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HomeMy WebLinkAbout2026-05-05 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 33 Special Meeting May 5, 2026 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 9:03 a.m. Present In-Person: Lauing (Chair), Burt, Lu Absent: None Call to Order Chair Lauing called the meeting to order. The clerk called the roll. Public Comment None. Agenda Items 1. Fiscal Year 2027 Budget Overview & Strategies (9:00 AM - 10:15 AM) Chief Financial Officer and Administrative Services Department Director Lauren Lai outlined the process for the 2-day workshop to review the proposed FY 2027 Operating and Capital Budget by city service area (CSA), with department directors providing highlights and responding to Finance Committee questions before the material returns to the City Council on May 11. Supplemental online materials were noted to include the At-Places Memo with vacancy information, capital project reappropriations, large vendor contracts exceeding $1M, and historical budget information. Tentative Committee approvals were recommended at the conclusion of each CSA discussion, with departments asked to complete presentations before Committee questions. Committee members were encouraged to self-moderate comments to support efficient discussion. CFO Lai additionally described the use of “parking lot” items for topics requiring additional consideration or deferred discussion due to time constraints and emphasized that requests for follow-up information should remain limited to matters directly relevant to policy and budget adoption decisions. Chair Lauing sought clarification regarding the distinction between proposed budget adjustments and parking lot items. It was explained that agreed-upon budget modifications would be tracked separately from items requiring further discussion. CFO Lai noted that several Stanford-related items were included on the agenda and stated that, aside from the Palo Alto Link item scheduled for the following day, staff does not anticipate in-depth discussion requiring segmentation. It was explained that if discussion became sufficiently specific, the committee would pause to complete the required SUMMARY MINUTES Page 2 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 segmentation process before resuming deliberations. Committee members were directed to reference "cheat sheets" in front of them outlining the process and segmentation procedures. CFO Lai presented upcoming budget-related dates on the City calendar. It was noted that the City’s approximately $1B proposed budget reflected a 1.9 percent increase over FY 2026, while the General Fund budget of $311M represented a 1.1 percent decrease. The proposed FY 2027 Capital Budget totaled $313.6M, with a 5-year capital plan of approximately $1.2B. CFO Lai stated that the City continued to face financial challenges and that departments had developed reductions and operational efficiencies intended to minimize community impacts while maintaining high-quality services. City Council priorities were highlighted related to housing, Cubberley, business vibrancy, and government efficiency. A projected General Fund deficit of $17.1M, or approximately 5 percent, was identified and it was explained that the proposed budget was structurally balanced through a combination of strategies that would be discussed throughout the workshop. In addition, previously approved FY 2026 budget reductions were carried forward into FY 2027 and the Budget Stabilization Reserve (BSR) was projected to remain between 17 and 18 percent. CFO Lai outlined a multi-strategy, multi-year approach to address the projected $17.1M General Fund deficit, including approximately $6.8M in expenditure reductions through administrative streamlining, technology modernization, and contract review. The proposed budget included a net reduction of 22.25 FTE positions citywide, with staff emphasizing vacancy management and reassignment efforts to largely avoid layoffs. The proposed budget included approximately $1.7M in General Fund revenue enhancements from new and increased fees and rates, along with additional revenues generated through investment policy and investment portfolio management efforts. CFO Lai reviewed citywide budget strategies, including the use of one-time funding sources such as Measure B, the SUMC Development Agreement, and the Hamilton Avenue Benefit Fund, while noting that the BSR was not proposed for use. The proposed budget reduced General Fund transfers to the Capital Fund by an additional $1.5M in FY 2027 and included a $4.5M reduction related to pension costs and liabilities. CFO Lai highlighted key budget assumptions and identified several areas of fiscal risk. It was noted that the proposed budget maintained a 5 percent vacancy assumption despite the net reduction of 22.5 FTE positions and maintained the BSR without additional contributions. CFO Lai pointed to moderating property tax projections, declining sales tax revenues following prior corrections, and potential risks to the City’s Document Transfer Tax (DTT) revenues stemming from a proposed November 2026 ballot initiative that could invalidate the tax after December 2028, affecting approximately $7.5M to $8M in annual revenue assumed in the budget and forecast. CFO Lai summarized the City’s approximately $1B all-funds budget, including major revenue sources such as utility net sales, taxes, and charges for services, as well as primary expenditures for salaries and benefits, utility purchases, and capital improvements. Historical staffing trends were presented from 2002 through 2027. The City was projected to have 1,088 positions citywide, including 591 FTE within the General Fund and a net reduction of 22.25 FTE positions. Historical staffing impacts related to the Great Recession and the pandemic were highlighted. SUMMARY MINUTES Page 3 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 CFO Lai presented a multi-year General Fund and BSR forecast based on current service levels, existing revenue assumptions, ongoing cost controls, and use of Section 115 funds for ADC and ADP obligations. It was noted that the BSR was projected to decline from approximately 17 percent to 15 percent before recovering in later years as the City’s financial outlook improves. CFO Lai discussed the City’s prefunding policies for pension and retiree medical benefits, noting that the approach helps stabilize budget impacts and manage long-term liabilities. It was noted that the updated Other Post-Employment Benefits actuarial report was completed earlier in the budget cycle and incorporated into the proposed budget, with additional discussion scheduled to return to the Finance Committee on May 19. CFO Lai summarized the composition of the $311M General Fund revenues and expenditures, including taxes, charges for services, staffing costs, contracts, and transfers to capital. Major tax revenue trends were highlighted, including adjustments to property tax allocations and continued sales tax volatility. It was noted that the apparent increase in sales tax revenue reflected a prior mid-year reduction, while the adopted- to-adopted comparison showed an approximate 8 percent decline. CFO Lai discussed trends in the City’s major tax revenues, noting the significant decline in transient occupancy tax (TOT) revenues during the COVID-19 pandemic, recent sales tax adjustments establishing a lower baseline, continued property tax growth, and ongoing monitoring of approximately $9M in DTT revenues. CFO Lai highlighted proposed Measure K expenditures related to transportation, rail crossings, housing, public safety, and administrative services, along with projected fund balances and key capital projects. It was explained that Measure K information had been incorporated throughout the budget materials and CIP planning process to improve transparency and tracking of funds. The proposed FY 2027 budget continued the Measure L Gas Utility Equity Transfer at 18 percent, totaling approximately $10.7M, or about $1M more than the prior year. CFO Lai introduced the 5 CSA overview presentations and noted that each department would provide more detailed discussions later in the workshop: 1) For the Internal Support and Administration CSA, CFO Lai highlighted investments related to liability management, real property, technology modernization, workplace improvements, and implementation of prior Council priorities. Proposed reductions within this CSA included elimination of 5.25 FTE positions and reductions to non-personnel expenses. 2) Regarding the Community and Library Services CSA, CFO Lai highlighted continued nonprofit partnership funding, including year 2 of HSRAP, $200,000 for allcove, and operational support for Youth Community Services (YCS), Environmental Volunteers, and Neighbors Abroad. The proposed budget continued funding for the Cubberley Community Center concept plan, expanded service days at Mitchell Park and Rinconada, and operation of the 429 Bryant Street Community Center, including 1 additional FTE. Proposed reductions within this CSA included elimination of 6 positions and realignment of park maintenance resources previously associated with the PAUSD field agreement. 3) Concerning the Planning and Transportation CSA, CFO Lai highlighted continued investment in housing initiatives, including CDBG grants, BMR housing programs, and other housing-related efforts supported through special revenue funds. Measure K and Measure B funding would continue to support Safe Routes to School, economic development, and land use initiatives, while expanded use of CIP and Measure B funding was intended to reduce General Fund SUMMARY MINUTES Page 4 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 impacts. Proposed reductions within the Planning and Transportation CSA included elimination of 3 FTE Planning positions. It was noted that the proposed budget would discontinue Palo Alto Link and transition the program to a voucher model. 4) For the Infrastructure and Environment CSA, CFO Lai highlighted continued infrastructure investment, electrification efforts, grid modernization, S/CAP initiatives, and coordination between Public Works and Utilities. Proposed staffing changes included elimination of 10 positions, freezing 3 positions related to the fiber project, and adding 3 water quality positions. It was noted that many of the eliminated positions were associated with completion of the Advanced Metering Infrastructure (AMI) project. Minor reductions to janitorial and tree- trimming services were proposed. 