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HomeMy WebLinkAbout2026-04-07 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 9 Regular Meeting April 7, 2026 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 4:00 p.m. Present In-Person: Lauing (Chair), Burt, Lu Absent: None Call to Order Chair Lauing called the meeting to order. The clerk called roll with all present. Public Comment 1. Miana W. (Zoom) had comments about roads and speed bumps. Agenda Items 1. Recommend City Council Adoption of a Resolution Amending Utility Rate Schedule D -1 (Storm and Surface Water Drainage) Reflecting a 3.0% Consumer Price Index Rate Increase to $18.14 Per Month Per Equivalent Residential Unit for Fiscal Year 2027; CEQA Status - Not a Project Karin North, Assistant Director, Public Works Environmental Services , provided a slide presentation including Stormwater Management fee, capital projects funded by the Stormwater Management fee, and FY 2027 proposed rate increase and impact. Chair Lauing observed it started April 11, 2017. Assistant Director North confirmed that date adding it was voter approved. Councilmember Burt asked if the Center Avenue capacity upgrade would benefit reduction in flooding off of San Francisquito Creek. Michel Jeremias, Senior Engineer, stated Center Drive is the one that would pick up flows that run in city streets. It is closest to San Francisquito Creek. Hamilton Avenue will have to be constructed before Center can be done. Hamilton is currently under construction and slated to be completed by the end of this year. The design for Center will be begun early next spring with a hope to be completed with a contract awarded in the fall. SUMMARY MINUTES Page 2 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 There are three other projects. The fourth one is Alester, which will alleviate the main flooding that occurred in the New Year's Eve event. It is under rehab. Contract will be awarded before the end of this fiscal year and work will be done in the summer. Councilmember Burt asked if Crescent Park and Duveneck/St. Francis neighborhood groups are being updated. Ms. Jeremias confirmed updates are provided as needed to the residents that walk by. Councilmember Burt advised they have an active neighborhood group focused on storm flooding threats and would appreciate a timeline and updates. Ms. Jeremias agreed to do another reach. Item 1 Public Comment 1. Daren H. (Zoom) [inaudible]. MOTION: Councilmember Burt moved, seconded by Chair Lauing, to recommend the City Council adopt the attached resolution amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage), to implement a 3.0% rate increase consistent with the applicable Consumer Price Index, increasing the monthly charge per Equivalent Residential Unit (ERU) by $0.53, from $17.61 to $18.14 for Fiscal Year 2027. MOTION PASSED: 3-0 2. Discussion of Electrification State Caps and Additional Discretionary Subsidies and Potential Recommendation to City Council Steve Guagliardo, Senior Management Analyst, Planning and Development Services, provided a slide presentation including electrification fees and subsidy levels, background, state caps – photovoltaic (PV/solar) and ESS, and discussion and next steps. Chair Lauing wanted comments on the cost of service study. Mr. Guagliardo explained this was the fee study done last year that informed the development of the FY26 fees. It looked at the time spent by Staff on each application on each type of permit and came up with a calculation to determine the appropriate cost recovery fee for that. It passes muster according to the state's regulations on what could be used as appropriate documentation for those fees. Chair Lauing inquired about the incremental dollars. Kiely Nose, Assistant City Manager, said packet page 14 table 1 reflects the fees, subsidy or cost recovery, and the potential annual value of that subsidy. Mr. Guagliardo added this was based on information that was available at the time the report was initially prepared. Councilmember Burt had questions about the proposed sequence. Mr. Guagliardo that sequence would keep the funds in the general fund at their fully authorized level. The written funding would be done, get up to full cost recovery, and the applicant would pay that money upfront. Councilmember Burt asked about the eligible utility program funds. Assistant City Manager Nose replied they would be non-rate revenue funds that have been used for various S/CAP programs. Councilmember Burt asked what using those funds for this purpose would SUMMARY MINUTES Page 3 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 preclude or reduce as an alternative use. Jonathan Abendschein, Assistant Director, Climate Action, responded with respect to electrification, this is equivalent to the incentives for about 25 whole home electrification projects, HVAC and water heating. There are accumulated funds in the reserves. An important question would be is if it is