HomeMy WebLinkAboutStaff Report 2412-3916CITY OF PALO ALTO
CITY COUNCIL
Monday, June 09, 2025
Council Chambers & Hybrid
5:30 PM
Agenda Item
C.Fiscal Year 2025 Third Quarter Financial Status Report
City Council
Staff Report
From: City Manager
Report Type: INFORMATION ITEM
Lead Department: Administrative Services
Meeting Date: June 9, 2025
Report #:2412-3916
TITLE
Fiscal Year 2025 Third Quarter Financial Status Report
RECOMMENDATION
This report transmits information regarding the City of Palo Alto’s Fiscal Year 2025 Third
Quarter Financial Status Report. CEQA Status -- Not a project.
EXECUTIVE SUMMARY
The purpose of this report is to provide the City Council with information on the financial status
of the City’s General Fund and Enterprise Funds. This report is as of the end of the Third (3rd)
Quarter of Fiscal Year (FY) 2025 (January 1, 2025, through March 31, 2025). The figures
presented in this report are unaudited.
Third quarter results for the General Fund are fairly consistent with historical trends and it is
expected that the fund will meet the adjusted budget. Staff will continue to review revenues
and expenditures compared to the budget and bring forward information when available
regarding budget to actual variances. As of the end of March, 63.5% of the revenue adjusted
budget (before operating transfers) was received and 69.2% of the adjusted expenditure
budget (before operating transfers) was spent. Seasonality of the City’s major tax revenues,
specifically property tax and sales tax, are reasons why revenue received this time of year
trends lower than 75%.
The Budget Stabilization Reserve (BSR) is $54.0 million at the end of the 3rd quarter and is
projected to remain at this level through the year-end, which is 18.4% compared to the
Adopted Budget. This level is slightly below Council’s 18.5% target, but it is within the policy’s
15-20% range.
All Enterprise Funds reported a positive change in net position through the 3rd quarter of FY
2025 except for the Airport Fund. The combined increase totaled $16.1 million, or 31.5%,
higher than the same period of the prior fiscal year. The increase is primarily driven by the
Electric Fund.
BACKGROUND
Staff provide quarterly financial reports to ensure visibility of the City’s financial status. Staff
provided the Mid-Year Budget Review to report on the financial status of major funds and the
Capital Improvement Program as of the second quarter (Q2) of the current fiscal year and
recommended adjustments to the Adopted Budget in February 20251. This 3rd Quarter Financial
Report covers financial activity from July 1, 2024 to March 31, 2025 and compares those
amounts to the same period of the prior fiscal year and to the FY 2025 Adjusted Budget. This
report serves as a financial status update and does not include any budgetary adjustments for
FY 2025.
In the discussion of the major tax revenue categories below, staff indicates generally how each
category is trending compared to the adjusted budget from the FY 2025 Mid-Year Review.
ANALYSIS
General Fund
The General Fund 3rd Quarter Financial Report (Attachment A) contains a summary of major
General Fund revenues by source and expenditures by department and the comparison
between the FY 2025 Adopted Budget and Adjusted Budget. The Adjusted Budget column
includes prior year commitments that were carried forward into FY 2025 and the City Council
approved amendments to the FY 2025 Adopted Budget Year-to-Date (YTD).
The Adjusted Budget - Revenue and Sources (excluding Operating Transfers-in) includes a $2.5
million increase, a 1.0% increase over the FY 2025 Adopted Budget. Expenditures (excluding
Operating Transfers-out) were also adjusted from $268.0 million to $293.8 million, an increase
of 9.6% over the FY 2025 Adopted Budget. This increase includes reappropriations,
encumbrances, and budget amendments. These changes can be viewed on City’s website2.
1 February 24, 2025 Council Meeting Item #9, Report # 2412-386:
https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=83263
2 Budget Adjustments and Monitoring
https://www.cityofpaloalto.org/Departments/Administrative-Services/Budget-Adjustments-and-Monitoring
Revenue Highlights for FY 2025 3rd Quarter YTD
The General Fund FY 2025 Adjusted revenue budget is $260.8 million (excluding Operating
Transfers-in). The FY 2025 Adjusted Budget reflects a 5.4% increase in estimated revenues from
the prior fiscal year. As of the end of the 3rd quarter, $165.5 million has been collected, or
63.5% of the adjusted budget. This percentage is not fully indicative of the expected full fiscal
year receipts mainly due to timing of sales tax, property tax, transient occupancy tax and
business tax received over the fiscal year. This level of revenue compared to budget is slightly
lower than the 66.2% reported for the 3rd quarter of FY 2024 mainly due to the lower
percentage of Charge for Services, attributable to a $2.5 million timing difference in billing for
Stanford services and lower of Documentary Transfer Tax collections. As of the end of the 3rd
quarter, major tax revenues total $104.1 million, or 62.1%, of the $167.5 million adjusted
budget for these revenues.
