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HomeMy WebLinkAbout2026-04-14 Policy & Services Committee Summary MinutesPOLICY & SERVICES COMMITTEE SUMMARY MINUTES Page 1 of 8 Regular Meeting April 14, 2026 The Policy & Services Committee of the City of Palo Alto met on this date in Council Chambers and by virtual teleconference at 6:02 p.m. Present In-Person: Lythcott-Haims (Chair), Reckdahl, Stone Absent: None Call to Order Chair Lythcott-Haims called the meeting to order. The clerk called roll declaring all present. Public Comment There were no requests to speak. Action Items 1. Update, Discussion, and Potential Feedback on Bill Positions Regarding State and Federal Legislation, Executive Orders and Other Regulatory and Funding Activity. CEQA Status: Not a Project. ITEM HEARD AFTER ITEM 2 Christine Prior, Assistant City Clerk, provided a slide presentation including the recommendation and background. Carly Shelby, Deputy Director Townsend Public Affairs, joined the presentation including presentation overview, key areas of engagement for this year, areas of engagement: legislation, E-bike safety, autonomous vehicle regulation, housing bond proposals, SB 79, HCD implementation guidance, the role of AI in public meetings, local revenue protection, state budget update, federal updates, and federal appropriations update: submitted projects. Public Comment: 1. Sarin S. (Zoom) yelled expletives. SUMMARY MINUTES Page 2 of 8 Policy & Services Committee Meeting Summary Minutes: 04/14/2026 Councilmember Reckdahl queried if inability to charge by weight on street repairs on slide 11 is a change in policy. Ms. Shelby stated the bill fixes a specific legal problem that limited the City's ability to recover infrastructure costs associated with vehicle weight fees. Christopher Jensen, City Attorney, added the bill will not address a different problem with recovering costs from those types of situations. The bill addresses some statutory issues but not constitutional ones. Councilmember Reckdahl asked about charging heavy vehicles a road-use surcharge. The city attorneys responded that while there may be some limited options, it is legally challenging and Palo Alto has not historically imposed such fees. Councilmember Reckdahl inquired if all of the e-bike bills on packet page eight are foreseen to pass. Ms. Shelby replied a lot of them address various issues within broader E-bike problematic framework. The most comprehensive and likely-to-pass is AB 2346. Broader proposals like AB 1942 are less feasible due to the lack of an implementing agency and funding. The fate of these bills will depend on their cost and the appropriations process. Councilmember Reckdahl wanted more detail on AB 1383 on packet page 22. Ms. Shelby responded this is a closely watched two-year bill that would amend PEPRA starting in 2027 to lower the retirement age for certain public safety workers from 57 to 55 and increase the pension formula from about 2% to 3%. It would significantly raise costs for local agencies. While the bill has strong support from labor groups, a broad coalition of local agency organizations is opposing it due to the financial impact. Its outcome remains uncertain, but it is expected to face scrutiny in policy and appropriations committees, where it may ultimately fail. This aligns with the existing policy platform. Councilmember Reckdahl was concerned how AB 2180 would affect utilities. Ms. Shelby stated it is sponsored by the Association of California Water Agencies. It essentially protects utility rate structures. It allows the City to recover costs tied to service delivery impacts. It is largely supported by local agencies. Councilmember Reckdahl asked if a position on this bill is anticipated. Madeline Salah, Deputy City Attorney, added recent court decisions interpreting Proposition 218 have tightened requirements, making it harder for utilities to prove their rates are proportional to the cost of service for each parcel. This measure aims to give utilities clearer guidance and more flexibility in demonstrating compliance. Chantal Cotton Gaines, Deputy City Manager, commented work will be done with utility staff to ensure the local impact is understood and the decision to proceed will be made after that. Councilmember Reckdahl queried how SB 762 would affect the City. Deputy City Clerk Prior said this bill would allow the City to raise the tax limit to allow for the Cubberley ballot measure. Ms. Shelby added statutory approval is needed in order to exceed the statutory tax sales or transactions in tax limitations. Councilmember Reckdahl asked what committee is referenced on packet page four and who is recommending support. Deputy City Clerk Prior replied it is this committee. Townsend and Staff are recommending support. It is the recommended position based on the legislative guidelines. SUMMARY MINUTES Page 3 of 8 Policy & Services Committee Meeting Summary Minutes: 04/14/2026 Deputy City Manager Cotton Gaines added these are the ones believed to be beneficial for the City to weigh in on. The Committee's feedback is used as an additional weigh-in point. Vice Mayor Stone supported the recommendations. Chair Lythcott-Haims suggested providing feedback on the issue of recovering the costs of street maintenance done by heavy vehicles. Ms. Shelby noted this