thought of as an ongoing expense, which would affect the long-term budget planning for the S/CAP differently. There is a lot of uncertainty in the revenues. The scale is in the ballpark of $10 million per year. It is also earmarked for quite a few things. Many of those special revenue funds are limited for specific purposes. Some of the revenue sources that make up those $10 million are expected to decline over the next five years and there is some uncertainty in the legislature about the changes to the Cap and Invest program and potential regulatory changes that may come in the next couple years that could constrict the ability to spend those funds even further. Alan Kurotori, Utilities Director, stated there are several buckets of available funds that are non-rate revenues. Council has taken an action to use Bucket 1/Bucket 3 RECs monies for local decarbonization projects. That will be under the direction of City Council to use those funds. They are the most easily used for programs such as these. The other restricted type of funding would be the Cap and Invest programs for gas and electric utility. Those were extended to 2045 and are designed to decline over time. There are requirements and restrictions on how those are used. There are low carbon fuel standard credits. Fifty percent of that needs to be used for low-income programs. There are some requirements that have to be met. Rebates are typically provided to the customers under the current programs. A recommendation to use more of those funds would require a look at what it would mean for the other programs being moved forward. Councilmember Burt questioned about the Cap and Invest program. Director Kurotori responded Cap and Invest monies were taken away from investor -owned gas utilities and imported to the electric side as direct rebates to those customers. For public -owned utilities, that money is still with the utility and used for decarbonization programs. That is Cap and Invest for natural gas. Cap and Invests for electric projects up to a 40 percent decrease of the dollar amounts. If there is a desire to look at those funding sources, Staff will work with the Climate Action team to see how much funds are available and what it would mean. Councilmember Burt queried about the reference on comparing to neighboring communities or other communities. Mr. Guagliardo answered research is being done as part of the creation of the report to understand where they are and in response to various concerns raised by applicants about the rates relative to neighboring jurisdictions. Most neighboring jurisdictions are applying the state cap to the fees. There is no evidence to support subsidies or otherwise for it. They are currently at the state caps per state law because there is not a written finding to exceed that approved by Council. When the state cap was applied, refunds were issued to residents who had been charged the incorrect fee. Choosing to pursue a written finding that exceeded the state cap would result in being out of sync with neighboring jurisdictions but would reach full cost recovery. Sarah McRee, Senior Operations Manager, Planning and Development Services, commented the fee study was adopted at full cost recovery because that was the most recent study being done. When complaints started coming in, it was SUMMARY MINUTES Page 4 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 compared to neighboring jurisdictions and discovered from August to November there were about 80 permits that should have been refunded. They have been going through that process and now bringing it forward for discussion. The electric subsidies will be used going forward. Councilmember Burt wanted better understanding of costs. Mr. Guagliardo stated other jurisdictions were not sending Fire out to inspect level ones at homes as a way to keep costs down, respond faster, and improve cycle time. They have adopted that. The number one contributor to cost is staffing and labor. George Hoyt, Chief Building Official, added for the electrification components, many streamlining things have been done utilizing SolarAPP+ when possible, combining inspections moving forward, and limiting the need to involve Urban Forestry if doing underground conduits. There are efforts on the horizon looking at building it out to accommodate EVSE. It will probably be a year and a half to two years before that is available. Councilmember Burt asked why there is a permit for level one chargers. Mr. Hoyt replied there would only be a permit if a new receptacle had to be added to a new location. Councilmember Burt queried how to get an actual summary of the streamlining that has been done and anything else on the horizon. Mr. Hoyt said they are looking into doing brochures, mailings, and other types of things. They will circle back and bring it back to the top. Chair Lauing asked about funds that are not general funds. Assistant City Manager Nose responded the City receives different