All the major taxes except sales tax are higher compared to the same period of the prior fiscal
year, indicating continued economic activity. The decline in sales tax primarily driven by auto
sales and leasing reflects similar trends amongst other municipalities. The budget for sales tax
was adjusted downward at FY 2025 mid-year, with offsetting higher revenues in other
categories. Although most major tax revenue collection is trending higher than the prior year,
ongoing economic uncertainty remains a concern that Staff continues to monitor
The following table highlights the City’s major revenue sources for the 3rd Quarter Year-To-Date
(YTD), compared to the same period of the prior fiscal year. Revenues are expressed as a
percentage of the Adjusted Budget.
R F I %F %F %
P $$4 $6 $6
C 2 (-3 6 3 7
S 2 (-3 5 3 5
T 1 8 5 2 6 2 6
U 1 1 8 2 6 1 6
P 6 (-1 6 1 6
D 5 1 2 8 6 5 7
B 2 6 -5 5 2 0
A 2 (-4 6 4 6
T $1 0 $6 $6
3 A
F
F
(
2
1
1
$
2
$
7
4
3
2
Property Tax
At the close of the 3rd quarter, property tax revenue receipts were $43.9 million, or 64.3% of
the adjusted budget, and an increase of 4.2% over the same period in the prior fiscal year.
Property tax revenues are received from the County of Santa Clara during second, third, and
fourth quarters of the calendar year. The compounded annual growth rate (CAGR) over the 5
years and 10 years for this revenue source has been 7.0% and 8.1%, respectively. For FY 2025,
the certified secured and unsecured property tax assessed values (AV) growth rates are 4.78%
and 5.58%, respectively, with a combined rate of 4.82%.
At the FY 2025 Mid-Year review, the property tax budget was revised downward by $0.3 million
to $68.3 million. However, a February 2025 forecast from the County of Santa Clara’s Finance
Agency and Office of the Assessor, the entities responsible for property tax billing, collection,
processing adjustments such as sales and assessment appeals, projects FY 2025 revenue of
$69.4 million. This represents a $1.1 million (1.6%) increase over the adjusted budget. Staff will
continue to monitor property tax projections and update the Finance Committee and Council
with any new information when it becomes available.
Excess Educational Revenue Augmentation Fund (ERAF) distributions from the County of Santa
Clara in fiscal years 2021, 2022, 2023 and 2024 receipts were $5.6 million, $6.6 million, $6.4
million, and $7.0 million, respectively. Approximately 22% of Excess ERAF is from fiscal years
2021 to 2024 and 20% in FY 2025 is considered at risk due to the State Controller’s Office audit
finding on Marin County Excess ERAF calculation methodology, which also applies to Santa
Clara County. The County of Santa Clara has filed a lawsuit against the State Controller’s Office
on this matter. As of June 30, 2024, the total excess ERAF reserve balance totaled $5.6 million
for the at-risk amounts for fiscal years 2021 to 2024. The updated FY 2025 forecast assumes
$1.5 million additional reserves for a potential loss based on the County’s recommendation.
Due to the timing of sales tax collection and distribution by the California Department Tax and
Fee Administration (CDTFA), third quarter sales tax only reflects seven months of sales activity
(through January) and does not represent the full three quarters of the fiscal year. Actual year-
end performance will not be known until August.
As of the third quarter, sales tax revenue totaled $20.6 million, 57.9% of the adjusted budget,
and a $1.1 million or 4.9% decrease, compared to the same period in the prior fiscal year. This
decline is primarily due to lower auto sales and leasing. FY 2024 experienced elevated auto
sales and leasing due to post-pandemic pent up demand and attractive pricing for electric cars,
resulted in higher sales tax collections; FY 2025 activity is expected to normalize to FY 2023
levels. However, federal policy actions may further negatively impact sales. In FY 2024, elevated
car sales, driven by pent-up demand and attractive pricing for electric cars, resulted in higher
sales tax collections. To align the budget with current trends, particularly weaker auto sales and
leasing, staff recommended a $3.9 million or 11.2% reduction in the FY 2025 sales tax revenue
budget in the Mid-Year Budget Review, revising the budget to $35.6 million. Staff expect that
actual revenue for the year will meet or slightly exceed the adjusted budget.