bill could directly benefit solid waste and water sewer operations that rely on heavy vehicles to ensure these utility rates can remain cost of service based. This is a Cal Cities sponsored bill that addresses a long- standing issue surrounding general fund exposures when road repair costs shift to general fund or other things. Councilmember Reckdahl inquired if the legal team has guidance. City Attorney Jensen responded if this is something the Committee is interested in pursuing, more research in the office would be required to determine whether this legislation would be effective. The attorney asked to be given the opportunity to give more definitive answers to the Committee's questions if Council wants to pursue weighing in on the legislation. Chair Lythcott-Haims required Staff to inquire of the colleagues who would know whether this is a concern. Deputy City Manager Cotton Gaines replied Staff could follow up by connecting with applicable staff to understand if there is a Palo Alto impact and go from there. Chair Lythcott-Haims was in favor of Palo Alto writing a letter supporting SB 1246. Councilmember Reckdahl wanted to know more. Vice Mayor Stone expressed support. Deputy City Clerk Prior stated this issue is covered in legislative guidelines and a letter of support can be drafted for the bill. Councilmember Reckdahl clarified the topic is of interest, more information is needed. Chair Lythcott-Haims advised to continue with the procedure and would show it to Councilmember Reckdahl before making a decision to support. Deputy City Clerk Prior commented Staff would check in with other relevant City staff as well. Chair Lythcott-Haims asked about the affordable housing bond. Ms. Shelby responded this is a carryover of advocacy from the last legislative session, which operates on a two-year cycle. There was a support if amended position, and now a broader coalition of local agencies and housing trusts is pushing to replenish the Local Housing Trust Fund Program. The program was funded with $300 million in 2018, but those funds are now exhausted. The current proposal seeks $500 million to reflect rising project costs and the growth in housing trusts. This funding is significant because it is one of the few sources in the housing bond that local agencies like Palo Alto can apply for directly, whereas most other funds are limited to developers. Chair Lythcott-Haims wanted information about the missing middle townhome ownership act and why Staff was not advocating for support. Ms. Shelby answered AB 1751, introduced by Corky Silva, would create a statewide buy rate approval process for qualifying townhome developments to expand homeownership opportunities for first-time buyers. It requires cities to approve eligible projects without discretionary review, applying to multifamily and some underutilized single-family zones, and limits local control over approvals. Because this conflicts with priorities around maintaining local discretion, it is not a bill that can be clearly recommended for support. It has been referred to planning staff to evaluate its potential SUMMARY MINUTES Page 4 of 8 Policy & Services Committee Meeting Summary Minutes: 04/14/2026 impact and development implications for Palo Alto. Councilmember Reckdahl was not comfortable with the buy rate. Vice Mayor Stone would like to learn more but was not ready to support or oppose at this point. NO ACTION 2. Office of the City Auditor Presentation of the City of Palo Alto Utility Reserves Advisory Report. CEQA Status: Not a Project. ITEM HEARD BEFORE ITEM 1 Ross Hagen, Baker Tilly Director for Municipal Advisory, provided a slide presentation including advisory project objective, background, overview of current reserves, consistency with regulatory reserve margin requirements, operational and industry best practices, benchmarking comparables, reserve tracking, and key recommendations. Kiely Nose, Assistant City Manager, referenced Attachment B. Management appreciates Baker Tilly's work, which originated from a referral from Council during last year's budget discussions about appropriate reserve levels. Staff generally agrees with the report’s concepts but suggests some alternative administrative approaches for practicality. The plan is to work with the Finance Committee and Council over the next year to refine reserve policies. Raising reserves to the proposed targets could significantly impact customer rates, so Staff emphasizes carefully balancing risk tolerance, the City’s financial risks, and utility-specific needs. The importance of maintaining adequate reserves for strong credit ratings and lower borrowing costs is noted. Staff supports the findings but wants a thoughtful process to determine the best approach for Palo Alto. Public Comment: 1. Samuel J. (Zoom) had comments about the roads. Councilmember Reckdahl queried the meaning behind the comment the reserves are more cumbersome. Mr. Hagen responded it refers to tracking the various reserve fund policies and what is done when above or below target levels. Tracking strict minimums and maximums for reserves would be more difficult for utility management, especially when it requires frequent fund transfers to stay within those limits. Staff suggests simplifying the approach by making minor adjustments such as replacing minimum/maximum