5) Lastly, regarding the Public Safety CSA, CFO Lai highlighted continued funding for track cross monitoring in partnership with PAUSD through February 2027, activation of a new 12-hour peak medic unit, 1 Psychiatric Emergency Response Team clinician, the Public Safety Building, Fire Station 4 replacement, critical technology, equipment, and fleet needs. Proposed staffing changes for Public Safety included elimination of 3 positions, freezing 3 positions, and adding 1 program assistant position for scheduling. Additional reductions included elimination of a CSO position, reduced crossing guard staffing, and procurement of a diesel fire engine instead of a hybrid model to significantly reduce costs. CFO Lai described the Capital Improvement Program as impressive, a $1.2B portfolio encompassing 217 projects across multiple funds and noted that capital projects were supported through a diverse range of funding sources, including grants and regional, state, and federal funding. It was explained that the proposed General Fund transfer to capital totaled approximately $33.4M and included revenues from sources such as Measure K, the Utility Users Tax (UUT), TOT, interest earnings, and excess BSR funds. Item 1 Public Comment: None Councilmember Lu commended staff for substantially reducing projected long-range General Fund deficits while maintaining limited service impacts and preserving the BSR. Potential ongoing funding pressures identified for future consideration included track monitors, crossing guards, oversized vehicle (OSV) enforcement, and the Palo Alto Museum. Councilmember Lu discussed whether additional departmental reductions could provide greater long-term budget flexibility. Questions were raised regarding the net fiscal impact of vacancies and whether continued vacancy savings could continue to support the City’s budget outlook despite the proposed position reductions. Councilmember Burt expressed appreciation that the proposed budget addressed not only the current-year deficit but the City’s broader structural deficit. Concern was expressed regarding projections showing the BSR declining to the lower end of the target range in the outyears despite acknowledgment that the City budgets conservatively and could experience changing economic conditions. Questions were raised regarding the assumptions and projections underlying long-term revenue growth forecasts, including major tax revenue categories. CFO Lai SUMMARY MINUTES Page 5 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 indicated staff would attempt to provide follow-up information before completion of the section discussion. Councilmember Burt questioned projected growth assumptions for TOT and UUT revenues, including how the projections aligned with recent revenue trends and proposed utility rate increases. CFO Lai explained that the TOT projections reflected stronger current-year performance and updated baseline assumptions rather than true year-over-year growth. Regarding the UUT, it was noted that the forecast reflected blended residential and commercial utility activity and that staff would continue reconciling UUT assumptions with updated utility forecasts and rate projections throughout the budget process. Councilmember Burt raised questions regarding the potential impacts of a proposed statewide initiative on the City’s DTT, including whether Palo Alto’s tax could be affected because it was adopted prior to Proposition 218. City Attorney Christopher Jensen explained that the initiative proponents’ interpretation would subject the City’s DTT to revised voter approval requirements, potentially requiring a future two-thirds voter approval to continue the tax beyond December 2028. Additional questions were raised regarding potential election timing requirements and City Attorney Jensen indicated staff would look into this. Councilmember Burt discussed his interest in a more strategic and transparent articulation of the City’s approach to consultant use, AI integration, productivity improvements, staffing impacts, and broader government efficiency efforts. It was noted that clearer communication regarding those efforts could strengthen public confidence in the City’s fiscal management and support for future revenue measures and capital initiatives. Assistant Director of Administrative Services Christine Paras provided additional detail regarding property tax and TOT assumptions used in the long-range financial forecast (LRFF), including approximately 5 percent assessed valuation growth assumptions and stronger recent hotel occupancy and room rate trends. Councilmember Burt questioned how much projected TOT growth reflected actual market conditions versus changes in hotel inventory and sought clarification regarding mid-year true-up assumptions underlying the FY 2027 forecast. CFO Lai and Assistant Director Paras clarified that updated TOT trends had been incorporated into the outyear projections and that a revised mid-year baseline would reduce the appearance of a year-over-year increase. Chair Lauing asked about staff confidence in updated sales tax forecasts and whether the projected increase could be misinterpreted by the public given the City’s ongoing budget reductions. CFO Lai explained that additional quarterly data had improved confidence in the revised sales tax baseline and acknowledged the need to more clearly communicate that the apparent growth reflected prior adjustments rather than significant new revenue increases. Chair Lauing expressed support for the proposed revenue enhancements and commended staff efforts to identify additional revenue opportunities, particularly within the Community Services Department (CSD). Questions were raised regarding the scale of proposed reductions to SUMMARY MINUTES Page 6 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 General Fund transfers supporting capital projects. CFO Lai clarified that the proposed reductions totaled $2.5M over 2 fiscal years, representing approximately a 10 percent reduction in the General Fund transfer to capital, and encouraged the Committee to consider long-term fund balance impacts and project implications when evaluating additional reductions. Chair Lauing sought clarification regarding whether the proposed pension liability strategy aligned with existing City Council policy related to prefunding and long-term liability reduction. CFO Lai confirmed that the proposed budget remained consistent with Council policy, including contributions at the reduced discount rate and the phased transfer of Section 115 funds to CalPERS over 5 years rather than a single larger transfer. NO ACTION 2. Infrastructure and Environment: Capital Improvement Program, Capital Fund Projects (10:15 AM - 11:15 AM) a) Capital Improvement Fund (C:79-367) b) Cubberley Property Infrastructure Fund (C: 369-389) Senior Management Analyst Naomi Hsu, Office of Management and Budget, introduced the Capital Improvement Program (CIP) presentation for the Capital Improvement Fund and Cubberley Property Infrastructure Fund, noting that the 2 funds represented the largest share of projects within the CIP portfolio. It was noted that Traffic and Transportation remained the largest expenditure category due to rail grade separation projects, while Administration represented the second largest category. Analyst Hsu highlighted the addition of debt financing for the new parking garage project, including approximately $17.2M in COP financing, and noted that transfers from the General Fund remained the largest overall funding source. Analyst Hsu discussed the 5-year General Fund investment strategy for the Capital Improvement Fund, including Base Transfer, excess BSR, TOT, interest, and project-specific transfers such as Measure K, UUT, and EV charging revenues. It was noted that the Base Transfer had been reduced following the pandemic and would receive additional reductions under the proposed budget, while TOT revenues were projected to continue rebounding throughout the 5-year CIP forecast. Analyst Hsu noted increased project-specific transfers in FY 2029 associated with Measure K funding for quiet zone construction. Analyst Hsu presented revised Capital Improvement Fund projections incorporating a technical adjustment that would be included during budget amendments; the Finance Committee concurred with using the corrected figures for discussion purposes. The presentation summarized projected revenues, expenditures, reserves, and fund balances, including the Debt Service Reserve, Infrastructure Plan Reserve, and Infrastructure Reserve (IR). It was noted that the IR was projected to decline in later years due to shifted project expenditures and anticipated debt service payments associated with the new parking garage beginning in FY SUMMARY MINUTES Page 7 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 2028. Analyst Hsu summarized factors contributing to higher beginning Capital Improvement Fund balances in FY 2027, including stronger-than-expected revenues, salary savings, lower project bids, project closures, and project reallocations into later years. It was described that several project deferrals and partial funding strategies were proposed to maintain future fund balances. It was emphasized that use of available balances in earlier years would reduce projected balances in subsequent years. Analyst Hsu presented 9 new Capital Fund projects totaling approximately $11.9M, including projects related to relocation planning, natural grass fields, quiet zone improvements, and transportation infrastructure. It was noted that several transportation projects were separated from existing projects to improve transparency and that many projects would be funded through reallocations or Measure K revenues. Analyst Hsu highlighted cost increases for several existing projects, including the new parking garage, radio replacement, electric charger infrastructure, tree grate alternatives, and building system improvements. The parking garage project was noted to include annual debt service of approximately $1.2M beginning in FY 2028 and estimated General Fund operating impacts of $1M to $1.5M annually. Analyst Hsu presented the Cubberley Property Infrastructure Fund, including projected revenues, expenditures, and reserve balances. It was noted that the fund includes capital and ongoing facilities maintenance expenses, including approximately $450,000 annually for operating maintenance. Planned Cubberley repair and roof replacement expenditures were reduced pending future City Council direction related to a potential November bond measure for land acquisition. Because the annual $1.9M General Fund transfer from UUT revenues remains unchanged while project spending is reduced, projected fund balances were expected to increase in future years. Item 2 Public Comment: John M. urged the Finance Committee to prioritize and expedite quiet zone capital improvement projects, stating that quiet zones would provide citywide safety and quality-of-life benefits, while grade separation projects remain years away. Concerns were expressed regarding ongoing rail safety risks and potential impacts associated with other Churchill closure alternatives. Support was expressed for accelerating project coordination and reducing regulatory delays. Councilmember Lu expressed support for transportation safety and infrastructure improvements and questioned why Capital Fund administration costs were projected to increase despite overall staffing reductions and lower projected capital expenditures. Analyst Hsu and Chief Financial Officer and Administrative Services Department Director Lauren Lai explained that administration costs largely reflected salaries and benefits for employees supporting capital projects, including positions shifted from the General Fund to eligible capital and special revenue funding sources to provide General Fund relief. City Manager Ed Shikada noted that staffing allocations were subject to eligibility and reasonableness standards. Public Works Director Brad Eggleston stated that capital-funded positions had received similar scrutiny regarding vacancies and reductions. Councilmember Lu remained concerned about the upward trend in administrative costs relative to declining project expenditures. SUMMARY MINUTES Page 8 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Councilmember Lu raised questions regarding prioritization and deferral of parks-related capital projects and asked whether the PRC could play a larger role in reviewing parks-related capital project allocations. Community Services Department Director Kristen O’Kane explained that the PRC annually reviews proposed CIP changes and provides feedback regarding project prioritization and scheduling, although the PRC does not formally approve the projects. Councilmember Lu expressed concern regarding the proposed delay of the Bol Park pathway repaving and repair project and questioned the budget rationale for deferring a relatively lower-cost project. Assistant Director of Public Works Holly Boyd explained that the project was recommended for deferral after prior spot repairs were completed at bridge crossings and because other park-related CIP projects were identified as higher priorities. Councilmember Lu noted some uncertainty regarding several broader capital funding categories, including ADA compliance projects and assumptions related to future rail grade separation