Transient Occupancy Tax (TOT)
TOT revenues reached $17.3 million at the end of the 3rd quarter, a 5.3% increase over the
prior fiscal year and representing 61.1% of the adjusted budget. Although TOT trends for the
first half of the year were mixed, cumulative year-to-date results have normalized, and staff
expect year-end to close above the adjusted budget levels. The 3rd quarter results represent 7.5
months of TOT receipts due to up to 1.5-month timing delay in receipts.
As part of the FY 2025 Mid-Year Budget Review, the TOT budget was modestly increased by
$0.5 million with a corresponding $0.2 million increase in the transfer to the Capital Fund for
capital improvements. The revised total budget is $28.3 million, a 1.8% increase from the
adopted budget, based on year-to-date performance. Of this amount, $14.5 million is
anticipated to fund General Fund Expenses, while $13.8 million will be transferred to the
Capital Improvement Fund to fund 2014 Council Infrastructure Plan capital projects and
associated debt service costs.
Staff continue to monitor trends and conservatively estimate TOT levels based on recent trends
and the economic outlook. As of writing this report, receipts for the full third quarter are 4.5%
higher than the same period in the prior fiscal year. Average occupancy is 76.6%, a 1.5%
increase, while the average daily room rate is $246.0, a 3.3% increase.
If current trends continue, receipts are likely to meet or potentially exceed the adjusted budget.
However, due to the consumer sensitivity of this revenue source, staff maintains the adjusted
budget as an achievable target.
UUT revenues total $14.2 million at the end of the 3rd quarter, an 8.6% increase over the prior
fiscal year and 65.9% of the FY 2025 adjusted budget. The increase between current year and
prior year collections is primarily driven by utility rate increases. The FY2025 Adjusted Budget
revenue was revised to $21.5 million, an increase of $1.5 million, or 7.2% as part of the Mid-
Year Budget Review. However, actual receipts are now expected to be lower than this
projection due to the incorrect adjustment made at mid-year.
Cash receipts totaled $5.4 million, 63.3% of the FY 2025 Adjusted Budget and $1.2 million
higher than prior fiscal year receipts for the same period. The number of transactions increased
by 15.3% compared to the prior fiscal year’s 3rd quarter. The average median single residential
home price, based on City’s property tax consultant HdL Coren & Cone, increased 20.2% to $4.2
million in the first calendar quarter of 2025 compared to the same quarter of the prior year.
This revenue source is considered volatile since it is highly dependent on both the sales volume
and the mix of commercial and residential sales. Due to strong performance year-to-date, the
FY 2025 Mid-Year Budget Review revised the projected documentary tax revenue upward by
$1.3 million to $8.5 million. Staff continues to monitor these receipts closely due to significant
fluctuations that can occur at any time, depending on real estate sales activity.
Business Tax
Cash receipts totaled $2.7 million, 51.2% of the FY 2025 Adjusted Budget. The 3rd quarter
results represent two quarters of business tax collections, due to a timing delay of up to one
quarter in receipts. Businesses are required to file business tax quarterly, but it is due the first
day of the following quarter and is delinquent 30 days later. The expectation is that the
adjusted budget will be realized.
The tax was effective in January 2023, with the rate through January 2025 being 50% or 3.75-
cents per square foot per month. The full rate was assessed starting January 2025 at 7.5-cents
per square foot per month. The tax has an annual cap of $0.5 million per business and both the
rate and the cap are increased by 2.5% annually beginning FY 2027. While tax began January 1,
2023, the first due date is January 2024 for the calendar year of 2023. After the initial first
payment, filings shall be submitted on a quarterly basis.