ranges with a single target level in some cases. Reserve policies and target guideline levels should be for each individual utility based on management goals. Using separate target levels is not a problem if that is what the management prefers. Councilmember Reckdahl inquired about the 2009 and 2011 bonds containing overly burdensome reserve requirements. Assistant City Manager Nose stated they were subsidized. SUMMARY MINUTES Page 5 of 8 Policy & Services Committee Meeting Summary Minutes: 04/14/2026 Through federal government programs, they were unique structures. Staff will do a refunding and refinancing of one that has an overly stringent reserve policy that will remove that and put it back to a normal reserve. They are callable bonds. Mr. Hagen added one is callable and the other will mature in the middle of this year and will naturally be defeased through payment. Councilmember Reckdahl asked how the coupon compares to current market rates. Assistant City Manager Nose answered they fit within the current polity for refinancing which is 3 percent savings. The current markets may reduce that margin. Financing will still be preferable even if it is net zero to get more updated reserve requirements. The 3 percent savings is an internal City policy between Council and Staff given the administrative burden associated with it and the cost to do a refinancing. Councilmember Reckdahl wanted to know Staff's position having operational reserves and CIP reserves for the wastewater treatment, refuse and stormwater. Assistant City Manager Nose replied Staff has an actual reserve study underway for some of these and want to create the space for that study to be complete. Some of the funds have very specific operations and Staff wants to ensure the reserve needs are being aligned with those operations and the risks associated with them. Councilmember Reckdahl asked if they are required to negotiate with partners. Assistant City Manager Nose responded there are contracts in place with each of the partners. They are required to work with the partners on all terms when renegotiating contracts. Councilmember Reckdahl queried how the reserves are invested. Assistant City Manager Nose explained the City contracts with Chandler Investments. They pool the cash from all City funds and invest in accordance with the City's investment policy. Those interest or investment earnings are apportioned out to each of the funds based on how much fund balance they have. Councilmember Reckdahl wanted explanation of the reserves on packet page 57. Mr. Hagen explained the days cash on hand is a cash reserve metric where a certain amount of cash will be withheld based on both operating and non-operating expenses. Debt service coverage ratio is a target to maintain a certain amount of dollars as compared to the debt service payments that the City or electric utility would have in order to maintain a certain ratio of coverage for those debt service payments. Councilmember Reckdahl asked about the current policy on the rate stabilization reserves. Lisa Billir, Utilities Assistant Director of Resource Management, responded for electric, gas, water, and wastewater utilities, the policy does not set a fixed target for rate stabilization reserves. Instead, any available funds are placed in the reserve and a plan is created to use them over a five-year period. The hydro rate stabilization reserve has defined targets levels and is currently at its target with updates being proposed in the upcoming rate plan. There is a separate gas price spike mitigation reserve. With Council direction, an amount is being recovered in that reserve. Mr. Hagen added one of Baker Tilly's recommendations is to consider implementing a target level for those rate stabilization reserves based on a percentage of operating revenues or expenses for the utility so funds are available to help stabilize those rate increases. The 10 and 65 percent was based on the benchmark community percentages. The higher it goes, the more impact it would be to the rates to get that in place. But the offset to that is in the future, you'd SUMMARY MINUTES Page 6 of 8 Policy & Services Committee Meeting Summary Minutes: 04/14/2026 have more dollars available to help stabilize future rate increases beyond that. The offset to that is in the future there will be more dollars available to help stabilize future rate increases. Vice Mayor Stone supported the Staff recommendation to do a gradual change and implement the work plan over the next year. Chair Lythcott-Haims was curious as to why wastewater, refuse, and stormwater policies had not been updated in more than since the early '90s. Assistant City Manager Nose had no answer but stated that is why the study is underway. Chair Lythcott-Haims asked why these three were held out of the process when the others were updated. Assistant City Manager Nose explained it is due to the variability in pricing, operations, and maintenance. The refuse fund has had sufficient reverse balances for the last decade and has not necessitated a deeper look. Staff realizes the importance in conducting a routine review to ensure overall financial health. MOTION: Chair Lythcott-Haims moved, seconded by Councilmember Reckdahl, to accept the City of Palo Alto Utility Reserves Advisory Report and recommend that