funding. Councilmember Burt questioned how large amounts of deferred and reappropriated CIP funding should be understood in the context of annual budget decisions, noting that approximately half of the FY 2027 capital spending plan reflected carryover funding from prior years. Concern was expressed that debates over relatively small capital allocations could appear out of context when substantial project funding is routinely deferred. CFO Lai and Budget Manager Robert Valentukonis explained that project schedules frequently shift due to design, contracting, construction timing, and contingency needs and noted that the CIP budget process includes detailed annual review of encumbrances, reappropriations, and multi-phase project funding requirements. Councilmember Burt raised concerns regarding transparency and tracking of delayed or accelerated CIP projects, citing the Embarcadero bike safety improvements project as an example of a Council-prioritized project whose timeline had shifted over time. City Manager Shikada and Director Eggleston explained that CIP updates are provided semiannually and emphasized the need to view the CIP as a large project portfolio with varying schedules and delivery timelines. Director Eggleston noted that transportation projects previously grouped within broader bicycle and pedestrian project categories had been separated into more discrete projects to improve tracking and public visibility. Councilmember Burt emphasized the importance of accelerating quiet zone implementation, particularly at Churchill Avenue, and questioned whether current CIP funding assumptions could delay construction beyond community expectations. Chief Transportation Officer Ria Hutabarat Lo explained that Measure K funding constraints affected the current project schedule but noted that design work for the 3 quiet zones could potentially be accelerated. Director Eggleston stated that staff had discussed the issue internally and that funding would not be allowed to become the primary obstacle if projects were able to move forward more quickly. CFO Lai and Analyst Hsu clarified projected Measure K fund balances and competing transportation project commitments, while discussion addressed the relationship between quiet zone timing, the proposed Churchill trial closure, and other potential transportation funding sources. Chair Lauing stated that quiet zone implementation should be treated as a City SUMMARY MINUTES Page 9 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Council priority and that regulatory requirements, rather than funding availability, should be the primary limiting factor. Councilmember Burt expressed concern regarding the pace of infrastructure improvements at the Cubberley Community Center despite a growing balance in the Cubberley infrastructure fund and continued reports of facility issues, including restroom conditions. Director Eggleston explained that the City had largely deferred major capital investments during the ongoing planning process, focusing primarily on emergency repairs and parking lot paving work. City Manager Shikada stated that uncertainty regarding future site planning and the shared ownership with PAUSD had complicated larger capital investments, while acknowledging ongoing infrastructure deficiencies involving water and sewer systems. Councilmember Burt questioned whether certain utility upgrades and facility improvements should proceed sooner given their anticipated long-term necessity. Councilmember Burt raised questions regarding potential City costs associated with water damage and runoff issues from Heritage Park affecting the Palo Alto Museum property and asked whether existing park improvement or emergency repair funding could be used for related improvements. City Manager Shikada stated that staff was coordinating with the museum regarding potential park-side improvements and awaiting repair cost estimates. Analyst Hsu clarified that the referenced CIP reserve reflected the broader Infrastructure Reserve fund balance rather than a dedicated emergency placeholder account, while Councilmember Lu referenced a smaller parks emergency repair allocation within the CIP. CFO Lai requested direction from Committee members regarding tentative approvals, parking lot items, and additional follow-up requests for the agenda item. Chair Lauing stated support for prioritizing and accelerating funding for quiet zone projects to the extent feasible. Councilmember Burt expressed interest in adding the Chimalus right-of-way project to the CIP. Chief Transportation Officer Lo and City Manager Shikada provided guidance regarding this proposal. Councilmember Lu asked whether potential costs related to OSV programs and safe parking should be included in the parking lot discussion for the CIP. City Manager Shikada indicated that those items would more appropriately be considered within the operating budget rather than the capital budget. Councilmember Lu questioned whether additional follow-up or performance metrics could help track project delays, deferred spending, reappropriations, and potential cost increases within the CIP process. City Manager Shikada supported the idea of developing KPI-style reporting related to reappropriations and delayed spending and Councilmember Lu suggested incorporating such reporting direction into the motion. Chair Lauing supported this and added that this issue raised broader questions regarding the use and allocation of various funding sources within the CIP. SUMMARY MINUTES Page 10 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Committee members and staff then discussed development and wording of the tentative approval motion and items to be placed in the parking lot for future discussion. MOTION: Councilmember Burt moved, seconded by Councilmember Lu, to recommend the City Council 1. Tentatively approve Capital Improvement Program, Capital Fund Projects Proposed Budgets, and 2. Place the following in the “parking lot”: a. Quiet zones construction for FY 28 funding and direct staff to return with exact figures, and b. Roth building maintenance funding, and c. Evaluate acceleration of certain capital repair needs for Cubberley including potentially utilities infrastructure, and d. Direct staff to add the Chimalus right-of-way as a project in the CIP, and e. Add KPI that track delays, cost increases, and deferred spending by program area. MOTION PASSED: 3-0 3. Citywide Internal Support and Administration (11:15 AM – 12:00 PM) a) City Attorney’s Office (O:147-156) b) City Auditor’s Office (O:157-162) c) City Clerk’s Office (O:163-173) d) City Manager’s Office (Including Non-Profit Workplan Phase 1 Grants) (O:179- 193) e) City Council (O:175-178) f) Non-Departmental (O:517-523) Chief Financial Officer and Administrative Services Department Director Lauren Lai introduced the Internal Support and Administration section, which included the City Attorney’s Office, City Auditor’s Office, City Clerk’s Office, City Manager’s Office, City Council, and Non-Departmental service areas. Administrative Assistant Alyssa Ching, Office of Management and Budget, presented an overview of the Council-Appointed Officers service area and reported that the proposed FY 2027 budget totaled approximately $13.2M, reflecting a 2.6 percent decrease from the prior year due to reductions in general expenses and contract services. Assistant Ching noted FTE reallocations to the Utilities Fund within the City Attorney’s Office, City Clerk’s Office, and City Manager’s Office to align staffing costs with Utilities-related work. SUMMARY MINUTES Page 11 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 City Attorney Christopher Jensen highlighted that the majority of the City Attorney’s Office budget consisted of attorney salaries and contract services, including outside legal counsel and related support services. Proposed reductions included a 0.5 FTE reallocation to reflect Utilities- related work and a $50,000 reduction in contract services associated with investigations. City Attorney Jensen emphasized proactive risk management, litigation avoidance, and dispute resolution efforts as among the most significant initiatives affecting the City’s budget and long- term financial exposure. City Auditor Kate Murdock stated that the Auditor’s Office would continue pursuing process efficiencies while reducing the scope of audit services by eliminating funding reserved for unplanned audit and advisory projects. City Auditor Murdock noted that future unplanned requests would be prioritized against the adopted audit workplan and emphasized the office’s ongoing role in evaluating financial, operational, and strategic risks; conducting performance and compliance audits; and overseeing external financial statement and single-audit services. City Clerk Mahealani Ah Yun described the City Clerk’s Office responsibilities related to governance, elections, public records, and meeting operations, noting that much of the work is legally mandated. City Clerk Ah Yun highlighted efforts to contain costs through reductions to travel, events, contracts, and publishing expenses, along with a proposed 0.25 FTE reallocation supporting Utilities-related work. Ongoing priorities additionally included implementation of SB 707 and the 2026 election, modernization of records and agenda management systems, strengthened contract oversight, and expanded public access and engagement tools. City Manager Ed Shikada outlined proposed reductions within the City Manager’s Office, including approximately $91,000 in reduced contractual services related to federal lobbying, memberships, and advertising, along with a 0.20 FTE reallocation associated with Utilities- related work. City Manager Shikada highlighted ongoing initiatives involving contract management, consultant oversight, workforce development, homelessness and OSV programs, housing initiatives, Downtown economic development, and the transfer of Human Services functions from the CSD to the City Manager’s Office. Discussion included Phase 1 of the Nonprofit Partnership Workplan, including proposed allocations for allcove, YCS, Environmental Volunteers, Neighbors Abroad, Magical Bridge, the Palo Alto Recreation Foundation, and UNAFF. It was explained that the City Manager's Office has been developing a consultant services best practices guide for future Council review. City Clerk Ah Yun reported that no budget reductions were proposed for the City Council budget and highlighted a proposed pilot part-time Council executive assistant position funded through the Council contingency fund. The position would provide administrative, calendaring, logistical, and constituent-facing support services for Councilmembers. It was explained that staff was seeking Finance Committee feedback regarding this proposal. Budget Manager Jonathan Rewers summarized the Non-Departmental service area, including citywide transfers, Cubberley lease payments to PAUSD, contingencies, and other centralized costs. Budget Manager Rewers highlighted continued funding for the Employee Childcare Pilot SUMMARY MINUTES Page 12 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Program through the General Benefits Fund, Nonprofit Workplan funding including allcove, and a proposed reduction in the ongoing General Fund loan to the Parking Funds from $1.8M to $1.25M in FY 2027. It was noted that staff would continue reviewing reserve levels and maintaining the BSR within the target range, while evaluating future investment priorities identified by the Finance Committee and City Council. Item 3 Public Comment: None Chair Lauing sought clarification regarding the proposed staffing changes within the City Attorney’s Office. City Attorney Jensen explained that the proposal involved only a reallocation of funding support for 2 fractional positions from the General Fund to Utilities-related work and does not reflect a reduction in staffing levels. Chair Lauing asked why specific nonprofit allocations were proposed for allcove, YCS, Environmental