This revenue category includes charges to Stanford for fire services, the paramedic services, as
well as fees related to the City’s golf course, class program, plan check, and street cut fees. As
of the 3rd quarter of FY 2025, the revenues totaled $24.8 million, down by $1.6 million or 6.0%
compared to the same period in the prior fiscal year. The year-over-year decline is primarily due
to a $2.5 million timing difference in billing for Stanford fire services, which were invoiced in
April 2025 instead of during the 3rd quarter as in prior fiscal year. Additionally, paramedic fees
decreased by $0.3 million, driven by lower transport volumes and a higher allowance for
uncollectible accounts. These decreases were partially offset by revenue increases in other
areas. Programs, classes, and admission fees increased by $0.7 million, mainly due to higher
demand for camps, middle school athletics, youth specialty classes, and children’s theatre
programs. Golf course fees are also higher by $0.4 million as a result of increased usage. At the
FY 2025 Mid-Year review, the revenue budget was revised upward by $0.6 million from $38.5
million to $39.1 million. Staff expect that actual revenue for the year to achieve adjusted
budget.
Expense Highlights for FY 2025 3rd Quarter YTD
The General Fund FY 2025 Adjusted Operating expenditures budget is $293.8 million (excluding
Operating Transfers-out). As of the end of the 3rd quarter, $203.2 million has been spent, or
69.2% of the Adjusted Budget. This spending level is 12.9% higher than the same quarter in FY
2024, primarily due to increased salaries and benefits (related to timing of pension accrual
accounting) and contract services.
Table 2 highlights General Fund expenditures by department for the 3rd quarter of FY 2025,
compared to the same period in the prior fiscal year. Year-to-date expenditures are presented
as a percentage of the respective fiscal year’s Adjusted Budget.
Table 2: General Fund Expenditures
As of the end of March 2025, with three-quarters of the fiscal year complete, total expenditures
represent 69.2% of the adjusted budget. This is higher than the 63.1% recorded at the same
period in the prior fiscal year primarily due to pension accruals that will be reconciled at year-
end and reduced vacancy levels. Overall General Fund projected expense for FY 2025 is
anticipated to come within or under the adjusted budget.
Given the organization’s service-driven nature, salaries and benefits comprise the largest
portion of expenditures. Through the first nine months of FY 2025, salaries and benefits
accounted for approximately 80.7% of the total adjusted budget in this category. This amount
trends higher than three-quarters of the adjusted budget due to the above-mentioned pension
accrual which will be reconciled in the fourth quarter. Projected salary and benefit costs are
anticipated to come within or under the adjusted budget.
General Fund expenditures for salaries and benefits totaled approximately $146.0 million
through March 2025, compared to $125.0 million for the same period in FY 2024. Key
contributors to this increase include: an increase in regular salaries ($5.6 million), overtime
($2.2 million), pension contribution ($6.8 million, discussed above), and other benefits ($2.7
million).
In addition to salaries and benefits, the following departments experienced material variances.
Departments not explained below such as Library and Administrative Services had increases
primarily due to higher salaries and benefits.
Community Services expenditures increased by $1.2 million, or 4.4%, compared to the same
period in prior fiscal year, mainly due to a $1.6 million increase in salaries and benefits, and a
$0.3 million increase in utility consumption costs. These increases were partially offset by a $0.7
million decrease in contract services, due to the timing of the Golf Management fee 3rd quarter
payment, which was made in May 2025.
E F F I %F %F %
P 4$4$5$1 5$7 5$7
F 4 3 8 2 5 7 4 7
C 2 2 1 4 4 6 4 6
P 1 1 1 1 2 6 2 6
P 1 1 (-2 5 3 5
L 9 8 1 1 1 7 1 6
A 8 7 9 1 1 7 1 6
A 3 2 4 1 5 5 6 4
T 2$1$2$1 2$6 2$6
F
(
3 A
Public Works expenditures increased by $1.9 million, or 12.0% compared to the same period in
the prior fiscal year. This increase is primarily due to a $0.7 million increase in salaries and
benefits, contract services, and utility costs. The increases in contract services are mainly due to
higher janitorial service contact and consultant fees. The increase in janitorial service contract,
effective December 2023, was due to higher new wage and benefits standards, and additional
City facilities and service frequency at some facilities. These were partially offset by the
reduction in tree trimming services.
All Other Departments expenditures increased $4.1 million, or 15.0% compared to the same
quarter in the prior fiscal year. The majority of this increase is due to the Non-Departmental, as
well as all other departments such as Human Resources and City Manager primarily due to
increases in salaries and benefits.
