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HomeMy WebLinkAbout2026-01-20 City Council Summary MinutesCITY COUNCIL SUMMARY MINUTES Page 1 of 24 Special Meeting January 20, 2026 The City Council of the City of Palo Alto met on this date in the Council Chambers and by virtual teleconference at 5:30 p.m. Present In Person: Burt, Lauing, Lu, Lythcott-Haims, Reckdahl, Stone, Veenker Present Remotely: None. Absent: None. Call to Order Mayor Veenker called the meeting to order. The clerk called the roll and noted all Councilmembers were present. Special Orders of the Day 1. Proclamation honoring Aaron (Bunk) Miller for 34 Years of Service to the Palo Alto Regional Water Quality Control Plant and its partner agencies. Mayor Veenker announced that the Council would read a proclamation honoring Aaron (Bunk) Miller and welcomed Director Eggleston. Mayor Veenker stated that proclamations recognizing service are among the Council’s most valued duties. Public Works Director Brad Eggleston introduced the item honoring the career of Aaron (Bunk) Miller, who began his service in 1992 and retired at the end of 2025 after 34 years at the Regional Water Quality Control Plant. Director Eggleston described Mr. Miller as a valued leader and mentor who would be missed by colleagues and wished him well in retirement. Mr. Miller’s family members in attendance were acknowledged. Councilmember Lauing read the proclamation: This is in appreciation to Aaron (Bunk) Miller upon his retirement. Whereas, Aaron (Bunk) Miller began his career with the City of Palo Alto at the Regional Water Quality Control Plant on January 6th, 1992, as an Operator-In-Training; and whereas, Bunk has enthusiastically served the citizens of Palo Alto working entirely in the Public Works Department - Environmental Services Division for more than three decades with his final position as Assistant Plant Manager managing the Maintenance Department for the Regional SUMMARY MINUTES Page 2 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 Water Quality Control Plant; and whereas, Bunk received the State of California State Water Resources Control Board Wastewater Treatment Plant Operator Grade I and Grade II certificates, and the California Water Environment Association Grade I, Grade II, and Grade III certificates; and whereas, Bunk was awarded Plant Mechanic of the Year in 2016 from the CWEA; and whereas, Bunk with a smile worked through many storms to make sure that the streets of Palo Alto did not flood with wastewater by keeping the headworks flowing, especially during the 2022 New Year’s Eve storm, where he and his crew worked around the clock for days to make sure that the flow from the 6 communities could be treated at the Regional Water Quality Control Plant; and whereas, Bunk improved himself with certifications above and beyond what was needed for his position in safety, equipment, process, leadership, and management and consistently had glowing reviews from his supervisors where he exceeded expectations throughout his tenure; and whereas, Bunk has mentored and trained many new operators and mechanics during his career and is known to be a true leader by showing the new team members how to fix things and where all the pipes, valves and pumps are located at the Regional Water Quality Control Plant; all staff are going to miss his wealth of knowledge of our facility; and whereas, Bunk was known for being kind, helpful, friendly, honest, hardworking, having a team player mentality, and willing to work and compromise with all departments for the betterment of the Regional Water Quality Control Plant, putting the needs of the many above the needs of the few; and whereas, Bunk has completed 34 years of exemplary, outstanding, and dedicated service to the City of Palo Alto’s Regional Water Quality Control Plant Serving the City of Palo Alto, the City of Mountain View, the City of Los Altos, the City of East Palo Alto, the Town of Los Altos Hills, and Stanford University. Now, therefore, I, Vicki Veenker, Mayor of the City of Palo Alto, on behalf of the entire City Council, do hereby recognize Aaron (Bunk) Miller for his dedication and excellent service rendered to the City. Dated January 20, 2026. Mayor Veenker thanked Mr. Miller for his exemplary public service and contributions to the City. Aaron (Bunk) Miller expressed gratitude for the opportunity to serve the City and thanked his colleagues for their support and friendships. Mr. Miller stood for a photo with the Council. NO ACTION Agenda Changes, Additions and Deletions City Manager Ed Shikada stated there were no changes to the agenda. Public Comment SUMMARY MINUTES Page 3 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 1. Sven T. thanked the Council for its service and expressed support for its work. Sven T. referenced the City of Palo Alto Utilities mission statement and urged the City to transition away from maintaining parallel electric and natural gas systems, arguing that electricity is safer, more reliable, more cost-effective, and more environmentally sustainable. Sven T. stated that natural gas poses health and environmental risks, particularly to children, and encouraged the City to move more quickly toward full electrification. 2. Megan G., a college student at Santa Barbara City College, expressed support for the City educating the public about the health risks associated with natural gas stove emissions and the benefits of induction cooking. Megan G. stated that emissions disproportionately impact children and youth and cited a recent community survey in support of public education efforts to promote healthier environments. 3. Mora Oommen, Executive Director of Youth Community Service, thanked Councilmember Lauing for his service as Mayor and congratulated Mayor Veenker and Vice Mayor Stone. Ms. Oommen expressed appreciation for the community’s Martin Luther King, Jr. Day celebration held on January 19 at Mitchell Park Community Center, highlighting youth participation and community collaboration. Ms. Oommen thanked City staff, the Palo Alto Youth Council, and elected officials for their involvement and invited the Council to attend the Community Impact Exhibit on April 19, 2026, at Mitchell Park Community Center, celebrating youth service and leadership. 4. Star T. expressed concern about the proposed development at 3606 El Camino Real, citing safety issues on surrounding streets that serve as Safe Routes to School, and urged the Council to review her prior correspondence. Star T. encouraged consideration of alternative site access standards, including a driveway on El Camino Real. Star T. also raised concerns about tree protection policies, referencing a proposed removal of mature redwood trees at 530 Barron Avenue, and suggested strengthening the City’s tree protection policies and exploring alternative construction methods to preserve tree roots. Council Member Questions, Comments and Announcements Councilmember Lythcott-Haims acknowledged Palo Alto Community Child Care (PACCC), noting its 50-year history and growth to 18 centers. Councilmember Lythcott-Haims referenced attending a recent ribbon-cutting with the Mayor and, as the Council liaison, expressed appreciation to PACCC, its board, Executive Director Lee Pfab, and the broader PACCC community for providing childcare support to families. Councilmember Burt reported on a recent Caltrain local policymaker group meeting focused on updates to the corridor crossing strategy. Revised projections show lower increases in train and vehicle volumes, reducing the urgency for widespread grade separations, while costs have SUMMARY MINUTES Page 4 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 increased and available funding has declined. Councilmember Burt explained that Caltrain is now pursuing a multifaceted approach that continues to support select grade separations, while emphasizing crossing closures, enhanced at-grade safety measures, corridor-wide security improvements, and signal optimization. Councilmember Burt noted that these strategies are intended to improve safety and mobility at significantly lower cost, reflect current conditions, and recognize Palo Alto’s longstanding transportation policies and programs as influential in Caltrain’s planning models. Mayor Veenker thanked Councilmembers Burt and Lu, City staff, East Palo Alto staff, Youth Community Service, and participating students for their involvement in the Martin Luther King, Jr. Day celebration and expressed appreciation to Mora Oommen for her leadership in organizing the event. Mayor Veenker also congratulated the City of Bloomington, Indiana, (a sibling city to Palo Alto) on Indiana University’s national championship football win, drawing a parallel to the value of teamwork in achieving shared goals. Study Session 2. Presentation of the 2025 Annual Community Survey Results. CEQA Status -- Not a project. Assistant City Manager Kiely Nosé introduced the 2025 Community Survey, noting that the City retained the consulting firm Polco to conduct the survey and provide annual data and benchmarks on City services. Polco EVP of Data & Insights Sonya Wytinck presented highlights from the 2025 Community Survey, noting that it was the 21st iteration and used the same methodology as prior years, with results based on a statistically valid random sample. The full report of the survey was in the staff report, and most ratings were stable or improving compared to 2024 and generally aligned with or above