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Home My WebLink AboutStaff Report 2505-4609, Staff Report 2503-4317CITY OF PALO ALTO CITY COUNCIL Monday, May 12, 2025 Council Chambers & Hybrid 5:30 PM Agenda Item 4.FY 2026 Proposed Operating and Capital Budget - Finance Committee Update and Council Budget Discussion Late Packet Report added, Staff Presentation, Public Comment City Council Staff Report From: City Manager Report Type: STUDY SESSION Lead Department: Administrative Services Meeting Date: May 12, 2025 Report #:2505-4609 TITLE FY 2026 Proposed Operating and Capital Budget - Finance Committee Update and Council Budget Discussion This will be a late packet report published on May 8, 2025. 6 7 1 3 City Council Staff Report From: City Manager Report Type: STUDY SESSION Lead Department: Administrative Services Meeting Date: May 12, 2025 Report #:2503-4317 TITLE FY 2026 Proposed Operating and Capital Budget - Finance Committee Update and Council Budget Discussion. CEQA Status – Not a project RECOMMENDATION This study session is intended to facilitate next steps in the FY 2026 Budget process. Facilitation of a forum for Finance Committee to discuss with the City Council the status of FY 2026 budget review in preparation for the Committee’s budget wrap-up work on May 20, 2025. Staff recommends that the City Council: •Review the current proposed budget adjustments to the Fiscal Year 2026 Proposed Operating and Capital Budgets and Municipal Fee Schedule in alignment with the work completed by the Finance Committee on May 6, 2025 and May 7, 2025; •Review the areas of focus for the City Council as identified by the Finance Committee and staff; and •Provide feedback to the Finance Committee on any areas of focus or additional deliberations to review as part of the Budget Wrap-up Meeting scheduled for May 20, 2025. ANALYSIS Finance Committee reviewed the FY 2026 Proposed Operating and Capital Budgets and Municipal Fee Schedule at the Finance Committee Meeting on May 6, 2025 and May 7, 2025. This report supports the discussion on the Finance Committee proposed adjustments to the FY 2026 budgets and/or Municipal Fee schedule. FY 2026 Budget documents are referenced below: - FY 2026 City Manager Proposed Budget Transmittal Letter - FY 2026 Proposed Operating Budget - FY 2025 Proposed CIP Budget 6 7 1 3 - Budget Transmittal to City Council (May 5, 2025) - Agenda Report - Finance Committee Review of Proposed Budgets (May 6 and May 7, 2025) Agenda Report - Finance Committee Review of Proposed Municipal Fee (May 7, 2025) Agenda Report As new materials are released during the Finance Committee review, all materials can be found on https://www.paloalto.gov/budget FISCAL/RESOURCE IMPACT This report is a study session for the City Council to review the Finance Committee’s analysis and tentatively recommended changes to the FY 2026 Proposed Budget. No financial impacts will occur as a result of this report; however, recommendations from this study session will inform the Finance Committee’s final recommendations for adjustments to the FY 2026 Proposed Budgets to the City Council for adoption on June 16, 2025. STAKEHOLDER ENGAGEMENT Community members are encouraged to review budget publications available online and engage throughout the budget process with City Council and Finance Committee to inform priorities and service needs. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) because providing recommendations regarding the FY 2026 Proposed Budgets is 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). APPROVED BY: Lauren Lai, Administrative Services Director May 12, 2025 www.paloalto.gov/budget FY 2026 PROPOSED OPERATING AND CAPITAL BUDGETS Finance Committee Update & Council Discussion City CouncilItem #4 1 BUDGET CONVERSATIONS & CALENDAR 2 MAY 5 MAY 6 & 7 MAY 12 MAY 20 JUNE 10 JUNE 16 Finance Committee Budget Workshops: Review the proposed budgets and recommend amendment(s) Study Session City Council: Finance Committee check-in with the City Council Non-Profit Partnerships Workplan: May 9 -Proposal deadline June 10 -P&S review & recommend awards June 16 -Council budget adoption includes funding appropriation and grantees City Council: FY 2026 Proposed Budget Overview: Discuss guidance for Finance Committee colleagues City Council Budget Adoption: Adopt Operating & Capital budgets (as amended by the Finance Committee) Finance Committee Budget Wrap-up: Based on the input from the May budget meetings, recommend final adjustment(s) to proposed budgets for Council adoption www.paloalto.gov/budget •FY26 Proposed Budget –All Funds totals $1.0 billion •General Fund budget total $312.5 million •Capital budget totals $316.2 million in FY 2026 and $1.18 billion over the five-year Capital Improvement Program (CIP) •Budget and meeting details listed at www.paloalto.gov/budget FY26 PROPOSED BUDGET OVERVIEW 3 SUMMARY OF FINANCE COMMITTEE REVIEW TO DATE May 12, 2025 www.PaloAlto.gov/budget 4 5 “PARKING LOT” OF GENERAL FUND BUDGET 6 “PARKING LOT” (as of May 7th 5:30PM, Cont’d) Date Parking Lot Items FY26 Amount (cost)/source Potential FY27 Amount Dept 7-May Restore Uncertainty Reserve minimum of $6M for FY27 ($4M) & -6,000,000 All GF Depts 7-May 700,000 700,000 FIR Subtotal Sources (Revenue)$700,000 $6,700,000 6-May One-time 5% Reduction in Transfer to CIP 1,550,000 -Capital 6-May One-time 10% Reduction in Transfer to CIP (incremental from 5% to 10%)1,550,000 -Capital 6-May One-time 15% Reduction in Transfer to CIP (incremental from 10% to 15%)1,550,000 -Capital 7-May Reduce Use of Uncertainty Reserve (UR) by $6M or more (Amount TBD based on Capital Items & Revenue Offsets) 1,350,000 2,000,000 All GF Depts 7-May Fire Single Role Model -without 3 months of overtime (600,000)(1,200,000)FIR 7-May Non-Profit Workplan (brings total from $235k to $346k) – with direct funding to specified nonprofits (111,000)(111,000)NON 7-May CSD Grants Community Events Program (50,000)(50,000)CSD 7-May Youth Connectedness Initiative (YCI) Funding (50,000)(50,000)CSD Subtotal Costs (Expenses)$5,189,000 $ 589,000 Potential Funds Remaining Net (cost) / source $5,889,000 $7,289,000 MULTI YEAR GENERAL FUND BALANCING ($ in millions)FY 2025 FY 2026 FY 2027 Forecasted (Deficit)/Surplus ($6.8)($12.0)($7.6) Use of Reserves & Funding Changes Use of Uncertainty Reserve (UR)$3.5 $12.0 $4.0 Tentative Reduced Use of UR --$5.9 - Use of Budget Stabilization Reserve $2.6 -- Tentative Ongoing Funding Sources -$0.7 $0.7 Tentative Ongoing Costs --$0.8 -$1.4 Use of DSD Reserve $0.7 -- Projected (Deficit)/Surplus $0 $0 ($4.3) Ending Reserve Balances Uncertainty Reserve $12.0 $6.0 $2.0 Budget Stabilization Reserve $54.0 $54.0 17.6% $54.0 Retain Minimum of $6M in Uncertainty Reserve (UR) Finance Committee recommended targets •Retain $6M in Uncertainty Reserve to offset anticipated shortfall in FY27 and beyond •General Guidance: savings of $4M one-time, $2M (minimum) of on-going (effective FY26) •Clarification: This $6M savings includes the CIP reductions, to be discussed later. Framework: Alternatives to achieve savings •Revenue enhancements (new information, alternative funding, FY25 balance carryover) •Capital projects: Defer capital projects, debt finance and/or review debt service reserve level •General Fund operating savings: •Re-evaluate FY26 proposals •Staffing -review functions/specifics, and vacancies •Contracts and general expenses •Other adjustments –if any 8www.paloalto.gov/budget Retain Minimum of $6M in Uncertainty Reserve (UR) Policy Considerations •Review Impacts: services, projects, Council priorities, community and workforce Proposed Timeline •Time needed to develop and deliberate with Finance Committee, Council, community and workforce •Proposed Schedule: •May 20th Finance Committee --Identified budget savings and discuss impacts •June 16th –Council adopts FY26 budgets with remaining “placeholder” savings •August 19th Finance Committee –Review specific remaining budget savings for FY26. •September -Council approval of specific budgetary savings 9www.paloalto.gov/budget 10 FY 26-30 CAPITAL IMPROVEMENT REDUCTIONS 5%/10%/15% www.PaloAlto.gov/budget •Evaluate proposed projects timing with a priority to delay/defer projects to manage funding availability and project prioritization (Example:restrooms at Foothills Nature Preserve) •Some flexibility to move planned projects and investments between the years; however, there will be impacts (e.g.cost escalation, deferred maintenance, growing backlog of aging infrastructure) •Staff expect some ability to reallocate funding sources such as funding shifts done in recent years. Requires de-prioritization of other projects planned for these alternative sources. Priorities to achieve project prioritization (deferral) characteristics: •Aesthetic (as opposed to functional)enhancements •Deferral won't cause deteriorating conditions •Projects or portions of projects without significant rework or disruption of dependencies •Cost escalation is unclear or not expected FIRE & AMBULANCE SERVICE AUGMENTATION Finance Committee Recommended Revenue Appropriation •Muni Fee Study increase for Paramedic Transport Fees ($0.7M in FY 2026 and ongoing) •Council would need to adopt these fees June 16th, effective July 1, 2025. Finance Committee Recommended Single-role, Phase In Proposal •FY26 Cost: $0.6M; Ongoing annual cost: $1.2M •12-hour peak single-role ambulance (estimated to being service in April 2026) •Continued cross-staffing of Engine 64 Finance Committee discussed a wide range of options for service delivery and further investments. 