201 of 227 # of Dwelling Project Zoning Date Structure # of Item 13 Attachment A - Table 1 - Q3 2024 ADU Data Item 13: Staff Report Pg. 8 Packet Pg. 202 of 227 City Council Staff Report From: City Manager Report Type: INFORMATION REPORTS Lead Department: City Manager Meeting Date: January 13, 2025 Report #:2410-3572 TITLE Update on Palo Alto Homekey (Interim Housing Shelter at 1237 San Antonio Road) RECOMMENDATION This is an informational report as a status update on the Palo Alto Homekey project. No Council action is requested. BACKGROUND Project Homekey is an initiative of the California Department of Housing and Community Development (HCD) that supports eligible entities, including local governments, in forming partnerships with the State to purchase, renovate, or lease diverse housing options. These developments offer temporary or permanent homes for individuals facing homelessness and those vulnerable to health issues. To expedite housing solutions, Project Homekey offers numerous regulatory waivers and enforces strict timelines. In 2021, the City partnered with LifeMoves to apply for Homekey funding for a modular interim housing facility that includes on-site support services and was awarded the funds in August 2022. In November 2022, the City and LifeMoves reassessed the project’s scope due to sharp cost increases driven by economic instability, high inflation, and supply chain disruptions. LifeMoves engaged a new construction firm, Devcon, in December 2022. Although the change led to identified cost savings, it also impacted the construction timeline as the team revised project plans. Proposed savings included adjustments such as relocating the fire loop road, creating separate entrances for GreenWaste and the Palo Alto Homekey site, and repositioning buildings away from San Antonio Road to avoid interference with an existing gas line. On June 12, 2023, City Council approved a lease agreement with LifeMoves for use of 1237 San Antonio Road for a term of nine years and approved a revenue agreement with Santa Clara County to enable the County to execute an operating agreement with LifeMoves for interim Item 14 Item 14 Staff Report Item 14: Staff Report Pg. 1 Packet Pg. 203 of 227 housing operations.1 Additionally, Council approved $4.5 million in the City’s annual budget for the project, consisting of $2 million to help close the project’s capital funding gap, $500,000 to cover City permit fees, and $2 million to reinstate certain project elements removed as cost savings (decorative fencing, shade sails, photovoltaic system, electric vehicle charging, and storage/trash enclosure fire sprinklers). Later that summer, in August 2023, Council approved an extraterritorial utility service agreement with the City of Mountain View to connect the Homekey project to City of Mountain View water and sewer utility services.2 ANALYSIS Table 1 Palo Alto Homekey Project Recent Milestones Date Milestone 3 4 5 1 City Council Staff Report, June 12, 2023 https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=2481&meetingTemplateType=2 2 City Council Staff Report, August 21, 2023 https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=2894&meetingTemplateType=2 3 City of Palo Alto Press Release, October 31, 2023 News Release: Officials Break Ground on Homekey Palo Alto – City of Palo Alto, CA 4 See Attachment B: Good Neighbor Agreement. 5 Council Report, June 22, 2024, https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=5122&meetingTemplateType=2&comp iledMeetingDocumentId=10522 Item 14 Item 14 Staff Report Item 14: Staff Report Pg. 2 Packet Pg. 204 of 227 By early October 2024, the construction team had completed installing underground utilities, pouring the building pads, installing the elevator, framing the community building, and delivering three modular housing units. However, there have been significant delays relating to modular production. These delays, as detailed in the memo from LifeMoves included as Attachment A, have been mitigated as much as feasible by focusing on sitework and changing construction activity sequencing (e.g., installing light posts). The initial anticipated date to set the modulars was November, but as of mid-December, 45 modules, approximately 2/3 of the total units had arrived in California. These units require additional mechanical component installation and exterior finishing once delivered in California. Once all units have arrived, been finished and set, the construction team will provide a recovery schedule. Upon receipt of the recovery schedule, staff will inform Council of overall schedule impacts. Should the recovery schedule be insufficient to meet the required HCD deadlines, the City, Santa Clara County, and LifeMoves will request an extension with HCD. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS Item 14 Item 14 Staff Report Item 14: Staff Report Pg. 3 Packet Pg. 205 of 227 APPROVED BY: Item 14 Item 14 Staff Report Item 14: Staff Report Pg. 4 Packet Pg. 206 of 227 2550 Great America Way, Suite 201 Santa Clara, CA 95054 650.685.5880 www.lifemoves.org Board of Directors Melissa Selcher CHAIR Lori Castillo Martinez 1st VICE CHAIR Lauren Koenig 2nd VICE CHAIR Greg Eckert TREASURER Pamela Weiss SECRETARY Sheriff Christina Corpus Ahmed Khatib May Topper Danielle Fontaine Laura Green Ajwang Rading Carrie O. Plietz Tammy Crown Leslie Little Chair Emeritus Circle Patrick Heron Rod Ferguson Marcia Pade Christina Dickerson William “Bill” Regan Joe Stockwell CEO Aubrey Merriman LifeMoves 2550 Great America Parkway, Suite 201 Santa Clara, CA 95054 December 18, 2024 Palo Alto City Council 250 Hamilton Ave Palo Alto, CA 94301 RE: Palo Alto Homekey Schedule Update Dear City Council Members, Progress has continued both onsite and offsite for the Palo Alto Homekey Project. Since our last update, we have completed the following items: ü Completed fabrication of the modular units in Berwick, PA ü Completed all site work that is feasible prior to setting modules ü Connected to Palo Alto Electric with permanent power anticipated any day ü Finished the exteriors for the community building and elevator shaft ü Delivered most modular units to a staging yard, with all units anticipated to be delivered by end of December o Modules at staging yard: 45 o Modules in transit from PA: 21 o Modules in PA ready to ship: 1 This project has encountered and successfully navigated a series of unique challenges inherent to modular construction. Our modular manufacturing supplier, VBC, made the strategic decision to shift production from their anticipated Tracy, California facility to their main factory in Berwick, Pennsylvania. While this move ultimately ensured the highest quality housing units by leveraging VBC's experienced workforce and established production lines, it did necessitate adjustments to our initial timeline. Despite a slower-than-anticipated start, production steadily increased as the factory crews gained familiarity with the intricacies of our specific modules. We are pleased to report that production is now 100% complete. VBC has attributed the initial production delay to the integration of cast iron plumbing, a unique requirement for our project not standard in East Coast construction, and the ongoing challenges of filling all vacant positions within their factory. Currently, 21 modules are en route to staging yard, facing the potential delays of winter weather conditions. We are closely monitoring their transit and projecting their arrival at the staging yard before the end of the year. Upcoming phases of construction, particularly siding, roofing, and the crucial setting of the modules, are weather dependent. Significant rain or wind could impact the overall schedule in the coming months. However, once the modules are set, interior finish work can Item 14 Attachment A - Schedule Update Memo Item 14: Staff Report Pg. 5 Packet Pg. 207 of 227 2550 Great America Way, Suite 201 Santa Clara, CA 95054 650.685.5880 www.lifemoves.org Board of Directors Melissa Selcher CHAIR Lori Castillo Martinez 1st VICE CHAIR Lauren Koenig 2nd VICE CHAIR Greg Eckert TREASURER Pamela Weiss SECRETARY Sheriff Christina Corpus Ahmed Khatib May Topper Danielle Fontaine Laura Green Ajwang Rading Carrie O. Plietz Tammy Crown Leslie Little Chair Emeritus Circle Patrick Heron Rod Ferguson Marcia Pade Christina Dickerson William “Bill” Regan Joe Stockwell CEO Aubrey Merriman proceed largely unaffected by winter weather. Proactively, we accelerated the paving of