national benchmarks. Residents reported a high quality of life and strong satisfaction with City services, parks, libraries, utilities, and nonmotorized transportation; and there were positive perceptions of Palo Alto’s image and business quality. Housing affordability and cost of living remained the lowest-rated issues. EVP Wytinck noted the survey highlighted limited resident awareness of sustainability programs and that financial incentives were the primary motivator for electrification. Overall, survey results reflected strong resident satisfaction with City services and governance. Mayor Veenker thanked staff for the report, invited Council's clarifying questions, and noted that the item was a study session with no action to be taken. Councilmember Reckdahl asked about survey results related to crime in Area 5 (Table 43), noting a discrepancy between reported victimization and reporting crimes to police, and inquired whether the data reflected a true difference in crime rates or a statistical anomaly. City Manager Shikada stated that staff had not independently followed up on the statistic, SUMMARY MINUTES Page 5 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 noting that prior surveys have shown more negative feedback from the Area 5 neighborhood compared to other areas and that the issue warrants further review. EVP Wytinck clarified that the survey notation indicated Area 5’s results were statistically different from some areas but similar to others, explaining that the differences reflected statistical comparisons rather than a uniform deviation across all neighborhoods. Councilmember Reckdahl questioned survey results showing lower utility reliability ratings in Area 4 (Table 66) and inquired whether the data reflected a higher number of outages or differing resident reactions. City Manager Ed Shikada responded that staff had not yet conducted an independent analysis and would need to review the issue further. Councilmember Burt emphasized the need to distinguish between perception-based responses and objective conditions. Councilmember Burt requested that staff compare survey perceptions with available data in areas showing consistently negative responses to better inform interpretation of the results. Councilmember Lythcott-Haims inquired about the list of comparable cities used for benchmarking. EVP Wytinck responded that the list is proprietary but is shared internally with the City. Councilmember Lythcott-Haims questioned the survey’s language accessibility, noting that mailers were sent only in English despite the City’s language diversity and that very few responses were received in Spanish and simplified Chinese. EVP Wytinck explained that multilingual mailings are cost-prohibitive relative to response rates and that online translations and in-language notices are a common compromise. Councilmember Lythcott-Haims expressed concern that non-English speakers may be underrepresented and requested further exploration of language demographics and outreach to ensure a representative sample. Mayor Veenker built on Councilmember Lythcott-Haims’ comments regarding survey language access and requested information on the marginal cost of including additional languages in mailed surveys. Mayor Veenker expressed concern about the low response rates in non-English languages and emphasized the importance of ensuring representative outreach before future survey efforts. Mayor Veenker asked about the comparability of benchmark cities used in the survey and whether any distinctions should be considered when interpreting the data. EVP Wytinck responded that comparison cities generally represent higher-performing jurisdictions nationwide and include a wide range of community sizes and locations, noting that custom benchmarks can be developed based on specific criteria. Assistant City Manager Nosé added that staff reviews a set of California-based custom comparables as part of the benchmarking process to ensure relevance. Councilmember Lu requested clarification on survey results related to Question 19 (Table 94) and the open-ended question relating to housing and construction, noting that open-ended responses reflected both support for and opposition to additional housing. EVP Wytinck confirmed that the housing and construction category captured a range of positive and negative comments and should not be interpreted as a single viewpoint. Public Comment: SUMMARY MINUTES Page 6 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 1. Sven T. commented on community survey results, praising the City’s ease of biking and electric utility services. Sven T. referenced community efforts supporting renewable energy and noted survey findings related to climate awareness and electrification incentives. Sven T. urged the City to focus on public education regarding health impacts of gas appliances and to encourage a transition to electric and induction cooking. 2. Star T. suggested ways to increase awareness of sustainability efforts, including promoting the joint Sustainable Schools Committee through City communications. Star T. noted challenges in reaching renters through surveys and recommended exploring a rental registry to improve outreach and inclusivity. Star T. also proposed voluntary tree protection initiatives, such as a protected tree registry, educational outreach, and incentives to encourage tree care and support climate goals. 3. Hilary G. referenced survey results showing support for electrification based on health and safety concerns and urged the City to emphasize public education on the health impacts of gas stoves. Hillary G. encouraged inclusion of health information and safety guidance in City outreach materials and suggested framing electrification efforts around health and safety rather than climate change. 4. Anya R. (Zoom), a Palo Alto High School student, addressed community survey results and emphasized health and safety reasons for transitioning from gas to induction appliances. The City was urged to increase public awareness of indoor air quality impacts from gas stoves through existing outreach, including safety materials, and to promote practical and affordable alternatives such as shared-access or low-cost induction cooking options. 5. Winter (Zoom) commented on survey findings related to electrification and code enforcement. It was noted that cost remains a barrier to replacing gas appliances, particularly for low-income residents, and the need to consider affordability in electrification efforts was emphasized. Winter also raised concerns about code enforcement capacity, citing limited staffing levels and increasing development pressures, and urged the City to address code enforcement resources as part of future budgeting discussions. 6. Avroh S. (Zoom), a Palo Alto High School student, noted survey results that indicated some residents are reluctant to transition to electric appliances and expressed concern about the City’s ability to meet its climate goals. The City was urged to strengthen outreach by emphasizing health impacts and affordability, rather than climate messaging alone, and suggested expanded communication and incentives to encourage broader participation in electrification efforts. 7. Leif T., a Palo Alto resident currently enrolled in college in Maine, advocated for City-led educational outreach on the health impacts of gas stove combustion and expressed support for informing residents about the benefits of induction cooking. SUMMARY MINUTES Page 7 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 8. Haileigh S. (Zoom), a college student, expressed support for City efforts to educate the public about health risks associated with natural gas and the benefits of induction cooking as part of home electrification. Mayor Veenker thanked the public commenters for their input on the community survey and stated that their feedback was helpful to the Council’s discussion. Councilmember Lauing commented positively on survey results showing increased perceptions of City transparency and openness. Councilmember Lauing asked about the 10-point increase in ratings for affordable high-speed internet, noting the rise from 44 percent to 54 percent , and questioned whether dissatisfaction remained given the City’s pilot efforts. EVP Wytinck explained that while ratings remain lower relative to other services, they are consistent with national benchmarks and reflect a meaningful improvement. Councilmember Lauing raised concerns about survey results on the importance of reducing community greenhouse gas emissions, noting that ratings have not increased since 2017 and have declined from a peak in 2022–2023. EVP Wytinck responded that importance ratings fluctuate as residents balance competing priorities and that the change did not indicate a significant decline in concern. Councilmember Lauing also cited survey results showing resistance to gas appliance electrification, emphasizing cost and financing barriers, particularly for lower -income households, and cautioned against setting gas shutoff timelines without clearer affordability and implementation data. Councilmember Lauing further questioned whether conducting the survey annually provides sufficient value relative to staff time and cost. Vice Mayor Stone questioned whether conducting the community survey annually is necessary, expressing interest in understanding costs, staff burden, and whether a biennial approach would still allow for meaningful trend analysis. EVP Wytinck