11www.paloalto.gov/budget Received 19 applications totaling $747,000. (Excludes 3 applications totaling $73,000 received after deadline.) If Direct Allocations are excluded, applications total $451,000. Nonprofit Partnership Workplan Phase I Rec. Adjustments Category FY2026 Prop. Op. Budget FC Rec $ Changes FC Rec $ Allocations Total Funding Nonprofit Partnership Workplan Phase I (Application process currently underway) $235,000 $111,000 ($246,000)$100,000 Community Events –CSD Grants $0 $50,000 -$50,000 DIRECT ALLOCATIONS –General Nonprofit partnerships ongoing contracts: Project Safety Net $100,000 --$100,000 Youth Connectedness Initiative (YCI)$0 $50,000 -$50,000 Magical Bridge $0 -$150,000 $150,000 Third (3rd) Thursday $0 -$40,000 $40,000 United Nations Association Film Festival $0 -$45,000 $45,000 Envir. Volunteers Foothills Nature Preserve $0 -$11,000 $11,000 Total $335,000 $211,000 $0 $546,000 APPLICATION STATUS Nonprofit Workplan Phase 1 Finance Committee recommends: •Revise the proposed FY 2026 rates to retain the current FY 2025 rate structure, with rate increases to meet the revenue requirement for FY 2026 in the gas utility •In FY 2026 only, apply a combination of climate credit and interest income to G2 customers (small and medium meter capacities) in the total amount of $1.1 M* •Refer staff to return to the Utilities Advisory Commission (UAC) to further review the FY 2025 Cost of Services Study (COSA) assumptions and principles *Upon further review of calculations, this figure is miss-stated, a $2.2 M credit is needed for the subset of G2 customers. The stated $1.1 M will be sufficient if review and adoption of alternative rates are completed by January 2026. NON-GENERAL FUND: GAS UTILITY RATES The community is encouraged to join the budget conversations: •Finance Committee Budget Hearings: May 6 at 9:00 A.M. May 7 at 9:00 A.M. May 20 at 1:00 P.M. –Wrap-up •City Council Budget Discussion: May 12 at 5:30 P.M. •City Council Budget Adoption: June 16 at 5:30 P.M. All meeting details listed at https://www.paloalto.gov/budget JOIN THE BUDGET CONVERSATION •Receive update on the detailed work reviewing the budget documents •Clarify understanding of current status and policy decision the Committee seeks feedback on •Provide guidance to Finance Committee colleagues for their final recommended adjustments scheduled on May 20. City Council FY 2026 Budget Adoption scheduled on June 16 •Budget and meeting details listed at www.paloalto.gov/budget COUNCIL DISCUSSION 15 From:Annette Glanckopf To:Council, City; city.clerk@paloalto.org Subject:Letter to council on FY 2026 budget re gas hikes Date:Sunday, May 11, 2025 3:02:54 PM CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links. Dear Mayor Lauing and Council, This email is to support the recommendation of the finance committee and the detailed comments from PAN (Palo Alto Neighborhoods) penned by Hamilton Hitchings on the proposed new gas Cost of Service Analysis (COSA). Please send the gas rate study back to the Utility Advisory Commission for further review and keep the FY 2025 gas rate structure. I do not support the staff recommendations which proposed raising the Tier 1 residential gas bill; which means for the average tier 1 residential household about a jump of about 34%. Additionally, I do not support gas rebates - i.e., for small businesses. I would point out that Palo Alto has an increasingly older population, and many are on limited incomes. Although the goal of a fully electric gas is admirable, it is not affordable for many seniors. For those living in older houses, there is a high probability that they would have to upgrade their electric box. We did so several years ago at a cost over about $10,000. I recommend equal across-the-board rate increases. This is more acceptable and equitable. This extremely complex proposal was given to the UAC with too little time to fully digest it, and there were lots of unanswered questions. The staff report implied they had to approve it. Please return to UAC. Now they have the analysis done by PAN, comments from the finance committee, and adequate time to review the materials. Thanks for considering my comments Annette Glanckopf From:Hamilton Hitchings To:Council, City Cc:Nose, Kiely; Kurotori, Alan Subject:PAN Input to City Council on 34% Residential Gas Bill Increase Deferral Date:Saturday, May 10, 2025 6:41:06 PM Attachments:PAN Input to City Council on residential 34 Percent Gas Rate Increase Deferral 2025-5-9_v1.pdf CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links. i Dear City Council, On behalf of Palo Alto Neighborhoods, we thank the Finance Committee members Pat Burt, Julie Lythcott-Haims, and Keith Reckdahl for unanimously recommending that the new gas rate study be remanded to the Utility Advisory Commission for further review. We also thank staff for their hard work developing this alternative and providing more detailed information about this complex issue. We have a couple of suggested improvements to the Finance Committee recommendation at the end of this letter. The new gas rate study proposed raising the average Tier 1 residential gas bill by 34% starting in July for basic needs such as cooking and winter heating. This includes all renters in individually metered apartments, where the majority of renters live. This proposed residential bill increase came despite the overall average gas bill across all customer classes rising by only 5%. Problems with the new gas Cost of Service Analysis (COSA) The UAC finance subcommittee never got to see the COSA and the UAC only had a few days to review it. Many UAC members thought they were required to accept it, although they expressed dissatisfaction. Large and sudden utility rate hikes—such as a 34% increase—create financial risk, liability, and uncertainty for the city, regardless of who is affected. Citing “seasonal variability,” the current consultant adopted a new, discretionary methodology—unlike the preceding consultant at the same firm—that moves infrastructure costs from small businesses onto households. The old COSA methodology is well recognized, still legitimate, and complies with California Prop 26. This message needs your attention This is a personal email address. Mark Safe Report Powered by Mimecast The new methodology means residential Tier 1 customers shoulder a larger share of the reserve replenishment costs. The new COSA cuts small‑business and master-metered landlord service fees from $157 to $29, shifting costs so basic‑use residents face a 34% hike. Using PG&E as a benchmark is misleading—PG&E’s CPUC‑regulated rates don’t dictate local rates, and PG&E already charges small businesses about 40% less per therm than residential customers. Tier 2 high-usage residential customers receive a 10% rate cut, which undermines climate goals. Large commercial customers face about a 7% bill increase, far below the 34% imposed on basic‑use households. Raises residents’ share of the General Fund Transfer by changing this methodology, discarding Measure L’s voter‑approved Net Plant formula. Understanding the Numbers An average Tier 1 household (26 therms/month) would see its bill jump 34%— from $38 to $51 per month—driven by a 49% hike in the Tier 1 rate and a 15% hike in the monthly service charge. The 22% proposed residential rate increase is an average that combines low-usage Tier 1 and high-usage Tier 2 customers. The 13% residential rate increase cited in city communications was the 22% rate minus the proposed one-time rebate for residential customers using Cap-and-Trade funds. Only the distribution component rises 9%; the average total bill increases 5%. There is precedent for reconsideration Other California cities have rejected their COSAs and revised their rate plans, including Davis (2013), Fresno (2013), Oxnard (2015-2017), and Glendale (2011-2014). Our recommendations 1. Support the unanimous Finance Committee recommendations to: a. Keep the FY 2025 gas rate structure to give an equal across-the-board rate increase for FY2026; b. Refer staff to return to the UAC to further review the 2025 COSA assumptions and principles. 