pots of funding that reflect different associated restrictions. General fund does not have restrictions on funding these subsidies. There are other funds that could be eligible outside of the general fund to provide relief or subsidies in these areas by way of the gas or electric utility. That is the alternative funding sources the Council has adopted a resolution to use toward S/CAP goals. Chair Lauing asked how they planned for the caps. Assistant City Manager Nose stated policy choices on the S/CAP program allocates the funding sources. Assistant Director Abendschein said revenues for each of the funding sources are received every year. The most durable, longest -term has been public benefits. In the long term, more can be done with financing programs. It is based on specific assumptions and if an acceleration in the number of permits is seen. Councilmember Lu wanted to know where the City is relative to other cities in terms of HVAC or electric service and EV charging. Mr. Guagliardo responded the City is on the high end on each of those. Electrical vehicle charging stations are also subject to current legislation that is working its way through the House. In talking about state caps for solar and energy storage systems, it would behoove them to think about it as a potential precedent for electrical vehicle charging stations. Councilmember Lu asked if SolarAPP+ is currently available in some capacity. Mr. Hoyt answered it is available for residential photovoltaic and ESS and the combination of those two systems together. It is not available for ESS standalone. It is available for PV standalone. Potential for residential EVSE is 18 months to two years away. SUMMARY MINUTES Page 5 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 Councilmember Lu inquired if there would be any concerns if different levels of subsidy was done based on complexity or tiering. Mr. Guagliardo responded those are policy decisions to be made by the Council. It is a matter of implementing that policy direction. Councilmember Lu queried if there are any other tiers or differentiation between the different permits. Assistant City Manager Nose indicated the fees shown are flat rate fees for the standard application processing. To the extent that there are applications that go beyond the standard, the development center has hourly rates as well as additional inspection fees they would assess to scale with the complexity of what someone is providing. Ms. McRee indicated the Fy26 fee is developed utilizing time x material. If they go beyond the normal, Staff will add an hourly rate for complex projects in order to achieve full cost recovery. Item 2 Public Comment 1. Daren D. (Zoom) provided public comment. Councilmember Burt asked what is being described under the fee title on the tables. Mr. Hoyt explained those are the kilowatts of the size of the system that will be producing. If it is photovoltaic or ESS, it is a range of kilowatts the system would be producing. Councilmember Burt inquired what goes into the level two charger cost example. Mr. Hoyt stated it is the base fee for the administrative cost and there is a 30 -minute building inspection time and probably a 30-minute fire inspection time in this example. There is also some Urban Forestry time in there could be cut down if it is only interior work. Ms. McRee said the base fee is $305. The base fee accounts for the processing of a permit. Councilmember Burt queried how complicated a level two charger permit is to require $300 for the base review. Mr. Hoyt explained the base fee was established for all standalone permits through the Cost Effectiveness Study. Getting the proper permit application from the applicant can be a back and forth process. There is a utility application that needs to be filled out and processed. In some case, they are looking for a single line diagram or some specific information regarding the equipment being installed. It can take time to get that information into the system, route it to review, collecting the fees, and issuing the permit. Director Kurotori commented there is less concern with level two chargers. Larger installations with multiple chargers often require significant upgrades, and customers are informed that they will bear those costs. The team also coordinates managed charging and tracks locations of photovoltaic systems, batteries, and chargers to assess grid capacity. Planning helps determine whether infrastructure upgrades are needed to support growing electrification. When upgrades are required, the aim is to do them comprehensively in one go rather than revisiting later. Councilmember Burt questioned how costs and fees can be reduced and how right activities can be incentivized and wrong ones disincentivized. Mr. Hoyt replied cost reduction is already being addressed by streamlining processes such as automated permits for solar, heat pumps, and water heaters, reducing inspection complexity, and limiting staff