responded that some jurisdictions conduct surveys annually while others do so every 2 years, depending on how the data is used for planning and performance measurement. Assistant City Manager Nosé noted that the City has previously alternated survey frequency at Council direction and stated that the current cost is approximately $33,000. City Manager Shikada provided context regarding prior Council discussions about survey design and length and noted that modifications could be considered. Vice Mayor Stone stated that the survey data is valuable for informing Council priorities and annual planning, particularly for refining sustainability messaging, and emphasized the importance of framing climate action in ways that resonate with residents, including cost savings. Vice Mayor Stone expressed concern that only 55 percent of respondents rated Palo Alto as a good place to retire and suggested further analysis to better understand contributing factors. Vice Mayor Stone stated that insights related to mobility, services, housing costs, and downsizing could help inform future Council discussions and housing policy considerations for seniors. Councilmember Reckdahl commented on the value of conducting the community survey annually, stating that the cost was justified by the ability to identify trends more quickly. Councilmember Reckdahl described the survey as well done but noted that many results were difficult to interpret or translate into actionable policy, particularly where underlying causes SUMMARY MINUTES Page 8 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 were unclear. Councilmember Reckdahl cited neighborhood differences in community connection and quality-of-life scores and asked how the City might better understand the reasons behind those variations. EVP Wytinck responded that the survey is intended to highlight areas for further inquiry and explained that the City can use Polco tools, which are included in the existing contract, to conduct targeted follow -up surveys to explore specific issues. Councilmember Reckdahl emphasized the need for deeper analysis of lower-rated areas, including health and wellness opportunities and perceptions of inclusivity, to better inform potential Council actions. Councilmember Burt commented on survey findings related to sustainability and electrification, noting that health and safety concerns ranked highly and suggested that public education on health impacts could be an effective strategy to increase participation in electrification programs. Councilmember Burt also discussed survey results related to public transportation, observing increased recent usage but lower satisfaction compared to earlier years, and emphasized the opportunity to better promote existing transit options, including the Marguerite shuttle. Councilmember Burt further noted that lower electricity costs represent a meaningful cost-of-living advantage for Palo Alto that could be more clearly communicated. Councilmember Burt commented on fiber and broadband competition as a factor influencing service affordability and observed that housing emerged as a top priority for respondents, particularly among residents 18 to 34 years old, alongside concerns about public safety. Councilmember Lythcott-Haims asked about the geographic boundaries used for Areas 1 through 6, noting that Area 6 is significantly larger than others and appeared underrepresented in responses. Councilmember Lythcott-Haims expressed concern about both geographic and demographic participation, citing lower response rates from Area 6 and from younger residents, and emphasized the need to improve outreach to ensure more representative participation in future surveys. City Manager Shikada explained that the area boundaries were established many years ago and retained for consistency across survey years. EVP Wytinck stated that underrepresentation by geography and age is common in survey research, noted that staff oversamples rental and multifamily units to address lower response rates, and suggested that improved outreach could help improve participation. Assistant City Manager Nosé stated that City departments review survey results in the context of service performance, budgeting, and resource allocation, and noted positive trends related to government transparency. City Manager Shikada highlighted overall improvements in survey results compared to prior years and stated that such positive trends were not common among peer communities. Councilmember Lythcott-Haims concluded by encouraging more creative outreach strategies to engage newer and less-connected residents as the City’s demographics evolve. Mayor Veenker emphasized interest in staff perspectives on the survey results and how departmental insights could help inform Council priority setting. Mayor Veenker raised questions about survey frequency, potential follow -up research to better understand underlying causes of lower ratings, and whether refining the survey could improve value while allowing resources for expanded language access and targeted outreach. City Manager Shikada SUMMARY MINUTES Page 9 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 stated that staff could test the usefulness of limited drill -down surveys but cautioned that follow-up responses may not be statistically representative. Mayor Veenker acknowledged that limitation and expressed interest in exploring whether targeted follow-ups could still provide useful insight. Mayor Veenker also commented on survey questions related to electrification, suggesting broader framing around cost savings rather than rebates alone, and noted that both health and climate considerations appear to resonate with residents. Mayor Veenker stated that City messaging should address both factors and noted opportunities to expand health - focused education related to cooking practices and indoor air quality. City Manager Shikada agreed to consider options for testing and refining survey approaches going forward. Councilmember Lauing expressed confidence in the survey’s scientific design and methodology, stating that the weighting approach appropriately ensures statistical accuracy despite a limited response size. Councilmember Lauing noted that while a larger sample would be ideal, the survey provides reliable and meaningful data for informing Council decisions. Mayor Veenker thanked Polco and City staff for the survey and presentation. NO ACTION Consent Calendar Public Comment: None. Councilmember Lythcott-Haims registered a no vote on Agenda Item #10. Councilmember Lythcott-Haims was concerned about an exception for homes along San Francisquito Creek, stating that the exemption was not supported by data from the Palo Alto Police Department and could reinforce bias. MOTION: Vice Mayor Stone moved, seconded by Councilmember Reckdahl, to approve Agenda Item Numbers 3-10. MOTION PASSED ITEMS 3-9: 7-0 MOTION PASSED ITEM 10: 6-1, Councilmember Lythcott-Haims voted no. 3. Approval of Minutes from January 5, 2026 Meeting 4. Accept CalPERS Pension Annual Valuation Report as of June 30, 2024; CEQA Status – Not a project. 5. Approval of the Advisory Report: Contract Solicitation & Authority Levels and Subsequent Management Response as recommended by the Policy & Services Committee. CEQA Status – Not a Project. 6. Approval of the City of Palo Alto’s Updated 2026 Water, Gas, and Wastewater Utility Standards (Design and Construction); CEQA Status- Not a Project. SUMMARY MINUTES Page 10 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 7. Adopt a Resolution to Allow Consumption of Alcohol under PAMC section 9.04.010 on Certain Days and Times through May 31, 2026, on California Avenue. 8. Approve Recommended Changes that will Align Increased General Liability Insurance Costs in the General Liability Fund to be Included in the Mid-Year Budget Report as Recommended by the Finance Committee. CEQA Status—Not a project. 9. Approval of Contract Amendment Number 3 to Contract C23183770 with Townsend Public Affairs, Inc. in the amount of $186,000 to Revise the Not -to-Exceed Total to $744,000 and to Extend the Term for an Additional Year of Service (the third of four one-year options to renew) for State and Federal Legislative Advocacy and Grant Consulting and Compliance Services; CEQA Status - Not a Project 10. SECOND READING: Ordinance of the Council of the City of Palo Alto Repealing and Replacing Section 18.40.250 (Lighting) of Chapter 18.40 (General Standards and Exceptions) and Amending Chapters 18.10, 18.12, 18.28 and Section 18.40.230 of Title 18 (Zoning) of the Palo Alto Municipal Code to Adopt New Outdoor Lighting Regulations (REINTRODUCED FIRST READING: December 8, 2025; PASSED:6-1, Lythcott-Haims, no) City Manager Comments City Manager Shikada provided calendar and community announcements, including an upcoming open house on oversized vehicle parking scheduled for January 27 at the Mitchell Park Community Center. Applications for boards, commissions, and committees remain open through February 18. Upcoming Lunar New Year events included the Library’s annual celebration on January 25 and a Year of the Horse event on February 22 at the Mitchell Park Community Center. City Manager Shikada reviewed the upcoming City Council calendar, noting the Council retreat on January 24, no meeting on January 26, and future meetings and agenda items scheduled for February 2, February 9, February 23, and March 2. [Council took a 23-minute break] Action Items 11. Policy and Services