2. In addition: a. Have the Utility Advisory Commission thoroughly review the internals of the model in the new COSA. b. Recognize that redirecting Cap-and-Trade funds away from their purpose of permanently lowering greenhouse-gas emissions to subsidize gas use undermines the policy’s goals. c. Remove the small business rebate using Cap-and-Trade funds. i. As Councilmember Reckdahl stated in the Finance Committee: we should not be putting the cart before the horse and trying to guess the new gas rates before UAC review. ii. The Cap-and-Trade funds proposed rebate is outside the scope of the COSA and does not insulate the city from theoretical liability from changes to our COSA model. Thank you again to the members of the Finance Committee for their thoughtful analysis and vote to remand this COSA for further UAC review. Hamilton Hitchings on behalf of Palo Alto Neighborhoods Dear City Council, On behalf of Palo Alto Neighborhoods, we thank the Finance Committee members Pat Burt, Julie Lythcott-Haims, and Keith Reckdahl for unanimously recommending that the new gas rate study be remanded to the Utility Advisory Commission for further review. We also thank staff for their hard work developing this alternative and providing more detailed information about this complex issue. We have a couple of suggested improvements to the Finance Committee recommendation at the end of this letter. The new gas rate study proposed raising the average Tier 1 residential gas bill by 34% starting in July for basic needs such as cooking and winter heating. This includes all renters in individually metered apartments, where the majority of renters live. This proposed residential bill increase came despite the overall average gas bill across all customer classes rising by only 5%. Problems with the new gas Cost of Service Analysis (COSA) ● The UAC finance subcommittee never got to see the COSA and the UAC only had a few days to review it. ● Many UAC members thought they were required to accept it, although they expressed dissatisfaction. ● Large and sudden utility rate hikes—such as a 34% increase—create financial risk, liability, and uncertainty for the city, regardless of who is affected. ● Citing “seasonal variability,” the current consultant adopted a new, discretionary methodology—unlike the preceding consultant at the same firm—that moves infrastructure costs from small businesses onto households. ● The old COSA methodology is well recognized, still legitimate, and complies with California Prop 26. ● The new methodology means residential Tier 1 customers shoulder a larger share of the reserve replenishment costs. ● The new COSA cuts small‑business and master-metered landlord service fees from $157 to $29, shifting costs so basic‑use residents face a 34% hike. ● Using PG&E as a benchmark is misleading—PG&E’s CPUC‑regulated rates don’t dictate local rates, and PG&E already charges small businesses about 40% less per therm than residential customers. ● Tier 2 high-usage residential customers receive a 10% rate cut, which undermines climate goals. ● Large commercial customers face about a 7% bill increase, far below the 34% imposed on basic‑use households. ● Raises residents’ share of the General Fund Transfer by changing this methodology, discarding Measure L’s voter‑approved Net Plant formula. Understanding the Numbers ● An average Tier 1 household (26 therms/month) would see its bill jump 34%—from $38 to $51 per month—driven by a 49% hike in the Tier 1 rate and a 15% hike in the monthly service charge. ● The 22% proposed residential rate increase is an average that combines low-usage Tier 1 and high-usage Tier 2 customers. ● The 13% residential rate increase cited in city communications was the 22% rate minus the proposed one-time rebate for residential customers using Cap-and-Trade funds. ● Only the distribution component rises 9%; the average total bill increases 5%. continued on the next page… There is precedent for reconsideration Other California cities have rejected their COSAs and revised their rate plans, including Davis (2013), Fresno (2013), Oxnard (2015-2017), and Glendale (2011-2014). Our recommendations 1. Support the unanimous Finance Committee recommendations to: a. Keep the FY 2025 gas rate structure to give an equal across-the-board rate increase for FY2026; b. Refer staff to return to the UAC to further review the 2025 COSA assumptions and principles. 2. In addition: a. Have the Utility Advisory Commission thoroughly review the internals of the model in the new COSA. b. Recognize that redirecting Cap-and-Trade funds away from their purpose of permanently lowering greenhouse-gas emissions to subsidize gas use undermines the policy’s goals. c. Remove the small business rebate using Cap-and-Trade funds. i. As Councilmember Reckdahl stated in the Finance Committee: we should not be putting the cart before the horse and trying to guess the new gas rates before UAC review. ii. The Cap-and-Trade funds proposed rebate is outside the scope of the COSA and does not insulate the city from theoretical liability from changes to our COSA model. Thank you again to the members of the Finance Committee for their thoughtful analysis and vote to remand this COSA for further UAC review. Hamilton Hitchings on behalf of Palo Alto Neighborhoods From:slevy@ccsce.com To:Council, City; Shikada, Ed; Lai, Lauren Subject:the economic foundations under the budget for 25-26 and 26-27 Date:Friday, May 9, 2025 2:14:00 PM CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links. ! Dear Mayor Lauing, council members and staff, The economic fundamentals for the Bay Area, Santa Clara County and Palo Alto have been deteriorating even before the impacts of tariffs on economic growth, inflation and interest rates. The region and county have lost jobs each month in 2025. The latest city jobs data is nearly a year old but even then we were losing jobs. The latest sales tax report for Q4 2024 showed a slight decline. Though we do not have certainty as to the impacts of tariff, immigration and deportation policies, there is strong agreement that the direction is negative. At the finance committee, I heard about the city's existing plans, reasonable when they were made. But we all know plans change if the foundation changes. In the 2008-10 recession, the region lost 250,000 jobs and did not get back to pre recession levels, much lee grow, until mid 2013. And many people faced job and house losses and rising unemployment. The recent example is COVID where pre COVID plans were no longer possible. And while there was significant aid to cities after COVID, we are already seeing cuts to local aid even before a deep recession. I do not sit in your seats and have only one process suggestion below. But as I said at the finance committee, I want you to ask staff to prepare not a cautious forecast, they have done that, but a plausible 'frightened" forecast before you make decisions in June, particularly about the use of reserves. My one suggestion is to be flexible and not front load the 2025-26 spending. I do also think we all will benefit if staff and council is clear that there are deeper risks than in the current forecast. This message could be suspicious The sender's email address couldn't be verified. Mark Safe Report Powered by Mimecast Thank you for listening. Steve From:Evan Lurie To:Council, City Subject:May 12th Agenda, Item #4 FY 2026 Proposed Operating and Capital Budget - Contract with YCS for Youth Connect Date:Friday, May 9, 2025 9:36:35 AM Attachments:20250508 Letter to Council Supporting Youth Connect.pdf CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links. See attached letter. Thank you! Evan From:Anu Ramamurty To:Shikada, Ed Cc:Burt, Patrick; Veenker, Vicki; Council, City; Wako Takayama; Elliott Wright; Parag Patel; Jan Merryweather; Nick Allen; Lincoln Bleveans; Michael Patrick; Joyce Friedrichs; Sally Tomlinson; Alamos, Lupita; O"Kane, Kristen Subject:Re: Request for Continued Support for Environmental Volunteers Date:Thursday, May 8, 2025 10:47:47 AM CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links. Dear Ed, Thank you for your message. I’ve connected with Lupita, and we are currently working on the proposal. We appreciate your support and guidance throughout this process and are grateful for the opportunity to continue our partnership with the City. Warm regards, Anu On May 8, 2025, at 10:11 AM, Shikada, Ed <Ed.Shikada@paloalto.gov> wrote: Hello Anu, Thank you for your message. I understand that Lupita Alamos from my office is attempting to contact you to ensure you are able to submit your request through the City’s Nonprofit Partnership portal. Please note that submittals are due tomorrow, and let me know if you need any further assistance. Best regards, --Ed <image002.png>Ed Shikada, City Manager ICMA Credentialed Manager (650) 329-2280 | ed.shikada@PaloAlto.gov www.PaloAlto.gov <image003.png> From: Anu Ramamurty <anu@environmentalvolunteers.org> Sent: Wednesday, May 7, 2025 7:00 PM To: Burt, Patrick <Pat.Burt@PaloAlto.gov>; Veenker, Vicki <Vicki.Veenker@paloalto.gov> Cc: Council, City <city.council@PaloAlto.gov>; Wako Takayama <wakotakayama@gmail.com>; Elliott Wright <ewright@hiddenvilla.org>; Parag Patel <mr.parag@gmail.com>; Jan Merryweather <jan@hamilton.com>; Nick Allen <nickallen09@gmail.com>; Lincoln Bleveans <lblevea1@stanford.edu>; Michael Patrick <mjpatrick108@gmail.com>; Joyce Friedrichs <joycecaren@gmail.com>; Sally Tomlinson <sallytomlinson936@gmail.com> Subject: Request for Continued Support for Environmental Volunteers CAUTION: This email originated from outside of the organization. Becautious of opening attachments and clicking on links. Dear Council members, It was good to see you the Climate Action & Sustainability Committee meeting last week. Thank you for your continued leadership and dedication to making