the site, which will help mitigate potential weather-related delays. Our dedicated team, in close collaboration with our general contractor, DevCon, remains committed to maximizing site work progress in preparation for the modules' arrival. This involves a modified sequencing of site elements to ensure efficient integration with the modules once they are set. Due to the factors outlined above, the projected completion date has been adjusted from January 2025 to June 2025, with initial occupancy expected to follow in July 2025. DevCon is diligently developing a comprehensive recovery schedule that explores all options to accelerate the project timeline. This schedule will be finalized and confirmed once the modules are successfully set. We remain steadfast in our commitment to delivering this project with the highest levels of quality and efficiency. We are confident that this development will be a source of pride for the community and will provide exceptional living spaces for our future clients. Regards Paul Simpson Chief Financial Officer Item 14 Attachment A - Schedule Update Memo Item 14: Staff Report Pg. 6 Packet Pg. 208 of 227 Main Project Site Staging Yard Item 14 Attachment A - Schedule Update Memo Item 14: Staff Report Pg. 7 Packet Pg. 209 of 227 Interior shots from production line in Berwick, PA Item 14 Attachment A - Schedule Update Memo Item 14: Staff Report Pg. 8 Packet Pg. 210 of 227 Item 14 Attachment A - Schedule Update Memo Item 14: Staff Report Pg. 9 Packet Pg. 211 of 227 Item 14 Attachment A - Schedule Update Memo Item 14: Staff Report Pg. 10 Packet Pg. 212 of 227 Good Neighbor Agreement LifeMoves Palo Alto LifeMoves and the City of Palo Alto ( “Developers”) are joint applicants coordinating the development and construction of a shelter at 1237 San Antonio Road, Palo Alto (“Project”). LifeMoves will be the Lead Service Provider (LSP) at the Project, serving households experiencing homelessness (“Clients”). Developers have conducted a Noise Study, prepared by Salter and dated May 12, 2023, and will implement the recommendations contained within the Noise Study. The Noise Study was developed to analyze the potential impacts associated with operations from GreenWaste of Palo Alto, LLC (“GreenWaste”), which is contracted by the City of Palo Alto to provide refuse services in the City. GreenWaste had no input into the Noise Study. Developers, LSP, and GreenWaste met on October 12, 2023, to discuss potential noise impacts and proactively address them. In order to facilitate a good neighbor relationship, this document formally acknowledges that Developers, LSP, and GreenWaste understand the following to be true: GreenWaste operations are expected to typically begin each morning at 3:00 AM and conclude by 5:00 PM. Normal operations include noise associated with trucks, including but not limited to backing up (i.e. “beeping”), and picking up/setting down large metal containers. Prior to intake, LSP will inform Clients of the anticipated noise impacts associated with living at the property. LSP will offer noise mitigation tools to Clients, which may include earplugs or white noise machines. GreenWaste will not exceed the noise levels permitted under the Palo Alto Municipal Code. GreenWaste will use electric vehicles at the site as often as possible if available and commercially reasonable to perform the work (electric vehicles are quieter than diesel operated vehicles). When commercially reasonable, GreenWaste will prioritize container pick up and drop off at the rear of the site, as far from the Project as possible under current operations. Both parties will be in communication with one another if circumstances change materially on either site. Contact information is provided for representatives below. In the event that contact information or designated contact person changes, all parties shall be notified and provided new contact information. Contact Information LSP: Andrew Niklaus Interim Chief Program Officer LifeMoves (650) 685-5880 aniklaus@lifemoves.org GreenWaste: Eric Cissna General Manager GreenWaste of Palo Alto, LLC (650) 798-5994 Eric.Cissna@greenwaste.com DocuSign Envelope ID: EDAD815E-0EB3-461A-BE1B-D47CC810D784 Item 14 Attachment B - Good Neighbor Agreement