Committee Recommendation to Adopt the 2026 State and Federal State Legislative Guidelines and 2026 Utility Policy Guidelines, and Receive an Update on State and Federal Legislative Advocacy; CEQA Status – Not a Project Assistant City Clerk Christine Prior explained that the Council was reviewing the annual State and Federal Legislative Guidelines and the Utility Legislative Policy Guidelines and receiving an SUMMARY MINUTES Page 11 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 update from legislative consultants, Townsend Public Affairs. Staff recommended adoption of the 2026 guidelines and receipt of an update on recent and upcoming state and federal legislative and regulatory activities. Assistant City Clerk Prior explained that the legislative guidelines provide a framework for staff, in consultation with the Mayor, the Policy and Services (P&S) Committee Chair, and legislative consultants, to respond to legislative issues efficiently. The P&S Committee reviewed the guidelines in November and recommended updates, and both the state and federal guidelines and the utility guidelines were presented this year to provide a comprehensive view of the City’s legislative policies. Assistant City Clerk Prior highlighted emerging legislative issues identified since P&S Committee review: raising the cap for local sales tax increments, preserving publicly owned utilities' investments in hydropower beyond 2030, regulating the use of e-bikes and e-motos, streamlining the process for developing affordable housing on City-owned land, and preserving local permitting and zoning requirements for telecommunications infrastructure. Townsend Public Affairs Deputy Director Carlin Shelby provided a high-level overview of anticipated state and federal legislative issues for the 2026 session. The presentation highlighted e-bike safety reforms as a key state issue, including the City’s participation in a coalition requesting a state informational hearing on Mineta Transportation Institute recommendations. Affordable housing delivery was identified as a major focus, including a proposed statewide housing bond and sales tax cap exemption legislation that could support City priorities such as the Cubberley Project. The overview also addressed ongoing legislative activity related to SB 79, including potential implementation clarifications, and noted upcoming changes in state leadership, including a new Senate President pro tempore and committee chairs. Anticipated state budget conditions were discussed, with differing projections regarding the size of the projected deficit, and it was noted that the proposed budget does not include new funding for housing or homelessness programs, which staff continues to advocate for through local government coalitions. The presentation further highlighted Proposition 4 climate bond funding opportunities, potential local impacts from federal cost shifts affecting housing and transit programs, and the upcoming state budget timeline, including early actions, budget committee negotiations, and the May revision. Staff will continue coordinating with legislators on potential project funding opportunities. Deputy Director Shelby provided a federal appropriations update, reporting that the Transportation, Housing and Urban Development bill includes $850,000 for the City’s Fire Station No. 4 project . That earmark is pending final House and Senate approval, anticipated within the coming weeks. Staff will continue to monitor discretionary funding as the federal appropriations process advances. Townsend Public Affairs Grants Director Alex Gibbs summarized grant activity over the past year, including a $2.8M Metropolitan Transportation Commission (MTC) award for EV charging infrastructure and a pending $4M FEMA SAFER grant. Upcoming grant opportunities under consideration include Office of Traffic Safety and Cannabis Tax Fund grants for Police Department operations, Proposition 4 statewide parks funding, and the State and Local Cybersecurity Grant Program. Grants Director Gibbs also noted potential grant opportunities for tennis court improvements through the U.S. Tennis Association and for pickleball facilities SUMMARY MINUTES Page 12 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 through the USA Pickleball Association, stating that staff is evaluating eligibility and competitiveness for both programs. Utilities Resource Management Assistant Director Lisa Bilir gave a brief summary of utilities- related legislative and regulatory activity at the state and federal levels. Anticipated changes to California Air Resources Board Cap-and-Invest calculations were highlighted as among the most significant potential impacts on utility operations, and staff is actively engaged on those issues. Assistant Director Bilir described the advocacy groups monitored and engaged by the City and stated that the Mayor, Utilities Director Alan Kurotori, and staff have played an active role in advocating for affordable, reliable, and safe energy and water policies. Assistant City Clerk Christine Prior restated the recommendation for the Council , which was to approve the 2026 State and Federal Legislative Guidelines and the 2026 Utility Legislative Policy Guidelines and to provide feedback and/or ask questions regarding the 2026 legislative program. City Manager Shikada noted recent staff title changes, including Carlin Shelby’s appointment as Deputy Director with Townsend Public Affairs and Lisa Bilir’s appointment as Assistant Director in Utilities. City Manager Shikada expressed appreciation for staff assuming expanded leadership roles. Mayor Veenker thanked staff for acknowledging recent promotions and commented on the continuity reflected in the legislative guidelines, noting that largely similar materials were reviewed by the same Council during the prior legislative session. Mayor Veenker expressed appreciation for inclusion of the Utilities Legislative Guidelines to provide a more comprehensive view of the City’s advocacy efforts and requested clarification regarding the redlined changes and additional legislative topics identified following the P&S Committee review. Assistant City Clerk Christine Prior explained that the redlines reflected staff and committee recommendations. Deputy City Manager Chantal Cotton-Gaines clarified that several topics, including e-bike safety and hydropower investments, were emphasized based on evolving staff discussions, while others reflected new legislative developments since the committee review. Senior Resource Planner Lena Perkins confirmed that the hydropower item referred to continued work on AB 34. Mayor Veenker stated that the clarification was helpful in distinguishing between previously discussed and newly elevated legislative priorities. Public Comment: None. Councilmember Lauing expressed appreciation for staff’s work on the legislative guidelines and stated that the identified issues were relevant for Council consideration. Councilmember Lauing asked whether the guidelines should explicitly support efforts to amend previously adopted legislation when issues arise and questioned wording related to an “equitable and just transition” under the Climate and Environment section. Mayor Veenker noted that the phrase is a standard term of art in environmental justice policy. Assistant City Clerk Christine Prior responded that the guidelines are intentionally written broadly rather than referencing specific SUMMARY MINUTES Page 13 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 bills and noted that relevant housing-related concerns are addressed within the document and could be further refined if desired. Councilmember Lauing also asked whether emerging legislation related to artificial intelligence (AI) should be monitored and stated overall support for the recommendation. Assistant City Clerk Christine Prior noted that the guidelines currently reference AI under Governance, Transparency and Human Relations. Deputy Director Shelby noted that several AI-related bills, including proposals addressing automated decision systems (ADS) affecting local governments, are emerging and stated that staff would provide updates as developments occur. Vice Mayor Stone asked about potential federal actions that could preclude state authority to regulate AI. Deputy Director Shelby responded that she would consult with Townsend’s federal team and provide follow-up information. Vice Mayor Stone also requested future updates on e - bike legislation, particularly proposals most likely to advance and whether prior state pilot programs could be expanded. Deputy Director Shelby explained that current legislative efforts are focused on defining legal e-bike standards, addressing illegally modified devices, and increasing disclosure and accountability for distributors and purchasers, rather than expanding pilot programs at this time. Vice Mayor Stone stated that e-bike regulation remains an area for continued City and P&S Committee monitoring and thanked Townsend Public Affairs for its work. Councilmember Lu asked for clarification regarding implementation issues related to SB 79, including identified inconsistencies and potential impacts on the timeline. Deputy Director Shelby explained that repeated amendments created uncertainty regarding county and transit agency applicability and ambiguity around local alternative plan review, and stated that staff and stakeholders are exploring corrective options, including delaying implementation. Councilmember