Volunteers, and Neighbors Abroad, as opposed to other organizations. City Manager Shikada explained that those organizations had been specifically identified during prior City Council discussions, with direction provided to fund them directly rather than through the broader grant-making process. Chair Lauing asked whether the City Manager’s Office anticipated needing outside consultant support. City Manager Shikada responded that current efforts were focused on building internal staff capacity, although specialized outside expertise could be utilized in the future for projects such as procurement of a new 311 system. Councilmember Lu stated support for several proposed staffing reallocations to Utilities-related work and encouraged clearer public communication regarding consultant management and government efficiency efforts as this could help reinforce the City Council’s government efficiency priority. Councilmember Lu asked about long-term budgeting assumptions and expenditures associated with the Employee Childcare Pilot Program. CFO Lai indicated that additional information would be provided later in the meeting during the Human Resources discussion. Councilmember Burt discussed the importance of developing more proactive citywide strategies for identifying and reducing physical and liability risks, including potential use of AI and operational efficiencies. City Attorney Jensen described ongoing efforts involving contract review, insurance and risk allocation, and claims management processes intended to identify recurring risk exposure and improve organizational response. City Manager Shikada added that staff regularly reviews litigation and claims issues across departments, coordinates citywide safety efforts, and has installed the Palo Alto 311 app on all City phones to encourage reporting and follow-up on potential safety issues. Councilmember Burt discussed whether broader staff training and leadership development efforts could incorporate more proactive risk assessment and anticipation of operational and liability impacts associated with City actions and policy decisions. City Manager Shikada responded that the City’s existing leadership academy SUMMARY MINUTES Page 13 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 programs could provide a platform for that type of training and acknowledged the suggestion as a potential area for further development. Councilmember Burt asked when the Finance Committee would have an opportunity for more detailed discussion regarding prospective nonprofit funding allocations beyond those included in the proposed budget. City Manager Shikada and CFO Lai discussed reviewing and clarifying the nonprofit funding currently included in the budget before lunch, with the possibility of returning later for additional discussion or scheduling a separate follow-up discussion regarding nonprofit funding requests. Councilmember Burt asked whether the consultant services best practices guide under development would be presented to the City Council. City Manager Shikada stated that the guide was expected to go before the City Council following the July recess and CFO Lai added that the effort had been incorporated into the Council priorities workplan. Councilmember Burt asked whether staff could better quantify savings and efficiencies associated with bringing work in-house and improving consultant management practices. City Manager Shikada stated that staff had been exploring ways to measure and present those impacts and would return with additional information. Councilmember Burt stated his understanding that, under the Auditor’s Office proposal, additional audit or advisory work arising during the year would require reprioritization within the existing workplan rather than reliance on a separate contingency allocation. Councilmember Burt expressed opposition to the proposed pilot Council executive assistant position, citing ongoing citywide staffing reductions and concerns regarding the use of Council contingency funds to support the position. Questions were raised regarding how the proposed funding approach would align with existing Council contingency fund policies in future fiscal years. CFO Lai recommended placing the discussion in the parking lot for future consideration and stated that staff was prepared to receive a tentative motion for the agenda item. CFO Lai explained that staff would clarify the nonprofit funding currently included in the proposed budget for Committee review during the lunch break. The Committee and staff discussed language for the motion. CFO Lai reiterated the nonprofit funding currently included in the proposed budget, including $200,000 for allcove and operational funding for YCS, Environmental Volunteers, and Neighbors Abroad. CFO Lai noted a $111,000 placeholder allocation within the Non-Departmental budget and referenced a preliminary FY 2027 estimate of approximately $6.6M in nonprofit service agreements identified in Attachment A. City Manager Shikada highlighted funding amounts and related information in Attachment A regarding Environmental Volunteers, Magical Bridge Foundation, Neighbors Abroad, Palo Alto Recreation Foundation, and UNAFF. [The Committee took a 33-minute lunch break] SUMMARY MINUTES Page 14 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 When nonprofit budgeting discussions resumed after the break, Councilmember Burt disclosed that his wife serves on the board of YCS, Chair Lauing disclosed that his wife serves on the board of Neighbors Abroad, and Councilmember Lu disclosed that his wife serves on the board of Palo Alto Community Child Care. The Finance Committee resumed discussion regarding nonprofit funding priorities, overall funding levels, and the future structure of the Nonprofit Workplan process. Chair Lauing questioned what the City was ultimately trying to accomplish through approximately $6.5M in nonprofit funding and noted the need to prioritize among a broad range of organizations and services. Councilmember Burt emphasized that many nonprofit partners effectively provide outsourced City services in a more cost-effective manner through volunteer support and fundraising efforts and stated that prior attempts to impose more objective funding criteria and additional requirements had overcomplicated the process. Councilmember Lu stated that the Committee should focus primarily on establishing a placeholder or “plug” amount while allowing the broader Nonprofit Workplan process previously approved by the full City Council to continue. Support was expressed for preserving certain aspects of the prior process that required organizations to identify how incremental funding would be used and allowed opportunities for new nonprofits to participate. Chair Lauing noted that across-the-board reductions could provide immediate savings but acknowledged the importance of preserving opportunities for emerging organizations. CFO Lai suggested returning to the discussion concerning nonprofit funding the following afternoon to focus specifically on the overall appropriation amount, while Assistant City Manager Kiely Nosé recommended identifying a preliminary placeholder amount to assist the Committee in evaluating overall parking lot funding priorities. City Manager Shikada suggested preparing a table of nonprofit organizations and funding information for the Committee’s review before the continued discussion. Chair Lauing stated that nonprofit funding remained a discretionary area of the budget and indicated that the City was not necessarily committed to maintaining the full existing funding level in the current budget environment. MOTION: Councilmember Lu moved, seconded by Chair Lauing, to recommend the City Council 1. Tentatively approve the Citywide Support and Administration Proposed Budgets Part 1 , and 2. Place the following in the “parking lot”: a. Non-Profit Workplan b. City Council Executive Assistant position funding 3. Direct staff to return with a consultant best practices narrative, including impacts to date as part of Council Priority Workplan for the item MOTION PASSED: SUMMARY MINUTES Page 15 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 3. Citywide Internal Support and Administration (continued) (1:00 PM – 1:45 PM) g) Administrative Services (including Printing & Mailing Fund) (O:195-217) i. General Liabilities Insurance Program (O:273-278) ii. Section 115 Trust iii. Debt Service Funds (O:135-144, C:71-76) h) Information Technology (O:285-298) i) Human Resources (O:259-284) i. General Fund (O:265-272) ii. Workers Compensation Fund (O:279-284) iii. General Benefits Fund (O:527-534) iv. Retiree Health Benefit Fund (O:535-560) Budget Manager Jonathan Rewers introduced the second portion of the Citywide Internal Support and Administration CSA, covering Administrative Services, Information Technology, Human Resources, and related internal service funds. Budget Manager Rewers reported a proposed 10.3 percent reduction in FTE and a 5.5 percent reduction in General Fund support across the departments and stated that staff had evaluated operational efficiencies and expense reductions to minimize service impacts. Internal Service Funds were reported as including the Information Technology Fund, Printing and Mailing Fund, General Benefits Fund, Workers Compensation Fund, Liability Insurance Fund, and Retiree Health Benefits Fund. Chief Financial Officer and Administrative Services Department Director Lauren Lai outlined the Administrative Services Department (ASD) strategy of emphasizing fiscal stewardship, compliance, internal controls, and revenue enhancement. CFO Lai stated that proposed reductions to administrative and management positions were intended to streamline and reorganize operations to improve internal alignment and long-term effectiveness, while acknowledging that implementation of new technology, processes, and policies could temporarily affect cycle times and responsiveness. CFO Lai reviewed proposed reductions, including continuation of a previously defunded division manager position, elimination of an administrative associate II position and grants analyst position, and reassignment of 2 part-time administrative specialist positions at the City Hall information window to the Revenue Collection team. CFO Lai noted proposed budget true-ups related to bank card fees and overtime expenses, along with plans to implement additional fees intended to recover credit card processing costs. CFO Lai highlighted several initiatives, including updates to purchasing thresholds and contract authority policies identified within the City Council priorities workplan, revisions to travel and reimbursement policies, and coordination with Information Technology, Utilities, and Human Resources on the SAP S/4HANA upgrade. Additional initiatives included upgrading the City’s budget system, strengthening contract management and revenue collection practices, enhancing contract reporting and vendor platforms, and working with vendors to pass through credit card transaction fees to reduce City costs. SUMMARY MINUTES Page 16 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 CFO Lai reviewed several additional funds and citywide initiatives under the , including the General Liabilities Fund, which reflected increased property insurance costs, including cybersecurity and seismic coverage, following updated premium estimates. CFO Lai described ongoing risk management coordination efforts involving contract risk transfer, participation in a regional risk pool, and development of centralized reporting and response systems. Additional updates included continued oversight of the Printing and Mailing Services Fund following transition of utility billing to a third-party provider and a review of planned debt financing activities, including the RWQCP line of credit, anticipated grid modernization revenue bonds, the parking garage COPs, and refunding of the 2009 Water Bonds. Chief Information Officer and Information Technology