Palo Alto a model for sustainability and environmental innovation. On behalf of the staff, board and volunteers of Environmental Volunteers, I’m writing to respectfully request the City of Palo Alto’s continued support for our work bringing nature-based education to students throughout the community. Our hands-on classroom programs and field trips connect children directly with the natural world, inspiring curiosity and fostering a lifelong sense of environmental stewardship. Each year, we engage many Palo Alto residents as volunteers who lead these programs and connect with visitors at Foothills Nature Preserve and the Palo Alto Baylands—serving as local nature ambassadors for our treasured open spaces. This role is especially important given the limited number of Park Rangers available. Through our intergenerational model, we create meaningful connections between volunteers and students, strengthening the fabric of our community. In a time when fostering environmental awareness and connection is more critical than ever, we deeply value Palo Alto’s partnership in making this work possible. While I couldn’t join today’s finance committee meeting, I welcome the opportunity to speak with you about the matter. Thank you for your consideration and continued commitment to environmental education. I look forward to hear from you. Warm regards, Anu <image004.jpg> Anu Ramamurty Executive Director (she/her) O: (650) 493-8000 x 1003 C: (646) 298-6661 Watch this impact video to learn more about EV From:Utsav Gupta To:Julie Lythcott-Haims; Burt, Patrick; Reckdahl, Keith; Council, City Cc:Nose, Kiely; Kurotori, Alan; Clerk, City Subject:Finance Committee - Comments re Gas COSA and Cap and Trade Date:Wednesday, May 7, 2025 8:17:27 AM Attachments:2025-05-07_Palo Alto Gas COSA Comments.pdf reso-9487.pdf reso-10077.pdf CAUTION: This email originated from outside of the organization. Be cautious of opening attachments and clicking on links. Dear Finance Committee, These comments address the proposed gas Cost of Service Analysis (COSA) and associated rate changes before the Palo Alto Finance Committee. While I currently serve as a commissioner on the Utilities Advisory Commission (UAC), the views expressed here are my personal comments and do not reflect the position or opinions of the Commission. - The COSA should be remanded to UAC for further review. The UAC was under the impression that it was obligated to accept the findings, which is not true—other cities have revisited and revised their COSAs. Adopting the revised COSA making such drastic changes increases litigation and/or ballot initiative risk more than remanding the COSA for further review and maintaining the current, compliant COSA. - The $1.6 million allocation from Cap and Trade to subsidize fossil fuels and mask gas rate increases for one year violates the City’s policies and intentions for the use of these funds, including the City’s 2015 Resolution 9487 establishing the fund that explicitly intended using these funds for greenhouse gas reduction projects, such as energy efficiency programs and other carbon-cutting measures, "before providing rebates" to customers —and also Resolution 10077 stating that “its intention [is] to use revenues from the sale of City’s Gas Cap and Trade allowances for building, appliance and vehicle electrification”—and thus this transfer should be rejected. It’s a precedent that Palo Alto has refused to set before, and it’s not one that Palo Alto should adopt now. Thank you for your service to our community. Best, Utsav — Utsav Gupta Page 1 of 4 Palo Proposed Gas COSA Comments May 7, 2025 Utsav Gupta These comments address the proposed gas Cost of Service Analysis (COSA) and associated rate changes before the Palo Alto Finance Committee. While I currently serve as a commis- sioner on the Utilities Advisory Commission (UAC), the views expressed here are my per- sonal comments and do not reﬂect the position or opinions of the Commission. SUMMARY - The COSA should be remanded to UAC for further review. The UAC was under the im- pression that it was obligated to accept the ﬁndings, which is not true—other cities have revisited and revised their COSAs. Adopting the revised COSA making such drastic changes increases litigation and/or ballot initiative risk more than remanding the COSA for further review and maintaining the current, compliant COSA. - The $1.6 million allocation from Cap and Trade to subsidize fossil fuels and mask gas rate increases for one year violates the City’s policies and intentions for the use of these funds, including the City’s 2015 Resolution 9487 establishing the fund that ex- plicitly intended using these funds for greenhouse gas reduction projects, such as energy eYiciency programs and other carbon-cutting measures, "before providing rebates" to customers1—and also Resolution 10077 stating that “its intention [is] to use revenues from the sale of City’s Gas Cap and Trade allowances for building, ap- pliance and vehicle electriﬁcation”2—and thus this transfer should be rejected. It’s a precedent that Palo Alto has refused to set before, and it’s not one that Palo Alto should adopt now. 1 https://www.cityofpaloalto.org/ﬁles/assets/public/v/1/city-clerk/resolutions/reso-9487.pdf; see also https://www.paloalto.gov/ﬁles/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2015/ﬁnal-staF-report-id-5397_use-of-cap-and-trade-compliance-revenue.pdf (“The UAC generally supported the proposed policy for how the auction proceeds could be used, but expressed a pref- erence that the revenues be used for programs to reduce GHG emissions, rather than being returned to gas ratepayers in the form of a rebate. StaF agreed with the UAC's recommendation and revised the pro- posed policy to incorporate the recommendation. The minutes of the UAC's October 1, 2014 meeting are pro- vided as Attachment D.”) (emphasis added). 2 https://www.cityofpaloalto.org/ﬁles/assets/public/v/1/city-clerk/resolutions/resolutions-1909-to-pre- sent/2022/reso-10077.pdf ( Page 2 of 4 COSA SHOULD BE REMANDED TO UAC The gas COSA should be remanded to the UAC for additional feedback regarding the rates and the changes from the prior COSA that were made by the consultant. The prior COSA is Proposition 26 compliant. Proposition 26 does not require any particular methodology or timeline—it is simply meant to protect ratepayers from unfair taxation by ensuring that costs are recovered appropriately. The UAC had very little time to consider this gas COSA that makes such drastic changes to rates. The gas COSA was not presented at the UAC Budget Subcommittee, upon which I serve, and was ﬁrst made available as part of the regular meeting packet discussing it. Com- missioners were under the mistaken impression that they were obligated to accept the ﬁnd- ings. Public acceptance is key to a COSA, and cities can revise or reject COSAs. Of course, this makes sense—that is precisely why it requires approval by city council. The following cases illustrate how California utilities have revisited their cost-of-service analyses. Adopting such large changes increases the risk that residents either sue or, more likely, seek the adoption of a ballot measure. This has happened at several cities before, as detailed be- low. Examples of Cities Revising COSAs and Rate Plans 1. Fresno: In 2013, Fresno approved water rate increases to fund infrastructure up- grades, backed by a COSA. Facing heavy public opposition, a referendum drive, and a lawsuit arguing the rates were excessive and improperly approved, the Fresno City Council unanimously voted in July 2014 to repeal the rate hikes (and had to pay $150,000 in attorney’s fees to the citizen’s coalition).3 The city canceled the in- creases, issued bill credits, paid legal fees, and revisited the plan to ﬁnd a compro- mise acceptable to ratepayers. 2. Davis: Davis adopted a new water rate schedule in March 2013 based on a "Con- sumption-Based Fixed Rates" (CBFR) model to fund a surface water project. This model was criticized as unfair, particularly to single-family homeowners. A success- ful referendum (Measure P) in June 2014 repealed these rates, compelling the City Council to discard the original COSA and conduct a new rate study. By September 2014, Davis adopted a revised COSA and a more traditional rate structure aligned with community feedback.4 3 https://abc30.com/fresno-city-council-agrees-to-repeal-water-rates-hike/231407/ 4 https://www.cityofdavis.org/city-hall/public-works-utilities-and-operations/water/water-rates; https://bal- lotpedia.org/City_of_Davis_Water_Rates_Repeal_Referendum%2C_Measure_P_%28June_2014%29 Page 3 of 4 3. Glendale: Glendale discovered serious ﬂaws in its 2011-2012 COSA, which misallo- cated customer usage data, leading to undercharges for some and extreme increases for others. The city scrapped the ﬂawed analysis and commissioned a new COSA in 2014 to correct the methodology and rebalance cost allocations. This revision was prompted by customer complaints and revenue shortfalls.5 The new COSA was adopted in July 2014. 