Lu asked about the timing for Council consideration of endorsing the Connect Bay Area transit measure anticipated for 2026. City Manager Ed Shikada stated that ballot measures are typically brought forward approximately 1 month prior to an election, and Councilmember Lu suggested earlier consideration given early voting practices. Councilmember Lu also questioned whether the legislative guidelines provide sufficient clarity regarding emerging legislation related to federal enforcement actions, including masking and data privacy concerning immigrants, and whether additional guidance from the Council would be helpful. Deputy Director Shelby stated that staff could review how other local agencies are addressing similar issues in their legislative platforms and provide recommendations, noting that the existing guidelines generally address those concerns. Deputy City Manager Cotton -Gaines added that for broader or more complex issues involving federal agencies, staff would likely seek direction from the P&S Committee or City Council rather than rely solely on guideline interpretation. Councilmember Lythcott-Haims also supported the request for additional information regarding legislation related to federal enforcement actions. Councilmember Lythcott-Haims asked for clarification regarding proposed guideline language supporting evidence-based approaches to addressing homelessness and requested examples of the policies the City intends to support. Deputy City Manager Cotton-Gaines explained that the language was added in response to SUMMARY MINUTES Page 14 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 shifts at the federal level away from Housing First approaches and was intended to affirm support for strategies proven to be effective in stabilizing individuals through housing. Councilmember Lythcott-Haims also raised concerns regarding autonomous vehicle traffic violations and the lack of effective local enforcement mechanisms and questioned whether other jurisdictions have made progress on accountability or penalties. Deputy Director Shelby responded that legislative efforts have sought to provide local governments with greater authority over autonomous vehicle operations and stated that she would explore emerging proposals, noting that Palo Alto’s experiences could help inform future advocacy. Councilmember Lythcott-Haims indicated that she would share specific examples via email for follow-up. Councilmember Lythcott-Haims asked about the status of SB 762 related to increasing the local sales tax cap and its relevance to potential funding mechanisms for the Cubberley project. Deputy Director Shelby explained that the bill is moving forward with multiple jurisdictions expected to be included and stated that Palo Alto could be added through amendments in the coming months. Townsend has been briefing the City’s legislative delegation, and similar sales tax cap exemption bills are commonly advanced and approved each year. Councilmember Burt echoed growing statewide concerns regarding e-bike safety and stated that the City should be prepared to engage in related legislative advocacy. Early endorsement requests for the Connect Bay Area (SB 63) transit tax measure were raised, noting that early City support could assist signature-gathering efforts prior to ballot qualification, and a request was made for prompt Council consideration. Clarification was also requested regarding wording in the Transportation section of the legislative guidelines related to safety measures. Assistant City Clerk Christine Prior acknowledged the concern and stated that staff would revise the language for clarity. Councilmember Burt also questioned the removal of explicit references to reducing greenhouse gas emissions in the Climate and Environment section. Assistant City Clerk Prior explained that the language had been consolidated for brevity, and Councilmember Burt stated a preference for retaining explicit references to greenhouse gas reduction as a priority. Councilmember Burt noted that potential SB 79 reforms could materially affect Palo Alto given limited time to develop an alternative plan and suggested prior amendment proposals by Senator Becker and the League of California Cities could inform City advocacy. The importance of early engagement on high-impact legislation likely to advance was emphasized, citing SB 79 as an example from the prior legislative cycle. Councilmember Reckdahl emphasized the value of early awareness of emerging legislation to allow adequate time for monitoring and response, along with support for the proposed redlines and related comments. Concerns were raised regarding e -bike safety and the lack of regulatory clarity, while caution was advised against overreach, noting that low-powered e-bikes provide important mobility benefits for seniors and individuals with health limitations and can support mode shift from driving to biking. Support was expressed for thoughtful e -bike legislation while exercising care in considering restrictions on bike lanes or paths. Mayor Veenker asked about the earliest effective date of a potential City sales tax increase if the sales tax cap were raised. Deputy Director Shelby explained that, if approved by voters in SUMMARY MINUTES Page 15 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 November, the California Department of Tax and Fee Administration would typically begin collection the following April, with effectiveness likely beginning in Q2 2027 following adoption of a City ordinance. City Manager Shikada clarified that increasing the sales tax cap would be enabling only and would not obligate the City to pursue a tax increase. Mayor Veenker expressed support for improved e-bike safety regulation, citing concerns about visibility, speed, and unpredictable riding behavior, particularly at night. The timing of legislative advocacy was described as situational, with early engagement effective in some cases but less so when legislation changes rapidly, requiring judgment to determine when engagement is most impactful, particularly on complex or potentially divisive issues. Regarding SB 63, Mayor Veenker asked whether existing legislative guidelines would allow for early endorsement requests or whether a different mechanism, such as a straw direction, would be appropriate given crowded agendas. City Manager Shikada responded that, if Council provided sufficient direction, staff could return the item on consent. Mayor Veenker invited Council comment on whether to pursue that approach. Councilmember Lauing supported considering the item earlier rather than later, noting that Council could debate timing and determine whether action was premature, but should not defer discussion entirely. Councilmember Burt reiterated support for early consideration of the Connect Bay Area transit measure, noting its importance to VTA, Caltrain, and MTC and the need for early City support to assist a citizen-led signature-gathering effort. Additional comments addressed e-bike regulation, distinguishing pedal-assist bicycles from throttle-based devices that function more like low-powered electric motorcycles. Concerns were also raised regarding Cap-and-Invest funding, noting that fixed allocations for high-speed rail amid lower-than-expected revenues have intensified competition for remaining funds. Positive comments were offered on current grant efforts, with interest expressed in pursuing additional MTC-allocated funding for projects such as the University Avenue Caltrain Station and a proposed bicycle and pedestrian underpass. Additional context was provided on the proposed regional transit bridge loan needed by BART, Caltrain, MTC, and SFMTA to address near-term funding gaps, as well as appreciation for inclusion of the Utilities Legislative Guidelines and the need for closer alignment with the City’s climate-based advocacy. Councilmember Burt also emphasized the need to clarify and streamline legislation governing affordable housing on publicly owned land, elevate affordable housing funding as a legislative priority, and reevaluate RHNA requirements in light of market feasibility challenges, midpoint compliance risks, and outdated population and job growth projections underlying current allocations. Mayor Veenker moved to adopt the legislative guidelines as presented, ask staff to ensure coordination and consistency between the City’s climate and utilities legislative guidelines, and to support SB 63. Deputy Director Shelby clarified that SB 63 had already been enacted and is now advancing as a ballot initiative, noting that support would be conveyed to the campaign and relevant legislative stakeholders. Mayor Veenker emphasized the value of continued coordination between the Climate Committee and Utilities Department, expressed appreciation SUMMARY MINUTES Page 16 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 for Utilities staff engagement at both P&S and City Council, and encouraged greater visibility and joint consideration of overlapping legislative priorities in future presentations. Councilmember Lauing raised a procedural concern regarding inclusion of SB 63 in the motion, noting that because SB 63 is a ballot initiative rather than legislation, support for it does not clearly fall under the legislative guidelines. It was suggested that consideration of SB 63 may be more appropriate as a separate motion with focused discussion. Mayor Veenker indicated willingness to separate consideration of