Department Director Darren Numoto outlined the Information Technology Department’s FY 2027 budget strategies, including updates to the IT strategic plan, development of AI and data governance policies, digital transformation planning, strengthened interdepartmental coordination, and identification of responsible AI use cases. CIO Numoto reviewed proposed reductions involving cybersecurity contingency funding, professional services contracts, training resources, and elimination of an IT manager position, while highlighting continued technology modernization efforts, replacement of legacy systems, contract right-sizing, AI process improvements, and support for the Palo Alto Fiber initiative. Human Resources Department Director Sandra Blanch reviewed the Human Resources Department FY 2027 budget proposal, including strategies focused on workforce development, employee engagement, labor relations, recruitment alignment, and expanded use of in-house solutions. Director Blanch outlined proposed reductions involving staffing, labor negotiations, contract services, and the HR contingency fund, while highlighting ongoing initiatives related to digitization, self-service tools, recruitment modernization through NEOGOV, and expanded performance management capabilities. Additional updates included a proposed 7.7 percent increase in the Workers Compensation Fund, along with continued administration of the Section 115 Trust and Retiree Health Benefit Fund. Item 3 (continued) Public Comment: None Councilmember Burt expressed support for the proposed overtime budget true-up, while noting that the adjustment reflected more accurate budgeting rather than an actual cost savings. Councilmember Burt questioned the potential impacts of eliminating the grants analyst position, including whether the change could reduce the City’s ability to identify, pursue and manage grant opportunities. CFO Lai explained that the position had originally been funded as a limited-term role and stated that departments would continue coordinating grant opportunities through regular meetings with Townsend Public Affairs and interdepartmental collaboration. CFO Lai noted that Administrative Services would continue overseeing centralized grant compliance and procurement-related requirements and stated that staff does not believe the reduction would materially diminish the City’s grant efforts at this time. City Manager Ed Shikada reinforced that departments remain actively engaged in tracking and pursuing grant opportunities and noted that some grants involve significant administrative or operational SUMMARY MINUTES Page 17 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 obligations, requiring careful evaluation. Councilmember Burt additionally discussed regional grant opportunities through agencies such as MTC and VTA and emphasized the importance of ensuring the City remains fully informed regarding available funding opportunities. Councilmember Burt commented that the key initiatives would benefit from clearer explanation of anticipated efficiencies, operational improvements, and cost savings. CFO Lai acknowledged that staff could better communicate the outcomes and performance measures associated with the initiatives, noting that several efforts were intended to streamline processes, reduce red tape, eliminate positions, and improve organizational effectiveness, even where savings might be difficult to quantify precisely. Councilmember Burt suggested that future reporting could incorporate qualitative or categorical measures to help communicate the relative scale and value of government efficiency efforts. Councilmember Burt requested clarification regarding the HR Department’s reference to proactive candidate sourcing through the NEOGOV system. Director Blanch explained that the new module would allow staff to use the existing applicant tracking database to identify candidates who may qualify for other City positions, improving recruitment efficiency and reducing hiring time. Councilmember Burt asked about ongoing performance measures related to recruitment timelines, including posting vacancies and onboarding employees, and emphasized the importance of proactively preparing for anticipated retirements and key position vacancies. Director Blanch described new vacancy management processes intended to improve hiring efficiency, while City Manager Shikada noted that staffing requests now receive greater scrutiny and that advanced hiring has been used in certain situations involving anticipated vacancies in key positions. Director Blanch highlighted the value of departmental HR liaisons in supporting the recruitment process. Councilmember Burt raised questions regarding persistent vacancy levels within the Police Department and Regional Water Quality Control Plant (RWQCP) and expressed concern regarding overtime impacts, turnover, recruitment challenges, and institutional knowledge loss. Director Blanch acknowledged ongoing recruitment challenges at the water treatment plant due in part to competition from special districts and noted that staff attempts to identify future candidates during recruitment processes. City Manager Shikada stated that compensation remains one factor affecting recruitment and retention and suggested continuing the discussion when the affected departments appear later in the meeting. Councilmember Burt discussed the importance of developing a strategic framework for identifying and implementing AI opportunities to improve government efficiency and streamline City operations. City Manager Shikada described the City’s evolving approach to AI, including existing applications such as website chatbots and translation services, development of policies governing staff use of generative AI, and creation of a broader organizational framework for evaluating workflow improvements and future AI investments across departments. It was noted that the Planning Department are searching for potential AI SUMMARY MINUTES Page 18 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 applications related to building permit review and planning entitlements. Councilmember Burt emphasized that the City Council is seeking a more formal strategic plan and guiding principles regarding AI. CIO Numoto stated that staff is actively developing draft materials related to AI strategy and governance for future review and discussion. Chair Lauing expressed similar concerns regarding the elimination of the centralized grants analyst role and emphasized the importance of maintaining active pursuit and coordination of grant opportunities. Chair Lauing noted that grant funding remains an important revenue source for the City, particularly given potential federal funding constraints, and encouraged staff to remain proactive in identifying available opportunities. Chair Lauing asked whether the proposed elimination of an IT manager position would create staffing or overtime concerns within the IT Department. CIO Numoto responded that his staff was comfortable with the proposed reductions and noted that the addition of an assistant director position would help support departmental operations. Chair Lauing emphasized the importance of continued Police Department recruitment efforts and noted that additional discussion would occur later with Police Department leadership. Chair Lauing asked about the effectiveness of the HR liaison program within departments and whether it had created additional workload pressures. Director Blanch reported that the program had generally been well received, although some retraining and support from HR staff had been necessary as responsibilities shifted within departments. Chair Lauing remarked that the program could provide professional development and job enrichment opportunities for participating staff. Councilmember Lu expressed interest in identifying future opportunities to reduce City mailing costs within Administrative Services and commented that the current expenditure level appeared high. Councilmember Lu asked about projected negative balances and reserve adjustments within the IT Fund and how those figures should be interpreted. Budget Manager Robert Valentukonis explained that staff was in the process of trueing up the fund projections and stated that the fund was expected to remain adequately balanced once updated contract and encumbrance information was incorporated. Councilmember Lu discussed broader market changes affecting software-as-a-service (SaaS) products and suggested that evolving pricing pressures and AI-related competition could create opportunities for the City to negotiate more favorable technology and software contracts in the future. CIO Numoto responded that staff continues evaluating new technologies and vendors while balancing potential efficiencies against rising software and compliance costs associated with existing SaaS platforms. It was noted that AI technologies are evolving rapidly and that staff is reviewing potential alternatives to existing software systems where appropriate. Councilmember Lu revisited his earlier question regarding the Employee Childcare Pilot Program and asked whether the recurring annual funding effectively represented an ongoing expense that was not reflected in the LRFF. Director Blanch reported that FY 2025 program SUMMARY MINUTES Page 19 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 costs totaled approximately $268,000 and confirmed that the program's budget is requested annually and not currently incorporated into the LRFF. Councilmember Lu stated that the recurring nature of the program could have long-term budget implications and suggested the issue may warrant future parking lot discussion. Director Blanch added context that the program is a retention tool for hard-to-fill positions, noted that participating employees must use Palo Alto childcare providers, and stated that the program receives positive employee feedback and is heavily utilized during summer months. Due to a potential conflict disclosure, Councilmember Lu confirmed with Director Blanch that the Employee Childcare Pilot Program does not involve any specific relationship with Palo Alto Community Child Care. Councilmember Lu requested clarification regarding significant increases within the City’s insurance and liability-related funds, including the General Liabilities Insurance Program, umbrella liability coverage, and workers compensation projections. CFO Lai explained that the General Liability increases reflected previously unincorporated FY 2026 premium adjustments and broader marketwide increases in excess umbrella insurance coverage, as well as premium impacts associated with several larger City claims during the rolling claims evaluation period used by the regional insurance pool. It was noted that the City participates in a pooled insurance structure and that staff remains actively engaged in local risk management and claims mitigation efforts, while the pool manages broader insurance procurement and pricing strategies. Councilmember Lu questioned differing workers compensation figures appearing in various budget tables. Director Blanch clarified that one figure reflected annual claims paid while the larger amount included actuarially determined reserves and projected long-term liabilities associated with all workers compensation claims. Councilmember Lu acknowledged the explanation regarding pooled insurance dynamics and limitations associated with independently negotiating insurance coverage. CFO Lai asked whether the Committee was prepared to make a tentative motion on the agenda item. Councilmember Burt moved the staff recommendations and discussed adding a future reporting item related to the City’s AI efforts. Following discussion among Councilmember Burt, CIO Numoto, and City Manager Shikada, the Committee agreed to reference a future summary of the City’s AI strategy. Councilmember Lu requested adding the Employee Childcare Pilot Program to the parking lot for future discussion, expressing concern that