Non-Departmental expenditures increased by $1.2 million, or 10.8 % compared to the previous
fiscal year, driven by the following:
•Contract Services-legal fees increased by $1.4 million due to the settlement of Green
v. City of Palo Alto (Santa Clara Court Case No. 1-16-CV-300760)3. The increase was
due to the final two payments toward the total legal fees of $4.3 million. Although
the remaining balance of $2.7 million was originally scheduled to be paid over two
years, the full amount was paid in FY 2025.
•Contract Services-outside services increased $0.3 million mainly due to expenses
related to the Registrar of Voters for the Presidential General Election in November
2024.
•General Expenses – the remaining $6.6 million in customer refunds related to Green
v. City of Palo Alto were scheduled to be paid over two years. These refunds were paid
in full in March 2025, ahead of the original timeline. This accelerated payment
schedule was implemented to complete the refunds sooner and reduce the
administrative effort required to process. As a result, all remaining refunds to active
gas customers were issued one year earlier than planned. The settlement terms allow
for an accelerated payment schedule without penalty. In FY 2024 payment of first set
of refunds issued to active class members and a lumpsum refund to inactive class
members totaling $6.3 million resulting from the Green v. City of Palo Alto (Santa Clara
Superior Court, Case No. 1-16-CV-300760) settlement3. Total customer refunds are
$12.9 million to be paid over three years.
3 Green v City of Palo is a class action lawsuit filed against the City in October 2016 that challenged the City’s gas
and electric rates under Proposition 26. The trial court rejected plaintiff’s challenges to the City electric rates but
found that gas rates constituted unapproved taxes in violation of article XIII C of the California Constitutions. In
December 2023, the court issued a final order approving the $17.3 million settlement which consists of a $12.9
million refund to class members, a $7,500 service award for the class representative, and $4.3 million in attorney’s
fees for plaintiff’s counsel.
Police and Fire the total combined expenditures for the Police and Fire Departments accounted
for approximately 45.0% of total General Fund expenditures through the 3rd quarter of FY 2025.
The table below provides a summary of salary and overtime expenditure for this period. A
detailed analysis of net overtime costs for both departments is provided in Attachment B.
Police overtime is primarily driven by staffing shortages due to unfilled positions, absences and
fluctuating service demands, such as major accidents. As of the end of the 3rd quarter, the
department had nine vacancies (seven officers and two dispatchers). Of the 78 authorized Palo
Alto Peace Officers’ Association (PAPOA) positions, 71 are currently filled. However, 10 officers
(14%) are in training, eight (11%) are on long-term leave, leaving 53 (74%) available for duty.
Currently, 16 officers are assigned to specialized units: eight to investigations, three to traffic
enforcement, two to personnel/training, two to special problems and one to the Psychiatric
Emergency Response Team. This leaves 37 officers on patrol duties. These officers handle
approximately 110 calls per day, conduct enforcement stops and engage in community
outreach initiatives. The Department operates five patrol teams, each consisting of four to five
members.
As a result of these staffing challenges, the Department is trending above budget for total
salary and overtime, but Staff is working to bring the Department expenditures within budget
by the end of FY 2025. The Department’s net overtime cost is $1.8 million after deducting the
reimbursements and salary savings due to vacancies. Analysis is included in Attachment B.
E F F %F %
I
P $$1 $2 6
P 2 2 1 1 1 2
T 1 1 1 2 2 7
F 1 1 1 1 1 6
F 4 2 1 5 2 1
T 1 1 1 2 2 7
T
S 3$3$1 4$4$7
F
7
7
8
7
7
2
7
3 A
F %
S
F
(
Fire overtime is mainly driven by the need to backfill vacancies to maintain the required staffing
levels of 24 staffed positions daily to keep Fire Engines and Ambulances fully operational.
These vacancies caused by unfilled positions, injury leave, probationary training, or scheduled
time off must be covered by overtime. During the 3rd quarter of FY 2025, six positions were
vacant, and six employees were on injury leave, driving higher overtime. Additionally, the Fire
Department deployed staff on 12 strike teams during the fiscal year, including for the Palisades
fire. The Mid-Year Budget Review recognized $0.4 million in revenue to cover the overtime
costs associated with these deployments.
Overtime costs also increased due to wage increases under the International Association of Fire
Fighters (IAFF) agreement, which provided a 4% wage increase effective July 2024 followed by
an additional 2% increase in January 2025. To address staffing needs, the Department hired 10
entry-level positions in the summer and sent them to the Fire Academy in October 2024. The
academy lasts at least 20 weeks, and overtime is needed to cover daily staffing until the new
hires are trained or authorized for assignments. These recruits were assigned in April 2025, with
overtime for their backfill expected to decrease in the fourth (4th) quarter.