4. Oxnard: Oxnard revised its COSA and rate plan in 2017 following community back- lash to an initial 2015-2016 proposal that included an 87% cumulative rate increase. After residents launched Measure M to repeal the steep rate hikes, Oxnard proactively revisited the COSA. A Utility Ratepayers Advisory Panel was formed, leading to a new, more gradual ﬁve-year rate schedule implemented in mid-2017 (but was still arguably noncompliant with Measure M).6 The City continued litigation for several years to challenge Measure M and justify the rate increase from the URAP, where it ﬁnally suc- ceeded on appeal, and the more gradual rates decided upon the URAP were held. LITIGATION RISK FAVORS REMAND, NOT ADOPTION The examples above show that residents will either: (1) sue and/or (2) seek a ballot measure to overturn unfair COSAs. The Finance Committee should get ahead of this potential out- come and return the COSA to the UAC for further review. Indeed, in Oxnard, not only did the city have to revise its COSA after it was the subject of a successful ballot measure, it then had to litigate the onerous eYects of that measure for several years. The original measure passed in November 2016, but litigation continued well into 2021. CAP AND TRADE TRANSFER RUNS CONTARY TO CLIMATE GOALS AND CITY POLICY The proposed $1.6 million transfer from our Cap and Trade reserves to mask the gas rate increase impact on residences directly contradicts both our climate goals and Palo Alto City Council's established policy governing the use of these revenues. In January 2015, the Coun- cil adopted a policy (Resolution 9487) establishing how Cap and Trade funds should be used that explicitly intended using these funds for greenhouse gas reduction projects—such as energy eYiciency programs, renewable biogas purchases, and other carbon-cutting 5 https://www.latimes.com/socal/glendale-news-press/news/tn-gnp-xpm-2014-04-02-tn-gnp-city-set-to- pay-consultant-to-ﬁx-water-rates-20140402-story.html 6 https://oxnard.granicus.com/Docu- mentViewer.php?ﬁle=oxnard_5a0fece5e6118fcafd4a42b4bcae0fa1.pdf&view=1 (at page 7: “Due to the chal- lenge of the rate increase for Wastewater the City was granted a stay by the court until the City completes a new Cost of Service Study that is scheduled to begin in February 2017.”); https://www.movingoxnardfor- ward.org/wastewater_bond_rating_improves_after_oxnard_loses_measure_m_lawsuit. Page 4 of 4 measures—"before providing rebates" to customers. In adopting this policy, the Council signaled that climate programs would take priority over bill credits.7 This policy was further strengthened in October 2022, when the Council unanimously ap- proved an updated policy (Resolution 10077) to "clearly state its intention to use" the gas allowance revenues for building, appliance and vehicle electriﬁcation programs. At the same meeting, Council authorized using $1.25 million of gas Cap-and-Trade funds for an Advanced Heat Pump Water Heater Pilot program.8 More, this information was not presented to UAC, which is another reason justifying remand. Using these funds to subsidize gas rates directly contradicts both the letter and spirit of these policies, and is a misuse of resources speciﬁcally designated for combatting climate change. CONCLUSION Because of the limited review from UAC and signiﬁcant community concerns, it is prudent to return the gas COSA to the UAC while maintaining the prior COSA with proportional rate increases that are fair to both residents and businesses. Additionally, the Finance Commit- tee should reject the proposed use of Cap-and-Trade funds for rate relief and instead direct those funds toward their intended purpose of reducing greenhouse gas emissions. Thank you for your service to our community. Respectfully Submitted. Utsav Gupta Palo Alto Resident UAC Commissioner (speaking in personal capacity) 7 See Footnote 1. 8 See Footnote 2. Resolution No. 9487 Resolution of the Council of the City of Palo Alto Amending the Cap and-Trade Revenue Utilization Policy to Cover the Use of Freely Allocated Allowances for the Gas and Electric Utilities RECITALS A. The Global Warming Solutions Act, also known as Assembly Bill 32 (AB 32), requires that California's Greenhouse Gas {GHG) emissions by 2020 be at 1990 levels, and authorized the California Air Resources Board (CARB) to develop regulations to reach this goal. B. The GHG emission cap-and-trade program is one of several tools designed by CARB to achieve the state's GHG reduction goal, and has been in operation since November 2012. C. As of January 2015 and in accordance with CARB's cap-and-trade regulations, as a natural gas supplier, the City of Palo Alto will be GHG emission allowances (allowances) free of charge by CARB, to be utilized in a manner both consistent with the goals of AB 32 and exclusively for the benefit of retail gas ratepayers. D. Under the terms of CARB's cap-and-trade regulations, including Title 17 California Code of Regulations Section 95893 (d)(3), the City is required to sell a portion of these allocated allowances in the auctions conducted by CARB and utilize the auction sale proceeds "exclusively for the benefit of retail ratepayers of each natural gas supplier" and "consistent with the goals of AB 32". E. The Council of the City of Palo Alto supports the state's AB 32 goals, and intends to implement the City's Policy on the Use of Freely Allocated Allowances Under the State's Cap and-Trade Program (formerly titled the Cap-and-Trade Revenue Utilization Policy) in furtherance ofthese goals. The Council of the City of Palo Alto RESOLVES, as follows: SECTION 1. The City's Policy on the Use of Freely Allocated Allowances Under the State's Cap-and-Trade Program is amended as shown in Exhibit A. SECTION 2. The Council grants the City Manager or his designee the authority to implement the Policy on the Use of Freely Allocated Allowances Under the State's Cap-and Trade Program and to use allowances and allocate auction revenues to projects or expenditures as defined in Exhibit A. SECTION 3. Should California's cap-and-trade program and/or the CARB regulations implementing that program be suspended, discontinued or materially altered such that the City 150105 mf 6053201 of Palo Alto Utilities no longer receives allocated allowances of significant monetary value, the Council reserves the right to terminate the Policy on the Use of Freely Allocated Allowances Under the State's Cap-and-Trade Program and discontinue any programs funded from the City's allocated allowance revenues. SECTION 4. The Council finds that the implementation of this Policy, including the use of revenue derived from it, and the expenditures of funds necessary to implement it, represent the City's cost of regulatory compliance with the state's cap-and-trade program and are consistent with the goals of AB 32. Such costs therefore represent the reasonable costs of providing service to CPAU's gas customers. SECTION 5. The Council finds that the amendment of this policy does not meet the definition of a "project" under the California Environmental Quality Act, as defined by California Public Resource Code Section 21065. INTRODUCED AND PASSED: January 26, 2015 AYES: BERMAN, BURT, DUBOIS, FILSETH, HOLMAN, KNISS, SCHARFF, SCHMID, WOLBACH NOES: ABSENT: ABSTENTIONS: ATTEST: ~ ~( ~1 City Clerk ~ APPROVED AS TO FORM: ~ctt~ Mayor APPROVED: r!Lti,L ~a ATTACHMENT A EXHIBIT A TO RESOLUTION NO •. __ ADOPTED BY COUNCIL ON: __ _ CITY OF PALO ALTO POLICY ON THE USE OF FREELY ALLOCATED ALLOWANCES UNDER THE STATE'S CAP-AND-TRADE PROGRAM This Polley applies to freely allocated greenhouse gas (GHG) emission allowances from the california Air Resources Board (CARB) to the City of Palo Alto's electric and natural gas distribution utilities ("Allocated Allowances"). The City Manager or his designee Is authorized to use Allocated Allowances and any resulting revenue in any lawful manner consistent with this policy. The City's Polley on the Use of Freely Allocated Allowances for the Electric Utility Is as follows: 1. The City shall abide by CARB's regulations by using the auction proceeds and allowance value obtained from the City's allocated allowances for the exclusive benefit of the City's electric retail ratepayers, consistent with the goals of the Global Warming Solutions Act, also known as Assembly Bill 32 (AB 32), and not for the benefit of entities or persons other than such ratepayers. 2. The following uses of the City's auction proceeds are permitted: a) Purchases or Investment in renewable resources (outside Palo Alto or locally) for the electric portfolio; b) Investment In energy efficiency programs for the electric portfolio and retail customers; c) Investment In other carbon reduction activities, Including those required to achieve a carbon-neutral electric portfolio; and d) Rebates to electric retail ratepayers. 3. Allocated allowances may also be used to meet the City's electric utility's compliance obligations for electricity scheduled into the California Independent System Operator Markets, should state law eventually permit this action. 4. Council will receive annual reports on the allowance revenues and expenditures associated with complying with CARB regulations and this policy. 