the recurring annual allocation effectively functioned as an ongoing budget obligation rather than a temporary pilot program. MOTION: Councilmember Burt moved, seconded by Councilmember Lu, to recommend the City Council 1. Tentatively approve the Citywide Support and Administration Proposed Budgets Part 2 , and 2. Place the following in the “parking lot”: a. Employee Childcare Pilot Program within the Long Range Financial Forecast 3. Direct staff to return with a summary of the City’s AI strategy. SUMMARY MINUTES Page 20 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 MOTION PASSED: 3-0 4. Community and Library Services (1:45 PM – 3:30 PM) a) Community Services (O:219-243) b) Library (O:299-311) Senior Management Analyst Charlie Benham, Office of Management and Budget, provided an overview of the Community and Library Services CSA. Analyst Benham reported that the proposed FY 2027 General Fund budget totaled approximately $56.5M, reflecting a slight increase from the FY 2026 adopted budget, and noted that the proposed budgets included a combination of expenditure reductions and revenue enhancements across the 2 departments. Community Services Director Kristen O’Kane outlined the CSD's strategies for development of the proposed FY 2027 operating budget, including a combination of expenditure reductions and revenue enhancements, some involving new revenue sources. It was explained that staff approached the budget exercise with the goal of minimizing impacts to community services wherever possible. Director O’Kane reviewed proposed CSD reductions and revenue enhancements, including elimination of 3.3 vacant FTE positions and transfer of 1 FTE to the Capital Fund. Proposed new revenue sources were described, including a $250,000 transfer from the Hamilton Avenue Senior Development public benefit fund to support the City’s contract with Avenidas and implementation of credit card processing fees for department ticketing and registration transactions that are currently absorbed by the City. Director O’Kane outlined a proposed elimination of a program assistant II position at the Cubberley Community Center, which had served as the primary public-facing staff position assisting visitors with registrations and rentals. Due to the staffing reduction and limitations associated with maintaining coverage at the facility, Cubberley Community Center had transitioned to appointment-only access rather than remaining open for walk-in services. Director O’Kane reviewed several proposed fee increases and program adjustments, including increases to Junior Museum and Zoo (JMZ) ticket and membership fees developed in coordination with the Friends of JMZ. An added expense was noted for the creation of a conservation program associated with American Zoological Association (AZA) accreditation. Another proposed revenue enhancement included approximately 6 percent increases to golf rates, developed in coordination with the City’s golf course operator based on continued strong demand at the course. Regarding the Children's Theatre, additional proposals included increased ticket prices, expanded performance frequency at the main stage, and addition of ASL interpretation services for performances. Director O’Kane reviewed several proposed parks and maintenance-related reductions, including elimination of a vacant park maintenance lead position and reductions in the scope and frequency of landscape maintenance services for certain City facilities, medians, and roadside strips. Additional operational changes followed termination of the City’s maintenance agreement with PAUSD, with affected staff proposed for reassignment to green stormwater infrastructure maintenance, burrowing rodent work, and SUMMARY MINUTES Page 21 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 minor CIP-related projects, resulting in net departmental savings. Proposed irrigation reductions at Foothills Nature Preserve and other large landscaped areas would primarily affect lawn areas near the Interpretive Center and were estimated at approximately 10 to 15 percent. Based on prior drought-related irrigation reductions, staff indicated confidence that the changes would not negatively impact vegetation or wildlife health and stated that conditions would continue to be monitored and adjusted as needed. Director O’Kane highlighted several ongoing department initiatives, including continued advancement of the Cubberley project, support for youth mental health and suicide prevention efforts, operation of the Bryant Street Community Center, and continued support for La Comida. Additional initiatives included implementation of a modernized work order and asset management system for department operations, particularly for park maintenance, and continued funding for HSRAP and Human Services contracts. Library Department Director Gayathri Kanth introduced the Library Department’s FY 2027 balancing strategies and highlighted the City’s library system, which includes the Mitchell Park, Rinconada, Children’s, Downtown, and College Terrace Libraries. It was noted that Palo Alto’s library system is unusually extensive for a city of its size and that community use of library facilities, collections, staff expertise, website services, and virtual resources continues to remain strong. Director Kanth stated that the FY 2027 balancing strategy focused on expenditure reductions affecting services, collections, and general expenses while attempting to minimize impacts to library hours and operations through targeted reductions and mitigation measures. Additional efforts included expanded staff cross-training, increased youth services support, interdepartmental and external collaborations, and continued pursuit of grant opportunities. Director Kanth reviewed proposed reductions including elimination of 2.0 FTE library associate positions and 1.0 FTE senior librarian position, reduction of 2 FTE positions to half-time status, and a 1-day weekly closure of the Children’s Library. Additional reductions included decreased library programming capacity, reduced collections funding, and reductions to general operating and equipment expenses. Despite the proposed reductions, continued strong community demand for physical and virtual library materials was noted. Director Kanth reviewed several key initiatives intended to mitigate impacts associated with proposed service reductions, including expanded youth services at Rinconada Library during the Children’s Library closure day, continued refinement of collection management and data analysis practices, and pursuit of alternative funding and grant opportunities. Additional priorities included sustaining programming related to community wellness, teen mental health, sustainability, and technology support services, particularly for youth and seniors. Continued collaboration with City departments and external organizations, expansion of shared community programs, and support for staff expertise and professional development were highlighted. Item 4 Public Comment: None SUMMARY MINUTES Page 22 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Councilmember Burt asked whether the CSD had plans to expand programming at Cubberley in order to build greater community engagement and support for future initiatives at the site. Director O’Kane responded that no specific expansion plan currently exists and noted that available space at Cubberley is limited due to long-term tenant occupancy and gym rentals, although some senior fitness classes and summer programs are held there. Councilmember Burt expressed concern regarding the lack of additional progress toward expanding programming at the facility. Councilmember Burt raised concerns regarding the absence of resident senior golf rates and stated his recollection that maintaining affordability for senior residents had been part of earlier community discussions when improvements to the golf course were undertaken. Chair Lauing agreed that resident affordability should remain a consideration despite strong demand for golf access and suggested a pricing structure that further differentiated resident rates from higher-end pricing. Councilmember Burt asked about the ongoing costs associated with the JMZ accreditation. Director O’Kane stated that accreditation requirements include staffing costs for 2 part-time positions as well as funding for a conservation program related to wildlife and habitat efforts in Palo Alto and the Baylands. Councilmember Burt questioned whether existing conservation initiatives could potentially be leveraged to reduce additional expenses and Director O'Kane indicated that possibility would be explored. Councilmember Burt supported efforts to reduce irrigation at Foothills Nature Preserve so long as vegetation health could be maintained and encouraged future evaluation of whether some non-recreational turf areas could be converted to more natural grassland or native vegetation. Additional comments addressed streamside setback policies and the presence of non-native grasses extending to creek areas within Foothills Park, which Councilmember Burt suggested should remain part of future planning discussions. Councilmember Burt expressed support for the library’s induction stovetop lending program and noted strong community demand for the devices. Additional comments encouraged expanding the number of available cooktops and potentially extending loan periods in order to better support residents interested in transitioning to induction cooking. Councilmember Burt questioned the ongoing role and utilization of the Downtown Library in light of the Bryant Street Community Center and other community resources, including potential overlap in services and the future availability of the Homekey site. Director Kanth responded that the Downtown Library continues to serve nearby businesses, City Hall staff, neighborhood residents, families attending children's storytime, and seniors seeking technology assistance and other services. Additional comments highlighted expanded programming at neighborhood libraries, ongoing collaboration opportunities with Avenidas, and the Downtown Library’s continued function as a cooling and warming space during operating hours. SUMMARY MINUTES Page 23 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Chair Lauing requested an update regarding staffing and operations at the JMZ following prior budget discussions. Director O’Kane reported that the newly added positions had been filled and were contributing to increased reservations, birthday party activity, community use, and revenue generation. Current revenues were projected to exceed annual targets by approximately $76,000 and staff planned to continue exploring additional opportunities to increase attendance and revenue. Chair Lauing expressed support for the facility, described it as an important community space, and indicated support for the proposed fee increases. Chair Lauing commended Director O'Kane and the CSD for pursuing additional revenue opportunities and acknowledged the complexity of managing department operations, including seasonal staffing and programming. Support was expressed for charging fees for enhanced community services and amenities. Chair Lauing and Councilmember Burt discussed the prior golf course renovation project, including the role of flood control improvements in prompting the redesign and the associated environmental benefits resulting from the project. Chair Lauing reflected on the risks associated with the prior golf course renovation project and noted that the project had ultimately proven financially successful despite earlier community skepticism. Discussion addressed potential future expansion of the driving range, including consideration of a second-deck structure and upcoming negotiations related to the golf course operator agreement. Director O’Kane reported that feasibility and trajectory studies had been completed for a potential second driving range deck and stated that the matter would