involvement and site visits. Enforcement has also shifted from office plan checks to field -based inspections, SUMMARY MINUTES Page 6 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 improving efficiency. State fee caps will not cover processing costs. There is a need for public awareness about the importance of permits and how easy the streamlined system makes the process. Councilmember Burt mentioned there is no state cap listed on tables two and three. Mr. Guagliardo responded that is the distinction between the different tables. Table one lists the fees the state cap applies to. Table two is additional electrification activities. That would be a discretionary subsidy at the choice of the City Council in furtherance of electrification as a policy goal. There is no state cap on those. There is currently no state cap for electrical vehicle charging stations, although there is current legislation working its way through. Councilmember Burt asked what refined review process fee refers to on table three. Mr. Guagliardo stated this is the shift from the Cost of Service Study done last April where for level one and level two charger, there was building inspection time, fire inspection time, Urban Forestry inspection time, and additional layers being applied to it. This was proposed in attempt to streamline the process. For electrical vehicle charging, it would not be a subsidy. It reflects a lowering of costs associated with these. It would not be treated the same as tables one and two drawing on potential buckets to subsidize it. It would be Council direction to pursue the refined process and would be returned as part of the FY27 muni fee process. Councilmember Burt was confused by the wording of the title. Mr. Guagliardo would incorporate that into the discussion. Chair Lauing observed complicated, slow, or expensive processes discourage people from installing chargers and buying EVs. The proposed approach is effective because it lowers costs and simplifies the process. The suggestion was to put it in a contractor's hands with qualified contractors and take out more trips from the department and inspectors . Mr. Hoyt replied many of the contractors sub the work out to other individuals doing the work. The role of the department is ensuring the work is compliant. Contractor self-certification with audits creates significant operational challenges including determining audit frequency, managing the workload of audits, gaining access to completed installations, enforcing corrections, and deciding how to handle contractors who fail audits. A simple and fair system that avoids favoring certain contractors is preferred. Councilmember Lu asked for explanation on how the underlying costs are charged. Ms. McRee replied Development Services last completed a fee study around 2016–2017. Fees have since only increased with general rates rather than being fully reassessed. Because operations have changed significantly, a new cost-of-service study was needed. The updated 2025 fees now better reflect the actual work required, which is why some permits show a significant increase. Councilmember Lu wanted detail on when costs are actually incurred over time and which costs can be absorbed. Mr. Hoyt responded most of the projects discussed are handled in-house for building plan review and inspections, with little to no outsourcing. The fire department also does most work internally, except for complex cases. The department is not currently authorizing any overtime. Councilmember Burt inquired if using photographed remote inspections for completed work could be applicable here. Mr. Hoyt expressed concern about the safety aspect. Councilmember SUMMARY MINUTES Page 7 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 Burt observed requiring full onsite inspections may discourage permits, leading to no inspections at all. The trade-off is between onsite, photographed remote inspections, or no inspection. Having some level of oversight, even remotely, may be better for safety than none . Mr. Hoyt agreed. Ms. McRee added this can be explored. Mr. Hoyt observed r emote inspections would require dedicated scheduling or staff, since doing occasional one -off inspections may not be efficient given inspectors are typically moving between sites. Councilmember Burt queried if there is a state law limiting fees for Level two chargers, possibly based on amperage. Mr. Guagliardo indicated legislation is currently underway to apply a state cap to that. Councilmember Burt asked if there is a way to incentivize encouraging appropriately sized EV chargers. Mr. Guagliardo replied there is room to further explore streamlining the cost based on amperage. Councilmember Burt questioned if subsidizing a 200 amp panel but not 400 had been considered. Director Kurotori stated a presentation was given to the UAC and S/CAP outlining anticipated electrical loads and what is being incorporated into planning. Electrification was recognized