5. Additional Council approval will be required for any rebates to electric ratepayers proposed under this Polley. The City's Polley on the Use of Freely Allocated Allowances for the Gas Utility Is as follows: 1. The City shall abide by CARB's regulations by using the auction proceeds for the exclusive benefit of the City's natural gas retail ratepayers, consistent with the goals of _J;JJillP'-1\~:tO;:gesOtUTiO'N NO~~-~, ......_..,.. 1\QQPTEQiiBV tOU.N¢l'L\(lN: ~- ~"'~-~·rt)~l w:wrmioB-~QJ\ltl9o~-~~~t;: ~~~~,~ngwi:t~~i~~~l)lv $Jll.·~aJA~.a~rJ~~nd nAlHhr ~he•be-nefttof:'i!~tltfes:-l!Jr,persons::othenftan'-suelttatep~y.ers-~- ·2· ~:f1~1.:1J~~-·.'.!_!f,~ <:~Hti~t~J!JK~IJ~}Strt~~~ ~~ft ~¢JI{!e~.-~t9';ffi~~lJtlj~·~IW:~~~natQfjfg@~ y~UJW~$· ~~o~n.,; g'·'",.; "' , . tto:n~; :and the :r:e:malnin~;Aifotate'd •P..J'It5wUnt::~~ will ber~~n~f~~-~~ J~ ~q~flon. s.. Theffbilowlhr;use§:\'ofthe dtts •auetiM -J)tocee.tis ftorn the:s~Oe:of-1\floeated Ailowan~es~ ~.;, P~.; .... ·· ···· w. :~lUr:fc3PTAter.il'l1l~.ttmt.gr,eenbtw~J~r.~$-rijwatf~n·m~~ur~f6e.~:p:t~r.m;uad<' ·~·-' -. ~l~Jff)I~~Jj . ' . •. .• ·.· ·, .. th ]nVesrmtmttin ene~y·•etliciel'icy :pfcierllms :ff:>r tile ;natural :$,as·~p:ai'tlftiJio •ahtl retail: ;(iustom•r.:s~ b.i ~P~tijb~~!:~tir Jn~~~ti•'l~f:l~ ·Jri.,tQ$ti~ffMtN~ r~~~~~Jn~. 9IQ·ta~ t~mur~~$. ti?r<tht:~.&~$: ;poittftil!at c. 'inMr:c~mertt· fll:Ptb~r CilfPQil '(*!flucfrgn a~Mttes·fQf' tht! t~atur~l .gas.: utU(ty,, jn(it!.!dlntt :5Y!~~m~ro~loten~~n~~:~~t:rept~¢~fu~ttt:~() ,.,.~q~~ ms1~ve g~~:~ffil$iiM~: . .-__ .. dj -Riib~tes.to natural gas retail rate~ayer:s .. _ ae'bates/if pt()Vtded{tnusfo~:aUocat-ed''ott ~'non~v,Qlt~tr:titric::l:iasis :as.~Sjait!d tn''t1t'le :tz;¢C.tt~e~tlon~9$:lt9:3 (~}.!~;l' ;4, Gourtcfi\wrri''r4teiVe'annua1 rep:ortS'J:iitthE!:use:nt.Ailo:cated'Atiowarn:~t~ irtc1'udl'ngd:h~:~lsef cir'au¢tlonx'v~n~es•~nd~l!pendittJr~s asso:d~fed·vdth ~o.mJIYing,,wltK~;«~tl r~gy:l~bons• ~~g·~lfti$·~91JPY; .· . . . ·-.. ,s.. b..ddltlo.nal',t.ouneJi ~approval wiH be'·.te-q~tred fonmv reba'te$ tQ. natyraLgaSi~rat~pa.vers ~tP1i4'~fi~t~ftqj¥r<tJ11$f~b.Jl~yi . . '· -.. ·.-. Resolution No. 10077 Resolution of the Council of the City of Palo Alto Amending the City’s Policy on the Use of Freely Allocated Allowances Under the State's Cap-and-Trade Program and Authorizing the City Manager to use $1.25 million from the Gas Utility Cap and Trade Reserve for the Advanced Heat Pump Water Heater program R E C I T A L S A. The Global Warming Solutions Act, also known as Assembly Bill 32 (AB 32), as amended by Senate Bill 32 (2016), requires that California's Greenhouse Gas {GHG) emissions be reduced 40% below 1990 levels by 2030, and authorized the California Air Resources Board (CARB) to develop regulations to reach this goal. B. Under the terms of CARB's cap-and-trade regulations, including Title 17 California Code of Regulations Sections 95892 (d)(2) and 95893 (d)(3), the City is required to sell a portion of these allocated allowances in the auctions conducted by CARB and utilize the auction sale proceeds “exclusively for the benefit of retail electric ratepayers” (for the electric utility) or "exclusively for the benefit of retail ratepayers of each natural gas supplier" (for the gas utility) and "consistent with the goals of AB 32". C. On January 26, 2015 the Council approved a Policy on the Use of Freely Allocated Allowances Under the State’s Cap and Trade Program (Resolution 9487). D. The Council of the City of Palo Alto supports the state's AB 32 goals and intends to implement the City's Policy on the Use of Freely Allocated Allowances Under the State's Cap- and -Trade Program (formerly titled the Cap-and-Trade Revenue Utilization Policy) in furtherance of these goals. E. The Council has approved a Sustainability and Climate Action Plan Goal of 80% emissions reduction from 1990 levels by 2030, a Framework, and an Implementation Plan. A preliminary impact analysis reviewed by the Council on April 19, 2020 demonstrated that building and vehicle electrification was a critical part of achieving these emissions reduction goals. F. The Council intends to establish various progra ms to promote building, appliance and vehicle electrification, which will require significant funding. The Council wants to amend the previously approved policy to clearly state its intention to use revenues from the sale of City’s Gas Cap and Trade allowances for building, appliance and vehicle electrification. The Council of the City of Palo Alto (“City”) RESOLVES as follows: SECTION 1. The Council finds that the use of revenues from the auction of freely allocated Gas Utility a llowances under the State’s Cap and Trade program to promote building, appliance and vehicle electrification, when such conversions also reduce greenhouse gas emissions, 6056672 DocuSign Envelope ID: C22AC74B-ADCA-44DE-8FFF-3FE9B5B1D035DocuSign Envelope ID: 9CDCD8E9-478A-42EF-907F-75217AB6B1A8 6056672 provides a variety of benefits to the City’s gas customers, including: a.furthering State and local climate protection goals by reducing natural gas-related emissions due to the long-term and orderly transition away from natural gas to carbon neutral electricity; b.avoiding increasing environmental and transmission charges on gas use; c.decreasing the energy cost of operating equipment, vehicles, and appliances due to Palo Alto’s low electricity costs; d.avoiding increasing natural gas distribution system maintenance costs. SECTION 2. The Council finds that because nearly all members of the community use both natural gas and electricity, fuel switching from natural gas to electricity reduces energy costs and greenhouse gas emissions and facilitates an orderly transition away from natural gas at the lowest feasible cost, it is of benefit to both gas and electric ratepayers to use revenues from auction of both gas and electric allowances under the State’s Cap and Trade program to promote fuel switching. SECTION 3. The City's Policy on the Use of Freely Allocated Allowances Under the State's Cap-and-Trade Program is amended as shown in Exhibit A. SECTION 4. The Council grants the City Manager or his designee the authority to implement the Policy on the Use of Freely Allocated Allowances Under the State's Cap-and-Trade Program and to use allowances and allocate auction revenues to projects or expenditures as defined in Exhibit A. SECTION 5. The Council affirms the use of up to $1.25 million in revenues from gas utility participation in the State’s Cap and Trade program to fund an Advanced Heat Pump Water Heater Pilot, as described in Staff Report 14606. SECTION 6. The Council finds that the implementation of this Policy, including the use of revenue derived from it, and the expenditures of funds necessary to implement it, represent the City's cost of regulatory compliance with the state's cap-and-trade program and are consistent with the goals of AB 32. Such costs therefore represent the reasonable costs of providing service to CPAU's gas customers. // // // // // // // DocuSign Envelope ID: C22AC74B-ADCA-44DE-8FFF-3FE9B5B1D035DocuSign Envelope ID: 9CDCD8E9-478A-42EF-907F-75217AB6B1A8 6056672 // SECTION 7. The Council finds that the amendment of this policy does not meet the definition of a "project" under the California Environmental Quality Act, as defined by Ca lifornia Public Resource Code Section 21065. INTRODUCED AND PASSED: October 3, 2022 AYES: BURT, CORMACK, DUBOIS, FILSETH, KOU, STONE NOES: TANAKA ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services DocuSign Envelope ID: C22AC74B-ADCA-44DE-8FFF-3FE9B5B1D035DocuSign Envelope ID: 9CDCD8E9-478A-42EF-907F-75217AB6B1A8 Exhibit A to Resolution No. 10077 Adopted by Council on 10/3/2022 CITY OF PALO ALTO POLICY ON THE USE OF FREELY ALLOCATED ALLOWANCES UNDER THE STATE’S CAP-AND-TRADE PROGRAM This Policy applies to freely allocated greenhouse gas (GHG) emission allowances from the California Air Resources Board (CARB) to the City of Palo Alto’s electric and natural gas distribution utilities (“Allocated Allowances”). The City Manager or his designee is authorized to use Allocated Allowances and any resulting revenue in any lawful manner consistent with this policy. The City’s Policy on the Use of Freely Allocated Allowances for the Electric Utility is as follows: 1.The City shall abide by CARB’s regulations by using the auction proceeds and allowance value obtained from the City’s allocated allowances for the exclusive benefit of the City’s electric retail ratepayers, consistent with the goals of the Global Warming Solutions Act, also known as Assembly Bill 32 (AB 32), and not for the benefit of entities or persons other than such ratepayers. 2.The following uses of the City’s auction proceeds are permitted: a)Purchases or investment in renewable resources (outside Palo Alto or locally) for the electric portfolio; b)Investment in energy efficiency programs for the electric portfolio and retail customers; c)Fuel switching from other fuels to electricity that reduces greenhouse gas emissions; c)d)Investment in other carbon reduction activities, including those required to achieve a carbon-neutral electric portfolio; and d)e)Rebates to electric retail ratepayers. 