be presented to the PRC in June for further consideration. Chair Lauing noted the project’s potential as an additional revenue source. Chair Lauing expressed appreciation to Director Kanth and the Library Department’s efforts to reduce expenditures while attempting to minimize service impacts. Support was expressed for the proposed 1-day weekly closure of the Children’s Library. Chair Lauing commented that the department’s proposed reductions appeared reasonable given broader budget constraints and competing City funding priorities. Councilmember Lu expressed support for dedicated staffing at the Bryant Street Community Center and suggested tracking facility usage through KPIs. Additional comments encouraged evaluation of whether staffing and program assistant functions across community centers could be further consolidated or coordinated to improve operational efficiency while still supporting programming and public access. Councilmember Lu questioned the proposed conservation program expenses associated with the JMZ accreditation and agreed that existing conservation efforts within the City might satisfy portions of the accreditation requirements. Additional comments referenced the relatively small scale of the facility and compared the proposed expense to other budget priorities, including crossing guard services. Councilmember Lu indicated interest in placing the matter in the parking lot for further discussion. SUMMARY MINUTES Page 24 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Councilmember Lu supported maintaining lower resident golf rates while suggesting additional evaluation of demand-based pricing, tournament fees, and the broader financial structure of golf course operations. Discussion focused on whether the golf course P&L fully reflects ongoing capital and CIP-related costs, including golf course improvements, sand topping, and potential net replacement projects. Director O’Kane stated that current pricing incorporates dynamic demand-based adjustments and noted concerns regarding pricing competitiveness relative to other municipal courses. Public Works Director Brad Eggleston clarified that major golf course debt service is funded through golf revenues, while smaller capital projects are funded through the Capital Improvement Fund. Additional discussion considered whether the golf course should be treated more formally as an enterprise-style operation or whether its financial reporting should more comprehensively reflect associated capital costs and revenues. City Manager Ed Shikada suggested staff could evaluate options for more structured financial reporting related to golf operations. Councilmember Lu discussed community concerns regarding irrigation reductions at Foothills Park and supported an earlier idea for future conversion of some turf areas to native grasses. Director O’Kane stated that the proposed irrigation reduction was approximately 10 percent and was not expected to create significant ecological impacts. Councilmember Lu noted that additional justification may be helpful if the issue continues to generate community discussion. Councilmember Lu asked whether automated materials handling systems at the libraries had generated staffing efficiencies or operational savings. Director Kanth stated that the systems were originally implemented to reduce staff workload associated with circulation and reserved materials and noted significant reductions in manual check-in activity at the Mitchell Park and Rinconada Libraries. Additional comments highlighted ergonomic benefits for staff and the continued high circulation volume at the Children’s Library. It was explained that automated systems were not installed at the Downtown or College Terrace Libraries due to lower circulation levels. Councilmember Lu expressed support for staffing librarians with technology and operational efficiency improvements. Councilmember Lu asked whether future library budget reductions might include management- level staffing changes and questioned how those tradeoffs affect public service levels. Director Kanth noted that a half-time administrative assistant reduction affected management support staffing and referenced prior post-pandemic reorganization efforts intended to optimize the balance between management and frontline staffing. It was noted that library management staff additionally perform significant frontline duties, including desk coverage, storytimes, and outreach activities. Councilmember Lu moved tentative approval of the agenda item, including direction for staff to provide more comprehensive golf course P&L reporting and to place the JMZ conservation staffing issue in the parking lot. Committee members and staff discussed wording for the motion and Chair Lauing seconded. SUMMARY MINUTES Page 25 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Councilmember Lu asked whether the current agenda item was the appropriate place to add a parking lot discussion regarding OSVs. Chief Financial Officer and Administrative Services Department Director Lauren Lai noted concerns about the growing number of parking lot topics scheduled for the following day. Councilmember Burt and Chair Lauing opined that the OSV topic does not fit within the current agenda item. CFO Lai and City Manager Shikada agreed that OSVs should instead be addressed separately as an interdepartmental topic during the following day’s parking lot session. MOTION: Councilmember Lu moved, seconded by Chair Lauing, to recommend the City Council 1. Tentatively approve Community and Library Services Proposed Budgets, and 2. Place the following in the “parking lot”: a. JMZ Conservation Costs and explore utilizing existing conservation programs to fulfill the AZA requirements to the extent possible 3. Referral to staff to present Palo Alto Golf Course P&L in a more complete way and evaluate golf fees, including senior resident rates, and 4. Referral to staff to explore increase in proportion of outdoor recreation programs located at Cubberley. MOTION PASSED: 3-0 [The Committee took a 9-minute break] 5. Infrastructure and Environment - Operating (3:30 PM – 5:00 PM) a) Public Works: Operating (O:369-444) i. General Fund (O:377-390) ii. Airport Fund (O:391-399) iii. Refuse Fund (O:401-410) iv. Stormwater Management Fund (O:411-421) v. Vehicle Replacement and Maintenance Fund (O:423-432) vi. Wastewater Treatment Fund (O:433-444) b) Utilities: Operating (O:445-515) i. Electric Fund (O:453-467) ii. Fiber Optics Fund (O:469-476) iii. Gas Fund (O:477-490) SUMMARY MINUTES Page 26 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 iv. Wastewater Collection Fund (O:491-501) v. Water Fund (O:503-515) Budget Manager Robert Valentukonis provided an overview of the Infrastructure and Environment service area, noting that most of the included budgets are enterprise funds associated with Public Works and Utilities operations and capital activities. Budget Manager Valentukonis reported that the proposed Public Works General Fund budget reflects a 3.7 percent increase with a 7.2 percent reduction in FTEs, while the enterprise funds reflect a 1.8 percent increase and a slight decrease in FTEs. It was noted that significant enterprise fund capital expenditures would be discussed separately during the following day’s capital budget session. Public Works Director Brad Eggleston stated that the Public Works Department’s FY 2027 budget efforts focused on contributing to Citywide budget reductions while maintaining core services and continuing progress on key operational priorities and Council initiatives. Director Eggleston noted that the proposed budget included reductions and several targeted additions. Proposed staffing reductions within the Public Works Department were reviewed, including elimination of 5 FTE positions within the Public Services and Engineering Services divisions. Additional comments addressed revised staffing allocations associated with Urban Forestry support for utility line clearance work and adjustments aligning certain staffing costs with Enterprise Funds and the Capital Improvement Fund. Director Eggleston outlined a proposal to add 3 FTE positions at the RWQCP based on preliminary findings from an ongoing organizational and staffing assessment. The proposed positions were identified as the highest- priority staffing needs within the draft assessment results. Director Eggleston reviewed additional Public Works budget proposals, including reductions associated with the discontinued Downtown Streets Team contract, adjustments to street cut fee revenue assumptions and fleet fuel budgeting, removal of the automated public restroom at the Caltrain station, discontinuation of security guard services at the Municipal Service Center, and smaller reductions to janitorial, tree-trimming, and Canopy contract services. Proposed additions included airport management software, SCBA equipment and software at the Wastewater Treatment Plant, and rental costs for an Urban Forestry bucket truck. Director Eggleston highlighted several major Public Works key initiatives, including implementation of the Council’s S/CAP workplan, continued delivery of major infrastructure projects, progress on Fire Station No. 4 and the Downtown parking garage, construction of the Newell Road Bridge Replacement project, airport fuel transition efforts, and restart of the Airport Master Plan process. Additional comments addressed upcoming airport fee adjustments intended to improve financial sustainability and equity among airport users. Efficiency initiatives included expansion and improvement of asset management systems, interdepartmental coordination related to urban forestry and green stormwater infrastructure maintenance, relocation of staff from leased facilities to the Civic Center complex, and continued participation in the City’s Palo Alto 311 effort. SUMMARY MINUTES Page 27 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Assistant Director of Climate Action Jonathan Abendschein reviewed the climate action-related portions of the S/CAP budget, noting that the proposed FY 2027 spending plan reallocates existing restricted environmental revenue sources rather than requesting additional spending authority. It was stated that the revised budget focuses funding on higher-priority climate initiatives intended to improve cost-effectiveness and expand electrification efforts within the community. Updates were provided regarding residential and commercial electrification programs and multifamily EV charging installations. Assistant Director Abendschein acknowledged that substantial additional work will be required to achieve the City’s long-term climate goals and outlined several priorities within the 2026-2027 S/CAP workplan, including development of communitywide electrification strategies, implementation planning related to regional water heater regulations, electrification of City facilities and fleet operations, utility infrastructure upgrades, and expansion of bicycle and micromobility access. FY 2027 restricted revenue funding was described as primarily focused on continued single-family electrification efforts, commercial and multifamily pilot programs, and exploration of more cost-efficient financing approaches intended to inform future climate regulations and program development. Utilities Department Director Alan Kurotori outlined Utilities Department strategies focused on balancing affordability, infrastructure reinvestment, grid modernization, financial sustainability, and expansion of income-qualified assistance programs. The City’s multiyear grid modernization effort was reviewed, including issuance of an initial $80M tranche of revenue bonds and division of the overall modernization effort into 19 projects. Additional proposals included pass-through credit card fees, updated water and wastewater capacity fees for new development, and continued implementation of AMI to support system planning and electrification needs. Director Kurotori highlighted proposed enhancements