Item 14: Staff Report Pg. 11 Packet Pg. 213 of 227 We, signed below, have read and agree to the terms in this Good Neighbor Agreement. _________________________________ Eric Cissna General Manager GreenWaste of Palo Alto, LLC _________________________________ Andrew Niklaus Interim Chief Program Officer LifeMoves DocuSign Envelope ID: EDAD815E-0EB3-461A-BE1B-D47CC810D784 Item 14 Attachment B - Good Neighbor Agreement Item 14: Staff Report Pg. 12 Packet Pg. 214 of 227 City Council Staff Report Report Type: INFORMATION REPORTS Lead Department: City Clerk Meeting Date: January 13, 2025 Report #:2407-3293 TITLE Boards, Commissions, and Committees Annual Attendance Report; CEQA Status - Not a Project RECOMMENDATION This is an informational report, and no action is recommended. BACKGROUND The Boards, Commissions, and Committees (BCC) Handbook specifies that a compilation of attendance will be submitted to the City Clerk and presented to City Council at least annually listing absences for all commissions/committee members. ANALYSIS The Board, Commissions, and Committees (BCCs) plays a crucial role in fostering civic engagement within the community. Regular attendance by all members is essential to ensure meaningful public participation. The BCC Handbook requires a compilation of absences for all commissions/committee members be submitted to the City Council annually. The Handbook places an emphasis on the significance of consistent attendance and outlines the policies surrounding absences. Members are expected to make every effort to attend all scheduled meetings. Should a member be absent from more than one-third of the BCC meetings within a calendar year, their absences will be reported to the City Council, which could result in removal from the BCC. FISCAL/RESOURCE IMPACT There is no Fiscal/Resource Impact. STAKEHOLDER ENGAGEMENT Staff collaborated with the assigned administrative support to compile a comprehensive report detailing the attendance and absences of the members and commissioners. ENVIRONMENTAL REVIEW Item 15 Item 15 Staff Report Item 15: Staff Report Pg. 1 Packet Pg. 215 of 227 Council action on this item is not a project as defined by CEQA because it is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5). ATTACHMENTS APPROVED BY: Item 15 Item 15 Staff Report Item 15: Staff Report Pg. 2 Packet Pg. 216 of 227 BOARDS, COMMITTEE, & COMMISSIONS TOTAL ABSENCES 2024 Name Board, Committee, Commission Total Mousam Adcock Architectural Review Board Peter Baltay Architectural Review Board Yingxi Chen Architectural Review Board 1 David Hirsch Architectural Review Board Kendra Rosenberg Architectural Review Board 1 Alisa Eagleston-Cieslewicz Historic Resources Board 1 Gogo Heinrich Historic Resources Board 4 Michael Makinen Historic Resources Board 3 Christian Pease Historic Resources Board Samantha Rohman Historic Resources Board Gedes Ulinskas Historic Resources Board Caroline Willis Historic Resources Board Margaret Wimmer Historic Resources Board 3 Katie Causey Human Relations Commission 1 Donald Barr Human Relations Commission Adriana Eberle Human Relations Commission 1 Amy Hsieh Human Relations Commission 3 Michelle Kraus Human Relations Commission 1 Tracy Navichoque Human Relations Commission Daryl Savage Human Relations Commission 1 Kalona Smith Human Relations Commission 4 Mary Kate Stimmler Human Relations Commission 1 Amanda Brown Parks and Recreation Commission 2 Anne Warner Cribbs Parks and Recreation Commission Yudy Deng Parks and Recreation Commission Nellis Freeman Parks and Recreation Commission Item 15 Attachment A - Boards, Commissions, and Committees Total Absences for 2024 and 2023 Item 15: Staff Report Pg. 3 Packet Pg. 217 of 227 Jeff Greenfield Parks and Recreation Commission 2 Shani Kleinhaus Parks and Recreation Commission 1 Joy Oche Parks and Recreation Commission Bing Wei Parks and Recreation Commission 3 Allen Akin Planning and Transportation Commission Bryna Chang Planning and Transportation Commission Barton Hechtman Planning and Transportation Commission 1 George Lu Planning and Transportation Commission 1 Keith Reckdahl Planning and Transportation Commission 1 Doria Summa Planning and Transportation Commission Carolyn Templeton Planning and Transportation