3.Allocated allowances may also be used to meet the City’s electric utility’s compliance obligations for electricity scheduled into the California Independent System Operator Markets, should state law eventually permit this action. 4.Council will receive annual reports on the allowance revenues and expenditures associated with complying with CARB regulations and this policy. 5.Additional Council approval will be required for any rebates to electric ratepayers proposed under this Policy. The City’s Policy on the Use of Freely Allocated Allowances for the Gas Utility is as follows: 1.The City shall abide by CARB’s regulations by using the auction proceeds for the exclusive benefit of the City’s natural gas retail ratepayers, consistent with the goals of the Global Warming Solutions Act, also known as Assembly Bill 32 (AB32), and not for the benefit of entities or persons other than such ratepayers. DocuSign Envelope ID: C22AC74B-ADCA-44DE-8FFF-3FE9B5B1D035DocuSign Envelope ID: 9CDCD8E9-478A-42EF-907F-75217AB6B1A8 2.A portion of the Allocated Allowances can be used to meet the City’s natural gas utility’s compliance obligations, and the remaining Allocated Allowances will be consigned to auction. 3.The following uses of the City’s auction proceeds from the sale of Allocated Allowances are permitted, with a preference that greenhouse gas reduction measures be pursued before providing rebates: a.Investment in energy efficiency programs for the natural gas portfolio and retail customers; b.Purchases or investment in cost effective renewable bio-gas resources for the gas portfolio; c.Fuel switching from natural gas to electricity that reduces greenhouse gas emissions; c.d. Investment in other carbon reduction activities for the natural gas utility, including system maintenance or replacement to reduce fugitive gas emissions; d.e. Rebates to natural gas retail ratepayers. Rebates, if provided, must be allocated on a non-volumetric basis as stated in Title 17 CCR Section 95893 (d)(3). 4.Council will receive annual reports on the use of Allocated Allowances, including the use of auction revenues and expenditures associated with complying with CARB regulations and this policy. 5.Additional Council approval will be required for any rebates to natural gas ratepayers proposed under this policy. DocuSign Envelope ID: C22AC74B-ADCA-44DE-8FFF-3FE9B5B1D035DocuSign Envelope ID: 9CDCD8E9-478A-42EF-907F-75217AB6B1A8 6056673 Resolution No. 10078 Resolution of the Council of the City of Palo Alto Adopting a Carbon Neutrality Goal to Further the Climate Goals of the Sustainability and Climate Action Plan R E C I T A L S A.In December 2007, Council adopted the City’s Climate Protection Plan which set a greenhouse gas (GHG) emissions reduction goal of 20% reduction by the year 2020. B.In March 2013, Council approved Resolution 9322 directing staff to achieve carbon neutrality for the electric supply portfolio by 2013 through the use of a combination of hydroelectric resources, long-term renewable resources and short-term renewable energy resources and/or renewable energy certificates (RECs). C.In 2013, Council established the Office of Sustainability to work with other City departments to bring a sharper strategic focus, better interdepartmental synergy, and greater momentum to the City’s sustainability and climate initiatives. D.In April 2016, Council adopted a GHG emissions reduction goal of 80% reduction by the year 2030, relative to a 1990 baseline (the “80 x 30” goal). In 2016, the City and Community reduced GHG emissions an estimated 37% relative to the 1990 baseline. E.In December 2016, Council approved Resolution 9649 directing staff to achieve carbon neutrality for the natural gas supply portfolio by 2018 through the use of high-quality environmental offsets and physical “biogas” or “biomethane”. F.In September 2018, Governor Brown issued California Executive Order B-55-18, setting the goal to achieve carbon neutrality as soon as possible, by 2045 at the latest, and achieve and maintain net negative emissions from that point forward. A s defined by the California Air Resources Board, “Carbon neutrality means that all GHG emissions emitted into the atmosphere are balanced in equal measure by GHGs that are removed from the atmosphere, either through carbon sinks or carbon capture and storage”. G.In 2020, the City and Community reduced GHG emissions an estimated 50.6% relative to the 1990 baseline. H.In April 2021, Council directed the Mayor to form a Sustainability and Climate Action Plan (S/CAP) Ad Hoc Committee to guide the development, implementation, communication, and future community engagement of the S/CAP. In April 2022, the S/CAP Ad Hoc Committee began discussions on carbon neutrality. The “80 x 30” goal is an interim step that supports California’s statewide goal of achieving carbon neutrality by 2045. I.As a result, the Council wishes to adopt a carbon neutrality goal to further the climate goals of the S/CAP beyond the “80 x 30” goal, and direct staff to evaluate how the City would meet a carbon neutrality goal. DocuSign Envelope ID: 9CDCD8E9-478A-42EF-907F-75217AB6B1A8 6056673 The Council of the City of Palo Alto (“City”) RESOLVES as follows: SECTION 1. The Council hereby approves a goal to achieve carbon neutrality by 2030. SECTION 2. The Council finds that the adoption of this resolution is not subject to California Environmental Quality Act (CEQA) review because it is an administrative government activity that will not result in any direct or indirect physical change to the environment (CEQA Guidelines section 15378(b)(5)). INTRODUCED AND PASSED: October 3, 2022 AYES: BURT, CORMACK, DUBOIS, FILSETH, KOU, STONE, TANAKA NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Assistant City Attorney City Manager Director of Utilities Director of Administrative Services DocuSign Envelope ID: 9CDCD8E9-478A-42EF-907F-75217AB6B1A8 Certificate Of Completion Envelope Id: 9CDCD8E9478A42EF907F75217AB6B1A8 Subject: Complete with DocuSign: S/CAP Resolutions Source Envelope: Document Pages: 19 Signatures: 19 Certificate Pages: 5 Initials: 0 AutoNav: Enabled EnvelopeId Stamping: Enabled Time Zone: (UTC-08:00) Pacific Time (US & Canada) Status: Completed Envelope Originator: Vinhloc Nguyen 250 Hamilton Ave Palo Alto , CA 94301 Vinhloc.Nguyen@CityofPaloAlto.org IP Address: 199.33.32.254 Record Tracking Status: Original 10/4/2022 1:50:41 PM Holder: Vinhloc Nguyen Vinhloc.Nguyen@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 Amy Bartell Amy.Bartell@CityofPaloAlto.org Assistant City Attorney City of Palo Alto Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 199.33.32.254 Sent: 10/4/2022 1:58:55 PM Viewed: 10/5/2022 4:13:07 AM Signed: 10/5/2022 4:17:42 AM Electronic Record and Signature Disclosure: Accepted: 7/16/2015 5:52:40 AM ID: d8ecb53d-ef81-4016-8886-1560c48de42a Kiely Nose Kiely.Nose@CityofPaloAlto.org Director, Administrative Services/CFO City of Palo Alto Security Level: Email, Account Authentication (None) Signature Adoption: Uploaded Signature Image Using IP Address: 73.162.77.140 Sent: 10/5/2022 4:17:44 AM Viewed: 10/5/2022 9:36:57 AM Signed: 10/5/2022 9:37:41 AM Electronic Record and Signature Disclosure: Not Offered via DocuSign Dean Batchelor Dean.Batchelor@CityofPaloAlto.org Director of Utilities City of Palo Alto Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 199.33.32.254 Sent: 10/5/2022 9:37:44 AM Viewed: 10/5/2022 9:42:34 AM Signed: 10/5/2022 9:43:09 AM Electronic Record and Signature Disclosure: Not Offered via DocuSign Ed Shikada Ed.Shikada@CityofPaloAlto.org Ed Shikada, City Manager City of Palo Alto Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 199.33.32.254 Sent: 10/5/2022 9:43:12 AM Viewed: 10/5/2022 5:09:53 PM Signed: 10/5/2022 5:10:06 PM Electronic Record and Signature Disclosure: Not Offered via DocuSign Signer Events Signature Timestamp Patrick Burt pat@patburt.org Mr Security Level: Email, Account Authentication (None)Signature Adoption: Pre-selected Style Using IP Address: 98.37.159.0 Sent: 10/6/2022 11:02:12 AM Resent: 10/13/2022 10:43:14 AM Viewed: 10/13/2022 2:47:51 PM Signed: 10/13/2022 2:48:31 PM Electronic Record and Signature Disclosure: Not Offered via DocuSign Lesley Milton Lesley.Milton@CityofPaloAlto.org City Clerk City Clerk Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 199.33.32.254 Sent: 10/13/2022 2:48:33 PM Viewed: 10/13/2022 2:52:52 PM Signed: 10/13/2022 2:53:12 PM 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 Witness Events Signature Timestamp Notary Events Signature Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 10/4/2022 1:58:55 PM Certified Delivered Signing Complete Completed Security Checked Security Checked Security Checked 10/13/2022 2:52:52 PM 10/13/2022 2:53:12 PM 10/13/2022 2:53:12 PM Payment Events Status Timestamps From:Penny Proctor To:Council, City Subject:Thank you for Eleanor Restroom in FY 2026! Date:Monday, May 5, 2025 8:32:31 PM CAUTION: This email originated from outside of the organization. Be cautious of opening attachments and clicking on links. Dear Members of the Palo Alto City Council, It is wonderful to see the Eleanor Pardee Park restroom included in the FY 2026 budget! Thank you!! I have had an Eleanor