SB 63 from the motion and asked for guidance on the appropriate procedure. Staff explained that the Council could either withdraw that portion of the motion or separate the motion for purposes of discussion and voting. Mayor Veenker agreed to separate that item and directed Council discussion to proceed on Items 1 and 2 of the motion. Councilmember Burt suggested that staff incorporate Council input discussed during the meeting into the legislative guidelines this year, rather than deferring changes until the next annual update, and proposed returning the revised guidelines on the consent calendar to avoid an additional agendized meeting. Mayor Veenker asked whether proposed changes extended beyond the previously discussed wording related to GHG emissions. Councilmember Burt confirmed additional conceptual changes and suggested providing staff with general direction rather than detailed language, noting that Council could pull the item from consent if concerns arose. Mayor Veenker indicated openness to that approach and requested that Councilmember Burt identify proposed friendly amendments for staff consideration. Councilmember Burt offered proposed friendly amendments, including adding language to support SB 79 reforms, clarifying and expanding language related to affordable housing funding and development on City-owned land, and elevating e-bike reform priorities without specifying particular policy outcomes. Mayor Veenker proposed reviewing each suggested friendly amendment individually. Regarding e-bikes, Mayor Veenker noted that existing guideline language supporting regulation to promote safety appeared sufficient, and Councilmember Burt agreed that additional specificity was not required. Regarding affordable housing on City-owned land, Councilmember Burt proposed revising the guideline language to “clarify and streamline.” Mayor Veenker expressed support, with agreement from Councilmember Reckdahl. Councilmember Burt further proposed adding language to advocate for increased state funding for affordable housing. Mayor Veenker expressed support. Deputy City Manager Cotton-Gaines referenced related existing language in the Financial section of the guidelines addressing financing tools and flexible funding. Councilmembers discussed refining the language to SUMMARY MINUTES Page 17 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 explicitly emphasize increased and flexible funding for affordable housing. Mayor Veenker indicated agreement with that direction. Mayor Veenker asked for clarification regarding proposed language related to SB 79, noting that the City has prior positions of record and that views on the legislation vary. Councilmember Burt explained that the City previously opposed SB 79, but that current discussion concerns potential reform legislation rather than the adopted bill itself. Councilmember Burt stated that specific reform positions have not yet been developed and would be informed by forthcoming work of an SB 79 ad hoc committee. Mayor Veenker declined to include the proposed amendment at this time due to the lack of defined recommendations. Councilmember Burt indicated the proposal would be considered separately. Councilmember Burt proposed adding language to advocate for reforms to RHNA midcycle requirements. Mayor Veenker expressed concern with framing the issue as “reforms,” noting differing viewpoints and suggesting language that encourages further review and analysis rather than prescriptive outcomes. Deputy Director Shelby noted recent state -level work relevant to the issue, including HCD’s California’s Housing 2040 report and a State Auditor’s report recommending adjustments such as staggering Housing Element timelines. Mayor Veenker clarified that concerns regarding RHNA involve both the accuracy of underlying calculations and the policy assumptions informing them. Councilmember Burt emphasized that proposed guideline language was intended to remain high -level and not prescribe specific outcomes. Mayor Veenker suggested framing the issue as support for a “reevaluation” rather than “reforms” to avoid connotations. Councilmember Burt agreed with that approach, and Councilmember Reckdahl also indicated concurrence. Assistant City Clerk Prior asked for clarification regarding the timing of Item #2 , whether it was this year or next year. Mayor Veenker stated the intent was for the change to take effect beginning next year, noting the Council is still becoming familiar with the process. Councilmember Reckdahl asked whether advocacy of additional funding in support of affordable housing should reference both state and federal, and Mayor Veenker agreed to include that language. Mayor Veenker and staff revised the motion language to reflect the agreed -upon changes. The City Attorney concurred and recommended adding language to Item #1 specifying that the amendments apply to the Housing Section of the Legislative Guidelines. Council further discussed Councilmember Burt’s proposed amendment related to SB 79. Councilmember Lauing had seconded the amendment but characterized the proposal as consistent with other Housing priorities and neutral in intent. Councilmember Lythcott-Haims cited feedback from the Urban Land Institute (ULI) expressing support for SB 79 and stated support for the amendment as revised to apply only to future recommendations developed by the Council. Mayor Veenker questioned the necessity of referencing SB 79 given the existence SUMMARY MINUTES Page 18 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 of an ad hoc committee but confirmed understanding that the amendment would apply only after further Council discussion and recommendations. Councilmember Reckdahl compared the proposal to other high-level guidance items, emphasizing staff notification rather than a blank check. Vice Mayor Stone expressed concern about maintaining clarity in the legislative guidelines but indicated support if the language clarified process rather than mandating action. Deputy City Manager Cotton-Gaines explained that specific bill numbers would not be incorporated into the guidelines but could serve as direction to staff regarding issues to elevate for further Council consideration. Council reached consensus to include conditional, non - prescriptive language directing staff to support future guideline changes aligned with any subsequent Council recommendations related to SB 79. The City Attorney confirmed th is language would be appropriately included under the Housing Section as Part D of Item #1 of the motion. Councilmember Lauing questioned whether to continue Item #3 regarding advocacy for SB 63 (Connect Bay Area Act). Mayor Veenker indicated support for continuing the item but acknowledged concerns about timeliness. Councilmember Burt stated that while the item has some time constraints, immediate action was not required. City Manager Shikada suggested a straw vote for future consideration on consent. Mayor Veenker conducted a straw vote, with a majority indicating support. MOTION: Mayor Veenker moved, seconded by Councilmember Reckdahl, to: 1. Adopt the 2026 State and Federal Legislative Guidelines and 2026 Utility Policy Guidelines and receive an update on State and Federal Legislative Advocacy and add the following amendments to the Housing Section of Guidelines: a. Clarify and streamline the process for developing affordable housing on city- owned land b. Advocate for additional state and federal funding in support of affordable housing c. Advocacy for reevaluations to the RHNA requirements for mid-cycle mandates on cities d. Support changes to the legislative guidelines that align with Council’s recommended reforms to SB79, if any. 2. Direct staff to next year review and revise, as appropriate, the Utilities Legislative Guidelines and the Climate and Environment Section Guidelines to be consistent with each other and mutually supportive. MOTION PASSED: 7-0 SUMMARY MINUTES Page 19 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 12. Review the FY 2027-FY 2036 Long Range Financial Forecast (LRFF) and FY 2027 Budget Development Guidelines using the LRFF as the Baseline for Developing the FY 2027 Budget as Recommended by the Finance Committee, CEQA Status – Not a Project Chief Financial Officer Lauren Lai introduced the Long Range Financial Forecast (LRFF), noting that the presentation would be brief following extensive Finance Committee review. New Budget Managers Jonathan Rewers and Robert Valentukonis were introduced, and staff and the Finance Committee were thanked for their work. Chief Financial Officer Lai explained that the LRFF is a 10-year General Fund forecast for FY 2027–FY 2036 and reflects increased fiscal challenges driven primarily by lower sales and property tax revenues. The LRFF establishes the baseline for developing the FY 2027 budget, and Council action included receiving the forecast and adopting the annual budget development guidelines. Chief Financial Officer Lai reviewed the City’s financial planning cycle and key upcoming milestones, including the FY 2026 mid -year report, continued rate-setting and budget development, and presentation of the proposed budget in May. The presentation would address Finance Committee recommendations, economic conditions, LRFF highlights, budget-balancing strategies, the Budget Stabilization Reserve (BSR), and staff’s recommendation. Chief Financial Officer Lauren Lai reported that the Finance Committee unanimously recommended approval of the LRFF