as a City goal and built into the standard approach for grid modernization. Increased electrical capacity is being built across the entire system to support baseline electrification like EV chargers and heat pump water heaters. Customers who demand higher-than-standard capacity, such as larger homes or commercial developments, should pay the additional costs themselves rather than spreading those costs across all ratepayers. Mr. Guagliardo added it is a policy decision. If the City chooses to subsidize amperages lower than 400 and further into the City's electrification and sustainability goals as a policy decision, that can be applied and not apply the subsidies for 400 amps or greater. The FY24 activity level for new service of 400 amps or greater as noted in the table was 1. Through March of this year, there were 10. A different activity level is being seen. Councilmember Lu asked what things are being done that are considered streamlining. Mr. Hoyt answered the process has been refined to align with other jurisdictions, including a streamlined checklist for staff and inspectors. These improvements began about two to three years ago and have continued to evolve over time . Councilmember Burt observed no permits are shown to have been issued for SolarAPP+. Mr. Guagliardo clarified SolarAPP+ was not in use in 2024. The 2025 data was not available when this report was being compiled. It reflects current activity levels for FY26. Councilmember Burt asked why people are not using SolarAPP+. Mr. Hoyt explained specific eligibility requirements and design limits for using SolarApp+. Chair Lauing asked about the funding source for discretionary subsidy for electric service and HVAC permits. Assistant Director Abendschein explained the money going to S/CAP programs would be reduced by two-thirds more if this is added on. Councilmember Lu wanted to know the reason a 54 percent subsidy was contemplated for single family HVAC but 25 to 34 percent for multifamily. Mr. Guagliardo replied City Council adopted a fee for residential gas, water, and space heating equipment standalone as its own SUMMARY MINUTES Page 8 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 fee in September of 2025. The fee was already set. There has been a significant uptick in that standalone permit versus the HVAC permit. It is a nuance of how things are titled. Councilmember Burt asked how the revenues would be used and assumed people could get a higher amp service and still not electrify. Assistant Director Abendschein responded it is possible with large ADUs with high capacity but they would not get the rebates. The use of these revenues would have to be for some sort of emissions reducing purpose. Councilmember Burt summarized if the utility revenues are used for reducing fees, they are being spread across a bunch of customers and incentivizing permits. If it was applied to a rebate for the appliance, a permit would be required to get the rebate. Assistant Director Abendschein added permitting costs have to be taken into account. When the programs are designed, there is a reasonable chance the permit would have to be subsidized anyway. Councilmember Burt queried how the subsidized cost is determined. Mr. Guagliardo indicated the subsidized cost reflects the removal of the base fee applied to each standalone permit. It makes them more competitive with neighboring jurisdictions. MOTION: Councilmember Burt moved, seconded by Councilmember Lu, to recommend the City Council adopt an ordinance amending the Fiscal Year (FY) 2026 Municipal Fee Schedule to reflect subsidies for Photovoltaic and Energy Storage Systems fees as described below: a. Pursue a written finding that would allow the City to exceed th e state cap for Photovoltaic and Energy Storage Systems, and b. Direct staff to develop a rebate program funded through non-rate revenues Utilities funds that provides subsidies for all fee categories at an amount that approximates the difference between City costs and state caps. MOTION PASSED 3-0 MOTION: Councilmember Burt moved, seconded by Councilmember Lu, to recommend the City Council adopt an ordinance amending the Fiscal Year (FY) 2026 Municipal Fee Schedule to reflect subsidies for Electric Service and HVAC Permits fees as described below: a. Direct staff to develop a rebate program funded through non-rate revenues Utilities funds that provide subsidies for all fee categories at an amount that approximates the proposed cost in Table 2, excluding “Electric Service – New or Replacement 400 amp and Greater.” MOTION PASSED: 3-0 SUMMARY MINUTES Page 9 of 9 Finance Committee Meeting Summary Minutes: 04/07/2026 Future Meetings and Agendas Councilmember Burt was interested in getting an update from Staff on the history and balance of Measure K funds and how they are being used. Assistant City Manager Nose indicated that will be part of the proposed budget process in May. Adjournment: The meeting was adjourned at 6:05 p.m.