As a result of reimbursement funding for Strike Teams, and the shift of salary savings within the
Department to overtime as part of the Mid-Year Budget Review, overtime is tracking higher and
exceeded adjusted budget. Overall, the Department is trending above the budget for total
salary and overtime but Staff is working to bring the expenditures within budget by the end of
FY 2025. The Department’s net overtime cost is $3.5 million after deducting the
reimbursements and salary savings due to vacancies. Analysis is included in Attachment B.
General Fund Budget Stabilization Reserve (BSR) Balance
As a result of budget amendment actions taken in FY 2025, including the FY 2025 Midyear
Budget Review,4 the Budget Stabilization Reserve (BSR) was $54.0 million at the end of 3rd
quarter. This amount is $0.4 million below the City Council’s recommended target of $54.4
million, which represents 18.5% of the General Fund adopted operating expenditure. Per policy,
the City maintains a BSR balance within a range of 15% to 20% of annual operating
expenditures, with a target level of 18.5%. The FY 2026 Proposed Budget is projected to
maintain the $54.0 million BSR balance at year end, which is 17.3% of expenditures and below
the City Council’s recommended target level of 18.5% by $3.8 million. This BSR level is being
sustained by using the Budget Uncertainty Reserve, which was specifically established to
provide one-time bridge funding for community services and to help maintain reserve levels
during periods of funding shortfall.
4 City Council Special Meeting, February 24, 2025, Agenda Item 9, Staff Report# 2412-3865
https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=83263
The Council proactively set aside funds in the FY 2023 Mid-Year Budget Review and established
a Budget Uncertainty Reserve to provide bridge funding for community services in subsequent
years. The FY 2025 adopted budget included a remaining Budget Uncertainty Reserve of $6.1
million and Council allocated $5.9 million as part of the FY 2025 Mid-Year Budget Review to set
aside a total of $12.0 million for future budget year planning. The FY 2026 proposed budget
relied on the full $12.0 million from the Budget Uncertainty Reserve, eliminating the balance
and removing this one-time resource to address future deficits forecasted in the Long-Range
Financial Forecast (LRFF). Subsequent discussions with the Finance Committee and City Council
have revised the recommended use of the Uncertainty Reserve in FY 2026. Work continues on
development of the FY 2026 Budget, scheduled for Adoption on June 16, 2025.
Enterprise Funds
Table 4: Enterprise Funds Change in Net Position
Water Fund increased by $4.6 million, or 153.7%, from the prior fiscal year, primarily due to
higher retail revenues from customer sales and $1.2 million reduction in transfers to other
funds. The increase in retail revenues was partially offset by higher commodity costs. Customer
sales grew by $4.4 million, driven by a 9.5% overall rate increase effective July 1, 2024, and
higher water consumption. Commodity costs are higher, as the wholesale commodity rate from
I
F F F (%
W 7$3$4$1
E 4 2 1 7
F 1 1 (-
G 8 4 4 1
W 2 7 2 2
W 2 1 (-
R 1 3 (-
S 1 1 0 0
A (2 (-
T 6 5 1 3
F
3
(
San Francisco Public Utilities Commission (SFPUC) increased from $5.21 to $5.67 per cubic feet,
reflecting an 8.8% increase.
Electric Fund increased $17.9 million, or 73.1% compared to the prior fiscal year. This increase
was primarily driven by higher operating revenues, partially offset by increased operating costs.
Operating revenues increased by $22.4 million, mainly due to a $11.4 million increase in
customer sales, attributed to rate adjustments depending on the type of customers and levels
of consumption effective July 1, 2024, the addition of a new data center, and higher
commercial consumption. In addition, other operating revenues increased by $10.6 million,
mainly due to higher revenue from renewable energy credit (REC) sales and resource adequacy
sales.
Gas Fund increased by $4.3 million, or 101.7%, compared to the same period in the prior fiscal
year, mainly due to higher customer retail revenue and lower commodity purchases. Customer
retail revenue increased by $3.2 million mainly driven by a 12.5% gas rate increase effective July
1, 2024, partially offset by decreased consumption particularly from commercial users.