Commission 1 Loren Gordon Public Art Commission 1 Tara De La Garza Public Art Commission Ben Miyaji Public Art Commission 2 Hsinya Shen Public Art Commission Amber Smith Public Art Commission 1 Harriet Stern Public Art Commission 1 Lisa Waltuch Public Art Commission 2 Gregory Bennet Storm Water Management Oversight Committee David Bower Storm Water Management Oversight Committee 1 Marilyn Keller Storm Water Management Oversight Committee 1 Hal Mickelson Storm Water Management Oversight Committee Kevin Mayer Storm Water Management Oversight Committee Dena Mossar Storm Water Management Oversight Committee Ron Owes Storm Water Management Oversight Committee 1 Ambika Pajjuri Storm Water Management Oversight Committee Catherine Perman Storm Water Management Oversight Committee Bob Wenzlau Storm Water Management Oversight Committee 2 Rachel Croft Utilities Advisory Commission 1 Item 15 Attachment A - Boards, Commissions, and Committees Total Absences for 2024 and 2023 Item 15: Staff Report Pg. 4 Packet Pg. 218 of 227 Utsav Gupta Utilities Advisory Commission Meagan Mauter Utilities Advisory Commission 1 Phil Metz Utilities Advisory Commission 1 Robert Phillips Utilities Advisory Commission Greg Scharff Utilities Advisory Commission 2 Chris Tucher Utilities Advisory Commission BOARDS, COMMITTEE, & COMMISSIONS TOTAL ABSENCES 2023 Name Board, Committee, Commission Total Mousam Adcock Architectural Review Board Peter Baltay Architectural Review Board Yingxi Chen Architectural Review Board 1 David Hirsch Architectural Review Board Kendra Rosenberg Architectural Review Board Osma Thompson Architectural Review Board 3 Item 15 Attachment A - Boards, Commissions, and Committees Total Absences for 2024 and 2023 Item 15: Staff Report Pg. 5 Packet Pg. 219 of 227 David Bower Historic Resources Board Alisa Eagleston- Cieslewicz Historic Resources Board 1 Gogo Heinrich Historic Resources Board 3 Michael Makinen Historic Resources Board 4 Christian Pease Historic Resources Board 4 Samantha Rohman Historic Resources Board 1 Caroline Willis Historic Resources Board 1 Margaret Wimmer Historic Resources Board 1 Katie Causey Human Relations Commission 2 Adriana Eberle Human Relations Commission 1 Amy Hsieh Human Relations Commission 1 Michelle Kraus Human Relations Commission 1 Tracy Navichoque Human Relations Commission 1 Daryl Savage Human Relations Commission 1 Kalona Smith Human Relations Commission 3 Mary Kate Stimmler Human Relations Commission 3 Amanda Brown Parks and Recreation Commission Anne Warner Cribbs Parks and Recreation Commission Nellis Freeman Parks and Recreation Commission 1 Jeff Greenfield Parks and Recreation Commission 2 Shani Kleinhaus Parks and Recreation Commission Joy Oche Parks and Recreation Commission Bing Wei Parks and Recreation Commission 2 Allen Akin Planning and Transportation Commission Bryna Chang Planning and Transportation Commission 1 Barton Hechtman Planning and Transportation Commission 3 George Lu Planning and Transportation Commission 1 Giselle Roohparvar Planning and Transportation Commission 3 Keith Reckdahl Planning and Transportation Commission 6 Item 15 Attachment A - Boards, Commissions, and Committees Total Absences for 2024 and 2023 Item 15: Staff Report Pg. 6 Packet Pg. 220 of 227 Doria Summa Planning and Transportation Commission Carolyn Templeton Planning and Transportation Commission 2 Loren Gordon Public Art Commission 3 Ben Miyaji Public Art Commission Hsinya Shen Public Art Commission 1 Nia Taylor Public Art Commission 2 Lisa Waltuch Public Art Commission 1 David Bower Storm Water Management Oversight Committee 1 Marilyn Keller Storm Water Management Oversight Committee Kevin Mayer Storm Water Management Oversight Committee Dena Mossar Storm Water Management Oversight Committee Ron Owes Storm Water Management Oversight Committee Ambika Pajjuri Storm Water Management Oversight Committee Catherine Perman Storm Water Management Oversight Committee Bob Wenzlau Storm Water Management Oversight Committee Rachel Croft Utilities Advisory Commission Utsav Gupta Utilities Advisory Commission Meagan Mauter Utilities Advisory Commission Phil Metz Utilities Advisory Commission 2 Robert Phillips Utilities Advisory Commission Lauren Segal Utilities Advisory Commission 