on December 2, 2025, following an in -depth review. The Committee emphasized the need to reassess City services, programs, and new Council priorities in light of projected deficits driven primarily by declining property and sales tax revenues, noting that property tax remains the City’s most stable revenue source while sales tax has been affected by state allocation and regulatory changes. Transient Occupancy Tax (TOT) growth has moderated following the addition of approximately 400 hotel rooms since 2021, and the LRFF reflects more conservative assumptions. Chief Financial Officer Lai stated that the forecast maintains a 5 percent long-range vacancy assumption, consistent with historical trends, and confirmed continued use of 2019 as the baseline year for comparisons. Chief Financial Officer Lai also clarified that certain unfunded priorities identified as “known unknowns” may be addressed through alternative funding sources such as Measure B and Measure K rather than the General Fund. Budget Manager Jonathan Rewers reported that while the national economy remains strong, the regional economy, particularly the Bay Area technology sector, continues to lag. The base case forecast projects a $14.9M General Fund shortfall in FY 2027, with deficits through FY 2032 driven by expenditure growth outpacing revenues, particularly sales tax, and assumes continuation of current service levels without budget-balancing strategies. A return to surplus is projected beginning in FY 2033 as expenditures stabilize. Budget Manager Rewers explained that staff recalibrated revenue assumptions following extensive Finance Committee discussions, projecting FY 2027 revenues of $305.1M, a $1.9M reduction from the adopted base, primarily due to a structural sales tax decline, including an $8 –9M current-year impact from changes to state auto-leasing tax apportionment and an assumed ongoing $5.1M annual reduction beginning in FY 2027. Budget Manager Rewers added that property tax assumptions were revised based on FY 2026 assessment data, modeling 4.8 percent growth beginning in FY SUMMARY MINUTES Page 20 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 2027. Property tax remains the City’s most stable revenue source at $74.9M, though more than 5,600 countywide appeals representing $5.8B in assessed value present potential risk. Regarding TOT, strong hotel occupancy was reported exceeding 84 percent alongside declining average daily room rates. With the addition of 3 hotels and approximately 400 rooms since 2021, the forecast assumes normalized 4–5 percent annual growth consistent with long-term trends rather than post-pandemic spikes. Downward revisions to the City’s largest tax streams were identified as the primary drivers for advancing budget -balancing strategies, and the base- case forecast was described as a prudent status-quo outlook under current economic conditions. Budget Manager Jonathan Rewers outlined the City’s primary revenue pillars over the 10-year forecast, noting that property tax remains the anchor and is projected to reach approximately $110M by FY 2036, while sales tax growth is assumed at 2 –3 percent following FY 2026 reductions tied to state regulatory and allocation changes. Other revenues, including TOT and Utility Users Tax (UUT), provide diversification but remain economically sensitive. For expenditures, FY 2027 costs are projected to increase 4.3 percent to $320M, consistent with recent growth trends and calculated from a reduced base, with flat headcount assumed over the 10-year period and cost growth driven by existing labor agreements and pension obligations rather than service expansion. Budget Manager Jonathan Rewers reported that expenditure growth is driven primarily by rising personnel costs, which staff continues to actively manage. The Finance Committee supported maintaining a 5 percent vacancy assumption as a prudent balance between capturing savings and preserving hiring capacity for core services. Non-personnel costs are projected to increase mainly due to a 3 percent CPI adjustment and operational impacts from new capital projects, while the forecast includes $33.6M in FY 2027 infrastructure transfers to avoid deferred maintenance despite revenue pressures. To address the $14.9M FY 2027 gap, staff modeled a range of budget-balancing strategies, including $7M in ongoing General Fund reductions likely affecting service delivery, $1M in reduced CIP contributions over 2 years, a revised pension strategy limiting payments to the Actuarially Determined Contribution (ADC) with a smaller discretionary component, a $2M draw from the BSR while maintaining the 18.5 percent policy target, and $800,000 in additional revenue . Collectively, these measures would balance the budget. Budget Manager Rewers stated that the proposed strategies address the FY 2027 shortfall and the structural deficit through FY 2032, with a projected return to surplus by FY 2033. Staff recommended consolidating the $6M Uncertainty Reserve into the BSR for clarity. After applying $6M to FY 2026 revenue declines and $2M to the FY 2027 gap, the BSR is projected at $56.8M, or 18.5 percent of expenditures, consistent with policy. Staff recommended approval of the unchanged FY 2027 Budget Development Guidelines and acceptance of the LRFF as the baseline for developing the FY 2027 budget, establishing the framework for the FY 2026 mid-year review and May budget presentation. Public Comment: None. SUMMARY MINUTES Page 21 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 Mayor Veenker welcomed Budget Manager Rewers and expressed appreciation for the work leading up to the report and the presentation provided this evening. Councilmember Burt, who is also the Finance Committee Chair, was invited to comment on this item. Councilmember Burt reported that the Finance Committee conducted a thorough review of the LRFF and commended new senior staff for quickly becoming immersed in the process. The projected shortfall was described as the most significant fiscal challenge since the COVID -19 crisis and the Great Recession, serious but not catastrophic, requiring tighter fiscal discipline, increased efficiency, and clearer prioritization following several years of post -COVID recovery. The forecast was characterized as the City’s best current estimate, with increasing uncertainty in the out-years, and potential upside noted due to conservative property tax assumptions projecting mid-4 percent growth despite historically higher rates. Questions were raised regarding the disconnect between projected UUT growth of 2–4 percent beginning in FY 2028 and higher utility rate increases following COVID-era deferrals. Budget Manager Valentukonis responded that staff would need to further evaluate the relationship between recent utility rate increases and projected UUT revenues and return with clarification. Concerns were also noted regarding volatility in Documentary Transfer Tax (DTT) projections, which were described as typically budgeted conservatively. Attachment B was highlighted as important context, showing staffing levels 51 positions above 2019 levels, including 13 in Utilities, with reduced vacancy rates contributing to higher overall staffing. Staffing relative to service delivery was identified as a key consideration in upcoming budget deliberations. Councilmember Lythcott-Haims thanked staff for the presentation, welcomed the 2 new budget managers, and commended Chief Financial Officer Lai for her strong performance in the role. Councilmember Lythcott-Haims asked staff to explain the City’s new partnership with Chandler Asset Management and how it may improve investment returns and support long -term fiscal health. Chief Financial Officer Lai explained that the City Council approved the Chandler Asset Management contract last year to provide more sophisticated management of the City’s approximately $500M investment portfolio. Staff expects the transition to improve yields over time, though returns are currently constrained by declining market yields and the gradual nature of shifting the portfolio. Budget Manager Rewers added that while the base forecast assumes modest gains, improved investment performance is expected to contribute incrementally to new revenue over time and is included as part of the approximately $800,000 in projected additional revenue. Councilmember Lythcott-Haims pointed out that a 1 percent increase on a $500M cash portfolio would equate to approximately $5M. Chief Financial Officer Lai confirmed that calculation and shared that, due to current market conditions and allowable investment constraints, staff now projects approximately $500,000 in additional revenue based on the most recent information. Councilmember Reckdahl thanked staff for their work, acknowledging the difficulty of presenting worsening financial projections and noting staff’s efforts to mitigate impacts. Comparison to the prior year showed the projected return to surplus shifting from 2030 to 2033, with cumulative deficits increasing from approximately $32M to over $83M. Councilmember Reckdahl attributed the change to both near-term revenue impacts and more SUMMARY MINUTES Page 22 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 conservative long-term assumptions, expressing hope that the forecast may ultimately prove less severe. Slower revenue growth was noted, with sales tax projected at 2 –3 percent and property tax at approximately 4.5 percent, while expenditures continue to