Community Garden plot for 35 years. We have 101 plots now. 62 of those gardeners are over 60. And we have 7 families with little kids. We garden for hours. Many have medical conditions that make no restroom difficult. Several have had to give up their beloved plots for this reason. A couple of weeks ago I thought I was over the norovirus, but had a sudden relapse and a nervous quick trip to Rinconada library. We work hard to make Eleanor Community Garden beautiful and welcoming to visitors, with lots of flowers, and cherry tomatoes and berries for visitors, and the Butterfly Garden. We pull foxtail weeds to keep the dogs safe. There are so many birds! We have phoebes, swallows, bluebirds, and a pair of hawks. On past clean up and weeding days we have had to clean up human waste, which is a health risk for our volunteers. Hitting soft “solid waste” hidden in ivy or weeds with a weed whacker is very bad! It sprays in all directions in an 8 foot circle! It will be wonderful to have a restroom! The Master Gardeners Demonstration Garden hosts many well attended free classes, but cannot host school group classes now with no restroom. They will be so happy to be able to do so! Eleanor Pardee Park is almost 10 acres full of happy people! Playgrounds, soccer, lots of picnics and birthday parties. And little kids need to “go” often. A friend recently walked with her grandaughter to the park. When the child had to “go” they walked home, but could not make it and the little girl had an accident, and was mortified. They will not walk to the park again. My connection to Eleanor Park started when I was a toddler, (I’m 69 now,) and my mother, Helen Norman Proctor, ALSA (American Society of Landscape Architects,) designed the southern 5 acres. She wanted to include a restroom then. She will be pleased in Heaven! Thank you so very much for putting it in FY2026! It will make such a difference! Penny Proctor From:Karen Lally To:Council, City Subject:A Small Request for a Big Impact at Eleanor Pardee Community Garden Date:Monday, May 5, 2025 4:06:17 PM CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links. Hi there, My name is Karen Lally, and I work with HandsOn Bay Area—a volunteer-powered nonprofit based in the Bay Area. One of the places we’re proud to support is the beautiful Eleanor Pardee Community Garden in Palo Alto, where we help organize volunteer days alongside master gardeners and deeply dedicated community members. It’s a special place. Tucked into a quiet corner of the park, the garden is full of color, buzzing pollinators, and the kind of peace that feels rare these days. On a recent visit, we saw lots of bees and happy pups. The garden is alive—not just with plants, but with heart. What stands out most, though, are the people who show up. Week after week, volunteers arrive - often early in the morning - ready to dig, prune, and nurture this space for everyone to enjoy. They bring tools, knowledge, and joy. Their commitment to the garden and to fellow gardeners is magical. As I often tell our volunteers, “We show up to do good—but we also want to leave feeling good.” That’s part of why I’m reaching out. One of the ongoing needs at Eleanor Pardee is something small but meaningful: a restroom. For the years that I've been coming down, we've occasionally rented a porta potty when budget allowed, or directed folks to the library (a 20-minute round trip). But it’s not sustainable, and it interrupts the flow and joy of the work. A permanent bathroom would show these volunteers and the broader community that their time, effort, and care are truly valued. It would also support the garden’s long-term vitality by making it more accessible and welcoming to everyone who visits or volunteers. I know projects like this take planning and resources. But I also know that this garden has a deeply committed group who would not only use such a space responsibly but take pride in maintaining it. Thank you for considering this request. A bathroom might seem like a small addition but here it would make a world of difference. Warmly, Karen Lally -- Karen Lally (she/her/hers) | Why Pronouns Matter? Community Agency Relations Manager HandsOn Bay Area We have MOVED! Please update our address listing and send all correspondence to: HandsOn Bay Area 275 6th Street San Francisco, CA 94103 From:Joe Penko To:Council, City Subject:Restoring resources the healthy way FY26 (a message from your Palo Alto Firefighters) Date:Monday, May 5, 2025 4:01:09 PM Attachments:image002.png CAUTION: This email originated from outside of the organization. Be cautiousof opening attachments and clicking on links. i Esteemed Council Members and Finance Committee, Local 1319 has reviewed the Fire Chief’s recommendations for the FY26 budget and would like to highlight several important considerations before tomorrow afternoon’s meeting. On April 1st, the Finance Committee provided clear direction to staff: develop a budget that includes both a fully staffed Engine 64 (additive) and a peak-hours ambulance (additive), with consideration for phasing in a single-role model in a fiscally responsible manner. While the proposed FY26 budget meets an earlier midyear directive to make permanent the three positions required to staff the cross-staffed Engine 64, it falls short of the most recent directive: to fully staff Engine 64 as an independent, full-time unit. 1. Progress on E64 Staffing is Appreciated, but Incomplete We are grateful that the proposal includes the three FTEs needed to support the overtime Captain currently covering Engine 64. This is a critical step forward that improves firefighter well-being and moves us incrementally closer to our goal of a fully staffed, stand-alone engine company. 2. Opposition to a 12-Hour Overtime Ambulance Staffed by Firefighters The department is proposing the addition of a 12-hour peak-time ambulance staffed entirely through firefighter overtime, beginning in October. We have consistently expressed our strong opposition to this model in previous meetings. The proposed October start date is based on anticipated relief after fire season ends. However, even with the addition of new FTEs, firefighters will likely be covering five daily overtime positions throughout next summer—a level that is unsustainable. We appreciate the staff’s recognition of this concern in the report. Page 4 outlines an alternative: This message needs your attention This is a personal email address. This is their first email to you. Mark Safe Report "The City Council could choose to not implement the 12-hour peak ambulance on overtime as early as October and wait until the single-role 12-hour peak ambulance program and staffing are ready..." This would reduce immediate overtime burdens and avoid exacerbating the retention and morale issues we have experienced in the past. 3. The Best Path Forward: Invest Fully in the Single-Role Division The most balanced and sustainable solution is presented on page 5 of the staff report under “Alternatives”: “To address both the system capacity needs and the desire for a full-time engine at Fire Station 4, the Committee could recommend adding both a full-time ambulance and a 12-hour peak ambulance in the single-role model. Once implemented, this would add 14 FTEs and cost $2.2M in ongoing annual costs, with approximately half that amount needed in the first year.” This approach would: Support full restoration of Engine 64 as quickly as possible Eliminate the need for firefighter-staffed overtime ambulances in a shorter amount of time Accelerate the implementation of a sustainable EMS model. Given that the administration has identified $1.1M in ongoing revenue through increased EMS billing and fee adjustments, now is the ideal time to commit to the full implementation of this division. We believe the creation of the Single-Role Division is a worthy and necessary investment— but it will not be easy. Assuming this division alone will solve the E64 staffing problem within a year is ambitious. Relying on firefighters to bridge the gap through additional overtime replicates the very staffing crisis we’ve been trying to fix. Therefore, we urge the Council to provide the Single-Role Division with the full resources it needs from the outset. 4. E64 Restoration Still Needs a Clear, Accelerated Path The current plan does not propose any new options to fully staff Engine 64 as soon as possible beyond the long-term single-role timeline. Given economic uncertainties and public demand for restored services, delaying full restoration of Engine 64 carries risk—to both public safety and public trust. We respectfully ask the Council to remain open to any viable opportunities that emerge to restore E64 sooner. Local 1319 stands ready to work with you toward that goal. In Summary: Our top priority is the full staffing of Engine 64—without delay. We do not support the addition of a 12-hour ambulance staffed by firefighter overtime. support both EMS expansion and E64 restoration. Thank you for your continued partnership and dedication to the safety and well-being of our community. Joseph Penko Palo Alto Fire Department Local 1319 President C: 650.392.5589 | E: josephpenko@gmail.com