City Council approve the report, along with management’s response. MOTION PASSED: 3-0 3. Update on Citywide Development Impact Fee Nexus and Housing Feasibility Study. CEQA Status: Exempt under CEQA Guidelines Section 15378. Julia Knight, Senior Program Manager, provided a slide presentation including recommendation, key content, policy context, team and scope, project timeline, typical impact fee calculation methodology, other methodologies used to calculate impact and in lieu fees, transportation impact fee timeline, residential growth projections, and non-residential growth projections. Public Comment: 1. Charlotte M. argued argues the Housing Nexus Study relies on a chain of assumptions including estimating incomes, spending, job creation, and induced demand introducing significant uncertainty, meaning small changes in inputs could produce very different results. This approach led to inflated conclusions in the past, such as estimating that each new single-family home creates demand for 1.6 additional housing units and justifying high fees. The methodology will overstate impacts and result in excessively high housing fees. 2. Steve L. supported the use of modest growth projections but wanted further discussions with Staff to reconcile differing views. Plan Bay Area projections are unreliable. References to them should be removed to avoid lending credibility to data the City may later challenge. High housing fees hurt feasibility, emphasize shifting household SUMMARY MINUTES Page 7 of 8 Policy & Services Committee Meeting Summary Minutes: 04/14/2026 demographics like smaller and older households, and outdated park standards based on past population trends should be updated. 3. Tom R. (Zoom) expressed concern about tourists littering in the park. Vice Mayor Stone asked if Staff’s projections are realistic and if they assume the City will not meet future housing goals. Jonathan Lait, Director of Planning & Development Services, responded the City is required by the state to plan for housing by ensuring it has the capacity to meet assigned targets every eight years, and it has generally met its market-rate housing goals. It has struggled to fully achieve lower-income housing targets, so projections are adjusted based on past performance rather than assuming full completion. The estimates are intentionally conservative, reflecting both historical outcomes and external factors like market conditions, costs, and financing that ultimately influence how much housing actually gets built. The standard is higher with a robust housing pipeline. Vice Mayor Stone expressed trust in Staff's work and looked forward to seeing the updated impact fees. Councilmember Reckdahl observed calculating multipliers is complex because it requires balancing the need to support housing production with the need to fund affordable housing and public services like parks. There are conflicting pressures in setting impact fees. Some fees may be too low to meet park development needs while others may be seen as too high for housing feasibility, all within the context of very high land costs in Palo Alto. Land values and infrastructure costs create difficult tradeoffs. The consultant analysis will provide a better understanding of the appropriate calculations. Chair Lythcott-Haims inquired about Staff's recommendation of 65 percent realization of San Antonio projections and pipeline projects. Director Lait explained projections are based partly on past entitlement history, but the assumed realization rate may be conservative and could even be higher than 65 percent. The intent of using a lower estimate is to avoid overestimating development and then relying on fee revenue that might not materialize for infrastructure and services. While this choice mainly affects transportation analysis rather than most other fee calculations, the estimate could be adjusted if the Committee feels it underrepresents likely development, and similar analyses have used higher rates in other contexts like San Antonio. Chair Lythcott-Haims asked what Staff wanted regarding the citywide transportation impact fee. Director Lait replied Staff wanted feedback to the projections being used. Chair Lythcott- Haims wanted to know if the transportation fee would be recommended to go to the planned facilities method. Ms. Knight stated the approach is to maintain existing service standards as the community grows by identifying what additional facilities are needed to preserve the current level of service. For most infrastructure, this means scaling facilities to match projected population growth, but transportation requires a broader, multimodal strategy rather than simply adding more roads or linear expansions like bike lanes. Instead, it focuses on what transportation systems and projects will be necessary to support a larger future population, taking a more holistic view of mobility needs out to 2050. NO ACTION SUMMARY MINUTES Page 8 of 8 Policy & Services Committee Meeting Summary Minutes: 04/14/2026 Future Meetings and Agendas Deputy City Manager Cotton-Gaines will be working with the chairperson on specific items for the next meeting, which will be Tuesday, May 12. The Fair Chance in Housing Ordinance and a couple of audit items are tentatively on the calendar. Adjournment: The meeting was adjourned at 8:00 p.m.