outpace revenues. Councilmember Reckdahl expressed concern regarding payroll growth compared to prior years, prompting a need to evaluate workforce size, efficiency, automation opportunities, and potential service reductions. Councilmember Reckdahl emphasized that workforce adjustments could significantly improve the long-term outlook and stated that, while the situation is serious, it is manageable with fiscally prudent action. Councilmember Lu commended staff for the depth of the analysis and noted potential opportunities to outperform the forecast. Concern was expressed regarding the slowdown in expenditure growth beginning in FY 2032, particularly the assumption that salary and benefit costs increase by approximately 1.1 percent beginning in FY 2033, which could prove optimistic and extend the structural deficit. Budget Manager Rewers explained that near-term growth reflects approved labor agreements, while out-year projections assume CPI-only adjustments due to uncertainty around future negotiations, with declining CalPERS employer contribution rates after 2031 also contributing to slower cost growth. Councilmember Lu asked whether reducing discretionary pension contributions would increase unfunded liability, and Chief Financial Officer Lai responded that while the balance would rise modestly, actuarial analysis confirmed the City would remain on track to reach 90 percent funded status within 15 years. Support was expressed for maintaining the BSR Reserve given economic uncertainty, and additional emphasis was placed on expanding revenue strategies, including updated or new fees, with a recommendation to pursue a higher revenue target during upcoming priority - setting discussions. Councilmember Lauing commended staff for the report and echoed prior comments regarding the need to further explore revenue-generation opportunities, suggesting additional work with staff and the Finance Committee to identify ways to increase revenues in a manner fair to residents and visitors. Councilmember Lauing cited potential future revenue from ambulance services, while acknowledging near-term costs, and encouraged examining other opportunities to monetize City services. Councilmember Lauing questioned why the CPI-related capital transfer reduction was limited to $1M, suggesting larger deferrals could provide earlier budget relief. Chief Financial Officer Lai explained that the proposed strategies represent a menu of options rather than a fixed plan, noting that the final mix may change as staff evaluates revenue enhancements, General Fund reductions, and potential capital deferrals. Chief Financial Officer Lai indicated that the $1M figure serves as a placeholder and that staff will assess whether certain capital projects can be deferred without significant impact as part of the broader budget-balancing effort. Councilmember Lauing cautioned against relying on large or long-term capital deferrals, noting the risk of creating larger future gaps and deferred maintenance . Councilmember Lauing questioned whether the current BSR balance of $56.8M is analytically appropriate given the City’s risk profile over the next 8 years, noting interest in the dollar amount rather than the policy-based percentage. Chief Financial Officer Lai explained that the BSR is structured as a ratio equal to 18.5 percent of expenditures, causing the absolute dollar SUMMARY MINUTES Page 23 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 amount to grow as the budget increases. Chief Financial Officer Lai stated that staff continues to support the 18.5 percent target, noting the City’s historical range of 15 –20 percent and current economic volatility. Councilmember Lauing asked whether the LRFF assumes actual or target headcount levels. Chief Financial Officer Lai clarified that the LRFF reflects current service levels and therefore assumes flat headcount over the 10-year period, while acknowledging that proposed budget-balancing strategies would result in reduced headcount in the FY 2027 proposed budget. Councilmember Lauing requested clarification regarding the Educational Revenue Augmentation Fund (ERAF) and the associated reserve balance. Chief Financial Officer Lai explained that the ERAF represents excess property tax revenues that remain subject to pending litigation and therefore are not appropriated. Approximately $7M has been accumulated since 2019–2020 and is conservatively set aside pending a court decision, consistent with County recommendations. Councilmember Lauing concluded that the LRFF provides a strong foundation for future deliberations and acknowledged that difficult decisions lie ahead. Vice Mayor Stone thanked staff for their work and expressed confidence in the City’s financial team. Vice Mayor Stone stated overall support for the proposed budget -balancing strategy but raised concern about potential workforce impacts, emphasizing that layoffs should be a last resort and noting the importance of considering the human impacts alongside fiscal decisions. Vice Mayor Stone asked whether staff was exploring reductions through attrition and elimination of unnecessary vacant positions rather than layoffs. Chief Financial Officer Lai stated that staff is prioritizing review of existing vacancies and evaluating whether positions could be defunded without materially impacting service delivery. Staff is working closely with department heads to assess services and programs with the goal of minimizing impacts to both the community and the workforce. Vice Mayor Stone emphasized the importance of communicating this approach clearly to employees to help alleviate anxiety during the upcoming budget process. Councilmember Lythcott-Haims referenced an earlier question regarding the Section 115 pension trust and stated that a chart previously presented to the Finance Committee clearly illustrated when the City reaches its targeted funding level, after which required contributions decline. It was suggested that sharing this visual would be reassuring for Councilmembers who prefer visual explanations. Chief Financial Officer Lai stated that the chart and related analysis will be included in the FY 2026 mid-year report, along with the Section 115 recommendation for Council approval. Chief Financial Officer Lai explained that staff will provide an abbreviated presentation summarizing the Finance Committee’s review and noted that the recommendation involves FY 2026 actions needed to realize savings in FY 2027. Mayor Veenker commended staff for the work on the L RFF and expressed appreciation for both the short- and long-term balancing strategies and the Finance Committee’s extensive review. Mayor Veenker stated that pension-related costs stood out in the short-term strategy and asked for clarification regarding the Actuarially Determined Contribution (ADC) and Additional Discretionary Payment (ADP). Chief Financial Officer Lai explained that both ADC and ADP relate to pension obligations, noting that ADC reflects required current-year costs, while ADP relates SUMMARY MINUTES Page 24 of 24 Sp. City Council Meeting Summary Minutes: 01/20/2026 to discretionary payments intended to reduce long-term liabilities. Councilmember Lythcott- Haims observed that the terminology differed from prior usage before Chief Financial Officer Lai’s tenure. Chief Financial Officer Lai clarified that while prior discussions focused on normal cost and unfunded actuarial liability within the budget, ADC and ADP terminology is specific to cash flow transactions involving the Section 115 trust . Mayor Veenker confirmed that ADC and ADP payments are separate from normal cost obligations, and Chief Financial Officer Lai stated that staff will provide a more detailed explanation at the February meeting. Mayor Veenker also noted concern regarding long-term CIP reductions, stating that the zero-funding years raised questions but acknowledged staff’s explanation. Mayor Veenker asked whether the lower projected property tax growth reflected a structural change. Chief Financial Officer Lai explained that the forecast was revised to align with the County’s actual tax roll, resulting in a downward adjustment, and that prior long -range assumptions exceeding 6 percent were recalibrated to the mid-4 percent range as a more realistic and sustainable outlook, consistent with trend analysis and guidance from the City’s property tax consultant, HDL. Mayor Veenker further echoed comments regarding the importance of reviewing vacancies on a department-by-department basis, noting that managing vacancies is preferable to eliminating filled positions. Mayor Veenker also expressed support for maintaining the BSR, citing economic uncertainty, market volatility, concerns regarding federal grant funding, and the presence of a structural deficit as reasons for preserving the reserve at its current level. Councilmember Reckdahl echoed concerns about layoffs, noting that in the prior budget cycle reductions focused on eliminating vacant positions rather than filled positions, and stated that prioritizing vacancy reductions would again be a high priority. MOTION: Councilmember Lauing moved, seconded by Councilmember Reckdahl, to accept the Long Range Financial Forecast (LRFF) for Fiscal Year 2027-2036 (Attachment A) and the FY 2027 annual Budget Development Guidelines (Attachment B) and direct staff to use this forecast as the baseline for developing the FY 2027 budget. MOTION PASSED: 7-0 Adjournment: The meeting was adjourned at 10:42 p.m.