Operating expenses decreased mainly due to lower commodity purchases due to lower
commodity market prices and zero Renewable Energy Certificate (REC)purchases. These
decreases were partially offset by higher salaries and benefits.
Wastewater Collection Fund increased by $2.0 million, or 279.4% compared to the prior fiscal
year, mainly due to higher operating revenue primarily from customer sales, partially offset by
an increase in operating expenses. The customer sales increase resulted primarily from 15.0%
overall rate increase for residential and commercial customers, effective July 1, 2024. The rate
increase allows the highest priority sewer mains to be replaced while allowing the reserves to
gradually replenish before the next major project. The increase in operating expenses was
mainly due to increased share of wastewater treatment costs, due to rising operational and
minor capital expenses.
Wastewater Treatment Fund decreased by $7.4 million, or 72.8%, compared to the prior fiscal
year. This decrease is primarily due to the timing of 4th quarter billing to partner agencies,
which was processed in March during FY2024, as opposed to April, in the current fiscal year. If
billing had occurred in FY2024 in the same period as this fiscal year, the Fund would have
resulted in an increase of approximately $1.6 million, or 114.0% primarily due to increased
revenue from the partner agencies partially offset by higher operating expenses. The increase
in revenue from partner agencies is due to several factors, including higher operating and
maintenance expenses, increased salary and benefit costs, elevated permitting fees, and rising
contract costs. These expenses are recovered from partner agencies, including the Wastewater
Collection Fund, either quarterly or annually in accordance with their respective agreement
terms. The billing is based on the FY2025 adopted budget, the prior year’s sewage flow, and
each partner’s share of existing debt service. Any over or underbilling resulting from differences
between the adopted budget and actual expense is reconciled at year-end, with either an
additional charge or credit applied accordingly. The increase in operating expenses was mainly
due to higher salaries and benefits.
Refuse Fund decreased $1.8 million, or 55.9%, primarily due to a $1.5 million increase in
operating expenses driven mainly by higher salaries and benefits, as well as increase payments
to GreenWaste of Palo Alto and GreenWaste Recovery resulting from payment timing and CPI
adjustment.
Airport Fund decreased by $3.4 million, or 140.6%, primarily due to the $2.1 million reduction
in grants received from the Federal Aviation Administration following the completion of the
Airport Apron Reconstruction project in FY 2024. Operating expenses also increased by $1.1
million driven by higher salaries and benefits, cost plan charges and deprecation expenses.
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
ENVIRONMENTAL REVIEW
ATTACHMENTS
rd Quarter Financial Report
rd Quarter Public Safety Overtime Analysis
APPROVED BY:
BUDGET ACTUALS (as of 03/31/2025)
Adopted Adjusted Pre % of Adj
Budget Budget Encumbr Encumbr Actual Budget*
Revenues & Other Sources
Sales Tax 39,577 35,588 - - 20,611 57.9%
Property Tax 68,623 68,319 - - 43,926 64.3%
Transient Occupancy Tax 27,857 28,345 - - 17,309 61.1%
Documentary Transfer Tax 7,260 8,550 - - 5,414 63.3%
Utility Users Tax 19,943 21,489 - - 14,166 65.9%
Business Tax 4,763 5,250 - - 2,689 51.2%
Other Taxes and Fines 1,757 1,757 - - 594 33.8%
Charges for Services 38,507 39,112 - - 24,837 63.5%
Permits & Licenses 10,813 10,877 - - 6,689 61.5%
Return on Investment 3,264 3,804 - - 2,573 67.6%
Rental Income 16,367 16,367 - - 11,382 69.5%
From Other Agencies 3,725 5,223 - - 3,024 57.9%
Charges To Other Funds 15,096 15,096 - - 11,498 76.2%
Other Revenues 781 1,011 - - 793 78.5%
Total Revenues 258,333 260,788 - - 165,505 63.5%