1 Greg Scharff Utilities Advisory Commission 2 Chris Tucher Utilities Advisory Commission Item 15 Attachment A - Boards, Commissions, and Committees Total Absences for 2024 and 2023 Item 15: Staff Report Pg. 7 Packet Pg. 221 of 227 City Council Supplemental Report From: Mahealani Ah Yun, City Clerk Meeting Date: January 13, 2025 Item Number: 15 Report #:2501-3981 TITLE SUPPLEMENTAL REPORT: Boards, Commissions, and Committees Annual Attendance Report; CEQA Status - Not a Project BACKGROUND Staff identified the number of board and commission meetings held in 2024 and have updated the below table to include the number of meetings held and the percentage of missed meetings per board or commission member. The Boards, Commissions, and Committees Handbook states that “If you miss more than one- third of the BCC meetings during the calendar year, this will be reported to Council and may result in your removal from the BCC”. ANALYSIS The chart below reflects the number of absents, total of meetings attended since appointed term, and percentage. The 33% limit is based off of the one-third rule of the Boards, Commissions, and Committees Handbook. Commissioners who finished their terms before the end of calendar year 2024 have been struck through. Calculation for the year 2024: Name Boards, Commissions, and Committees Absent Total BCC Meetings % (limit 33%) Mousam Adcock Architectural Review Board 0 18 Peter Baltay Architectural Review Board 0 18 Yingxi Chen Architectural Review Board 1 18 5% David Hirsch Architectural Review Board 0 18 Kendra Rosenberg Architectural Review Board 1 18 5% Item 15 Item 15 Supplemental Report Item 15: Staff Report Pg. 1 Packet Pg. 222 of 227 Name Boards, Commissions, and Committees Absent Total BCC Meetings % (limit 33%) Alisa Eagleston- Cieslewicz Historic Resources Board 1 10 Gogo Heinrich Historic Resources Board 4 6 66% Michael Makinen Historic Resources Board 3 7 42% Christian Pease Historic Resources Board 0 10 Samantha Rohman Historic Resources Board 0 10 Gedes Ulinskas Historic Resources Board 0 10 Caroline Willis Historic Resources Board 0 10 Margaret Wimmer Historic Resources Board 3 6 50% Katie Causey Human Relations Commission 1 12 8% Donald Barr Human Relations Commission 0 12 Adriana Eberle Human Relations Commission 1 12 8% Amy Hsieh Human Relations Commission 3 12 25% Michelle Kraus Human Relations Commission 1 12 8% Tracy Navichoque Human Relations Commission 0 12 Daryl Savage Human Relations Commission 1 12 8% Kaloma Smith Human Relations Commission 4 12 33% Mary Kate Stimmler Human Relations Commission 1 12 8% Amanda Brown Parks and Recreation Commission 2 12 16% Anne Warner Cribbs Parks and Recreation Commission 0 12 Yudy Deng Parks and Recreation Commission 0 3 Nellis Freeman Parks and Recreation Commission 0 12 Jeff Greenfield Parks and Recreation Commission 2 12 16% Shani Kleinhaus Parks and Recreation Commission 1 12 8% Joy Oche Parks and Recreation Commission 0 8 Bing Wei Parks and Recreation Commission 3 12 25% Allen Akin Planning and Transportation Commission 0 18 Bryna Chang Planning and Transportation Commission 0 18 Item 15 Item 15 Supplemental Report Item 15: Staff Report Pg. 2 Packet Pg. 223 of 227 Name Boards, Commissions, and Committees Absent Total BCC Meetings % (limit 33%) Barton Hechtman Planning and Transportation Commission 1 18 5% George Lu Planning and Transportation Commission 1 18 5% Keith Reckdahl Planning and Transportation Commission 1 18 5% Doria Summa Planning and Transportation Commission 0 18 Carolyn Templeton Planning and Transportation Commission 1 18 5% Loren Gordon Public Art Commission 1 11 9% Tara De La Garza Public Art Commission 0 7 Ben Miyaji Public Art Commission 2 11 18% Hsinya Shen Public Art Commission 0 11 Amber Smith Public Art Commission 1 7 14% Harriet Stern Public Art Commission 1 7 14% Lisa Waltuch Public Art Commission 2 11 18% Gregory Bennet Storm Water Management Oversight Committee 0 1 David Bower Storm Water Management Oversight Committee 1 2 50% Marilyn Keller Storm Water Management Oversight Committee 1 2 50% Hal Mickelson Storm Water Management Oversight Committee 0 3 Kevin Mayer Storm Water Management Oversight Committee 0 1 Dena Mossar Storm Water Management Oversight Committee 0 3 