Operating Transfers-In 29,148 30,042 - - 22,531 75.0%
Encumbrances and Reappropriation 16,093 33,469 - - - 0.0%
Contribution from Development Services Reserves 682 682 - - - 0.0%
Total Sources of Funds
Expenditures & Other Uses
City Attorney 5,023 5,576 - 1,026 3,410 79.6%
City Auditor 990 1,908 204 1,073 588 97.8%
City Clerk 1,443 1,540 0 155 1,005 75.3%
City Council 512 551 0 105 315 76.2%
City Manager 5,592 5,850 30 286 4,298 78.9%
Administrative Services 11,967 12,267 12 334 8,723 73.9%
Community Services 41,159 42,821 324 4,934 29,290 80.7%
Fire 55,008 56,530 16 473 43,900 78.5%
Human Resources 5,509 5,987 0 97 4,286 73.2%
Library 12,528 13,144 73 497 9,701 78.1%
Office of Emergency Services 1,728 2,111 - 218 1,235 68.8%
Office of Transporation 4,304 4,935 126 698 3,335 84.3%
Planning and Development Services 24,327 29,336 208 4,912 17,133 75.9%
Police 55,812 56,497 4 693 45,946 82.6%
Public Works 24,856 27,735 346 4,960 17,355 81.7%
Non-Departmental 17,265 27,023 20 523 12,697 49.0%
Total Expenditures
Operating Transfers-Out 6,314 6,330 - - 4,735 74.8%
Transfer to Infrastructure 32,526 36,735 - - 27,551 75.0%
Total Use of Funds 306,861 336,876 1,362 20,984 235,501 76.5%
Net Change to BSR
Budget Amendments in the General Fund Authorized by Council thru 3/31/2025
Phase I of the Car Free Ramona Street Project
(12/16/24)CMR#2410-3668 (166)
FY25 Mid-year Budget Amendments (2/24/2025) CMR#2412-3865 (9,125)
Total Budget Amendments Authorized by Council - (9,291)
BSR Balance 63,331 54,040
BSR % of Adopted Total Use of Funds 20.6% 17.6%
(in thousands)
ATTACHMENT A
CITY OF PALO ALTO
GENERAL FUND THIRD QUARTER FINANCIAL REPORT
Fiscal Year Ending June 30, 2025
Attachment C
2023 2024 2025 Q3
POLICE DEPARTMEN
Overtime Expens
Adopted Budget (A)$972,512 $1,028,988 $1,098,939
Modified Budget (B)972,512 1,028,988 1,098,939
Net Overtime Cost - see below 1,107,518 1,160,290 1,863,857
Variance to Budge (135,006) (131,303) (764,918)
Overtime Net Cos
Actual Expense $2,940,019 $3,467,691 $2,677,774
Less Reimbursements
Other Program Reimbursements 878 259,747 -
California OES/FEMA (Strike Teams) - - -
Stanford Communications 124,868 99,161 85,354
Utilities Communications Reimbursement 64,599 56,429 53,108
Local Agencies (C)4,949 6,574 4,840
Police Service Fees 100,413 117,433 89,654
Total Reimbursements 295,707 539,345 232,956
Less Department Vacancies (A)1,536,794 1,768,057 580,962
Net Overtime Cost $1,107,518 $1,160,290 $1,863,857
Department Vacancies (number of days)4,876 5,419 1,655
Workers' Compensation Cases 23 21 10
Department Disabilities (number of days)739 381 529
FIRE DEPARTMEN
Overtime Expens
Adopted Budget (D)$2,124,054 $2,146,234 $2,721,066
Modified Budget (E)3,801,054 2,146,234 5,216,682
Net Overtime Cost - see below 1,740,750 1,734,841 3,470,695
Variance to Budge 2,060,304 411,393 1,745,987
Overtime Net Cos
Actual Expense $3,589,198 $4,099,233 $4,449,462
Less Reimbursements
California OES/FEMA (Strike Teams) 341,629 - 512,553
Fire Station 8 Fire Services 272,267
Total Reimbursements 341,629 - 784,820
Less Department Vacancies (D)1,506,819 2,364,392 193,947
Net Overtime Cost $1,740,750 $1,734,841 $3,470,695
Department Vacancies (number of days)4,105 5,297 2,588
Workers' Compensation Cases 32 8 8
Department Disabilities (number of days)484 274 230
NOTES:
(A)The FY 2025 Police Department budget was increased by 1.0 Police Lieutenant.
(B)Police Department adopted budget has not been adjusted in FY 2025.
(C)Includes Animal Control Services contract with Los Altos and Los Altos Hills.
(D)The FY 2025 Fire Department budget was increased by 3.0 Fire Fighters.
(E)As part of the FY 2025 Mid-Year Review, City Council approved actions that will result in a Fire Department overtime budget of $5.1 million,
including shifting $1.0 million of vacancy savings for overtime.
Public Safety Department
Overtime Analysis for Fiscal Years 2023 through 2025