Ron Owes Storm Water Management Oversight Committee 1 3 33% Item 15 Item 15 Supplemental Report Item 15: Staff Report Pg. 3 Packet Pg. 224 of 227 Name Boards, Commissions, and Committees Absent Total BCC Meetings % (limit 33%) Ambika Pajjuri Storm Water Management Oversight Committee 0 1 Catherine Perman Storm Water Management Oversight Committee 0 3 Bob Wenzlau Storm Water Management Oversight Committee 2 2 100% Rachel Croft Utilities Advisory Commission 1 10 10% Utsav Gupta Utilities Advisory Commission 1 5 20% Meagan Mauter Utilities Advisory Commission 1 10 10% Phil Metz Utilities Advisory Commission 1 10 10% Robert Phillips Utilities Advisory Commission 1 10 10% Greg Scharff Utilities Advisory Commission 2 9 22% Chris Tucher Utilities Advisory Commission 1 5 20% Calculation for the year 2023 Name Boards, Commissions, and Committees Absent Total BCC Meetings % (limit 33%) Mousam Adcock Architectural Review Board 0 2 Peter Baltay Architectural Review Board 0 10 Yingxi Chen Architectural Review Board 1 10 10% David Hirsch Architectural Review Board 0 10 Kendra Rosenberg Architectural Review Board 0 10 Osma Thompson Architectural Review Board 3 10 30% David Bower Historic Resources Board 0 3 Alisa Eagleston- Cieslewicz Historic Resources Board 1 14 7% Gogo Heinrich Historic Resources Board 3 14 21% Michael Makinen Historic Resources Board 4 14 28% Christian Pease Historic Resources Board 4 14 28% Samantha Rohman Historic Resources Board 1 11 9% Caroline Willis Historic Resources Board 1 14 7% Item 15 Item 15 Supplemental Report Item 15: Staff Report Pg. 4 Packet Pg. 225 of 227 Name Boards, Commissions, and Committees Absent Total BCC Meetings % (limit 33%) Margaret Wimmer Historic Resources Board 1 14 7% Katie Causey Human Relations Commission 2 6 33% Adriana Eberle Human Relations Commission 1 10 10% Amy Hsieh Human Relations Commission 1 6 16% Michelle Kraus Human Relations Commission 1 10 10% Tracy Navichoque Human Relations Commission 1 3 33% Daryl Savage Human Relations Commission 1 10 10% Kalona Smith Human Relations Commission 3 10 30% Mary Kate Stimmler Human Relations Commission 3 6 50% Amanda Brown Parks and Recreation Commission 0 11 Anne Warner Cribbs Parks and Recreation Commission 0 11 Nellis Freeman Parks and Recreation Commission 1 11 Jeff Greenfield Parks and Recreation Commission 2 11 18% Shani Kleinhaus Parks and Recreation Commission 0 11 Joy Oche Parks and Recreation Commission 0 11 Bing Wei Parks and Recreation Commission 2 11 18% Allen Akin Planning and Transportation Commission 0 15 Bryna Chang Planning and Transportation Commission 1 19 5% Barton Hechtman Planning and Transportation Commission 3 19 15% George Lu Planning and Transportation Commission 1 15 6% Giselle Roohparvar Planning and Transportation Commission 3 4 75% Keith Reckdahl Planning and Transportation Commission 6 19 31% Doria Summa Planning and Transportation Commission 0 19 Carolyn Templeton Planning and Transportation Commission 2 19 10% Item 15 Item 15 Supplemental Report Item 15: Staff Report Pg. 5 Packet Pg. 226 of 227 Name Boards, Commissions, and Committees Absent Total BCC Meetings % (limit 33%) Loren Gordon Public Art Commission 3 10 30% Ben Miyaji Public Art Commission 0 10 Hsinya Shen Public Art Commission 1 10 10% Nia Taylor Public Art Commission 2 10 20% Lisa Waltuch Public Art Commission 1 10 10% David Bower Storm Water Management Oversight Committee 1 3 33% Marilyn Keller Storm Water Management Oversight Committee 0 3 Kevin Mayer Storm Water Management Oversight Committee 0 3 Dena Mossar Storm Water Management Oversight Committee 0 3 Ron Owes Storm Water Management Oversight Committee 0 3 Catherine Perman Storm Water Management Oversight Committee 0 3 Bob Wenzlau Storm Water Management Oversight Committee 0 3 Rachel Croft Utilities Advisory Commission 0 8 Meagan Mauter Utilities Advisory Commission 1 7 14% Phil Metz Utilities Advisory Commission 1 10 10% Robert Phillips Utilities Advisory Commission 0 8 Lauren Segal Utilities Advisory Commission 1 10 10% Greg Scharff Utilities Advisory Commission 2 10 20% Lisa Forrsell Utilities Advisory Commission 0 10 APPROVED BY: Mahealani Ah Yun, City Clerk Item 15 Item 15 Supplemental Report Item 15: Staff Report Pg. 6 Packet Pg. 227 of 227