to the utility rate assistance program, including expansion of income eligibility thresholds and increased discount levels funded through public benefits charge revenues. Several Utilities Department staffing and operational proposals were outlined, including position reductions associated with implementation of AMI and temporary freezes on fiber-related staffing while the fiber pilot program remains under evaluation. Additional comments highlighted collaboration with the IT Department on fiber deployment efforts and a shift toward building more in-house utility expertise in place of certain contractor services in order to reduce costs and improve operational efficiency. It was noted that consolidation of the Utilities Department engineering staff from the leased Elwell Court facility into City Hall would reduce the department’s operational footprint from 3 locations to 2 and avoid approximately $750,000 in lease costs. The Utilities Department’s use of CCTV and AI-assisted technology was highlighted, which is used to assess sewer main conditions and help prioritize pipeline repair needs, noting continued efforts to incorporate evolving technologies into utility operations. Director Kurotori reviewed several upcoming Utilities Department initiatives, including implementation of recommendations from the Reserves Study, completion of the Gas Transition Study and Modeling effort, and development of new renewable energy power purchase agreements. Additional priorities included preparation of a new water cost-of-service study and comprehensive water master plan, annual utility rate reviews focused on affordability and equity, and continued collaboration with Public Works and other City SUMMARY MINUTES Page 28 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 departments on S/CAP implementation, customer programs, and electrification efforts. Director Kurotori explained that Utilities staff identified a data entry error during preparation of the Climate Action Programs budget involving duplicative costs and a placeholder amount within the Electric Operating budget. Revised figures removed the duplication and adjusted reserve projections accordingly, while staff emphasized that the correction does not alter the previously proposed utility rate recommendations. Additional discussion addressed timing associated with anticipated revenue bond proceeds related to grid modernization projects and the resulting impacts on reserve and operations budget calculations. Director Kurotori noted that total utility reserves remained equivalent to approximately 180 days of cash on hand. Director Kurotori noted a similar duplicate data entry issue affecting the Gas Fund Reserve calculations and reviewed associated adjustments related to gas cap-and-trade reserves. Additional comments highlighted anticipated federal grant funding, including a $16.5M Department of Transportation grant, with approximately $13M expected to be recognized in FY 2027. Director Kurotori reviewed the projected residential utility bill impacts associated with the proposed electric rate increases, noting that a reduction from a previously discussed 6 percent increase to a 4.5 percent increase would lower the average monthly residential bill impact by approximately $1.10 while reducing projected revenues by about $2.8M. Director Kurotori stated that future rate adjustments remain uncertain and would continue to be evaluated over the coming year, with additional discussion anticipated later in the fiscal year. Item 5 Public Comment: None Councilmember Burt asked whether the proposed removal of the University Avenue Caltrain station restroom was influenced by the availability of other nearby public restroom facilities operated by VTA and Caltrain. Director Eggleston confirmed that those factors contributed to the proposal but noted that the restroom still experiences significant usage, averaging approximately 2,000 to 3,000 uses per month. Councilmember Burt asked how services previously provided by the Downtown Streets Team would be replaced to maintain Downtown cleanliness. Director Eggleston stated that Public Works staff had been providing enhanced Downtown cleaning services through City overtime work and noted that previously approved contract services funding is expected to transition much of that work away from overtime staffing. It was reported that staff had not observed increased cleanliness concerns or received related complaints. Councilmember Burt asked about the operational impacts associated with proposed Public Works staffing reductions and whether the reductions could further affect completion of projects within the CIP. Director Eggleston acknowledged that the reductions would create challenges, particularly within engineering and facilities operations, and noted that fewer staff resources would limit flexibility and reduce the department’s ability to respond to emerging or unplanned projects. Director Eggleston stated that key planned capital projects are still SUMMARY MINUTES Page 29 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 expected to proceed but indicated that new or shifting priorities could become more difficult to accommodate under the reduced staffing structure. Councilmember Burt commended the Public Works and Utilities departments for continued implementation of the S/CAP workplan and recognized Palo Alto’s climate initiatives as being at the forefront among municipalities despite challenges associated with achieving the City’s "80 by 30" emissions reduction goal. Councilmember Burt discussed balancing utility reliability, public safety, tree canopy preservation, and aesthetics within the City’s tree-trimming practices and expressed concern regarding inconsistent trimming outcomes between City crews and private contractors. It was suggested the City consider more uniform trimming criteria that account for the visual appearance and long-term form of trees. Councilmember Burt asked whether adding additional in-house Utilities crews would improve system reliability and emergency response resiliency. Director Kurotori stated that the added staff would primarily support new installations and smaller-scale utility work but would additionally provide greater operational flexibility, internal expertise, emergency response capacity, and long-term workforce development benefits. Councilmember Burt stated that the additional in-house staffing could help demonstrate to the public that the City is taking concrete steps to strengthen utility reliability and resiliency. Councilmember Burt stated that implementation of AMI represents a significant government efficiency initiative and observed that the operational benefits of the AMI system are not always fully appreciated by the public. Councilmember Burt asked for clarification regarding comments that upcoming renewable energy power purchase agreements were occurring within a highly competitive market environment. Director Kurotori explained that increasing renewable energy requirements, inflationary pressures, material costs, tariffs, and federal policy uncertainty have contributed to more competitive market conditions and rising prices, although participation through the Northern California Power Agency provides greater purchasing scale and leverage. Councilmember Burt characterized the market conditions as shifting more toward a seller’s market, which Director Kurotori confirmed. Councilmember Burt questioned how future renewable energy pricing may compare with the City’s existing energy portfolio. Director Kurotori noted that negotiations remain ongoing and more detailed information would be presented to the UAC and Finance Committee at a later date. Councilmember Burt asked for clarification regarding revised Electric Fund reserve projections following discussion of the budget adjustment. Director Kurotori clarified that the revised projections are lower than previously presented and explained that the anticipated increase to the operations reserve would be approximately $8.3M rather than the previously referenced $21M after accounting for the corrected duplication and expected bond proceeds. SUMMARY MINUTES Page 30 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Councilmember Burt expressed concern that the City’s fiber-to-the-premises pilot program may not yet provide a sufficient data set to support long-term policy decisions regarding broader implementation. Director Kurotori responded that the pilot remains in an early stage and that staff intends to return with additional information regarding customer connections, installation experience, and program performance before drawing broader conclusions. Councilmember Burt asked about proposed freezes to fiber-related staffing positions. Director Kurotori stated that the positions are being frozen during the pilot phase because current operational needs are being met through existing internal City resources and emphasized that the staffing decision does not predetermine the future of the fiber program. Councilmember Lu asked about the practical impacts of proposed Urban Forestry and Canopy- related reductions on residents and the City’s tree canopy goals. Director Eggleston stated that the more significant impact stemmed from the earlier elimination of a tree trimmer position, which reduced internal Urban Forestry capacity. Additional comments characterized the proposed reductions to the Canopy and tree-trimming contracts as relatively modest compared to the overall contract amounts, although some impacts to Urban Forest Master Plan implementation activities are anticipated. Director Eggleston further indicated that the Canopy reductions are expected to affect outreach, advocacy, and survey-related work rather than tree planting efforts. Councilmember Lu inquired about the timing and budgeting assumptions associated with the Downtown parking garage project and questioned whether approximately $13M had been budgeted earlier than necessary given the anticipated construction timeline. Director Eggleston acknowledged that the project schedule could place major construction costs into FY 2028 but explained that the funding source consists of restricted Downtown parking in-lieu fees and noted that earlier appropriation provides flexibility if the project advances more quickly than anticipated. Councilmember Lu observed that the restricted nature of the funds reduced concerns regarding timing of the appropriation. City Manager Ed Shikada further clarified that the City typically appropriates the full construction contract amount at the outset of a project rather than incrementally over time. Councilmember Lu revisited earlier discussions regarding Airport Fund revenues and expressed interest in evaluating whether airport fees could be increased further in future years to improve the airport’s longer-term financial position beyond simply reaching operational balance. Councilmember Lu raised questions regarding the long-term status of stormwater management funding and projects, including concerns about funding expiration timelines, project scheduling, and whether any planned projects could be at risk. Director Eggleston responded that the topic would be addressed in greater detail during the following day’s CIP discussion covering the Storm Drain Fund and related capital projects. Councilmember Lu sought clarification regarding whether fleet management topics would be discussed during the current operating budget item or deferred to the following day’s capital budget discussion. Director Eggleston explained that operational topics such as fuel costs could SUMMARY MINUTES Page 31 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 be discussed during the current session, while vehicle replacement and capital acquisition items would be addressed separately during the CIP review. Chief Financial Officer and Administrative Services Department Director Lauren Lai noted having sought similar clarification earlier in the meeting and Councilmember Lu stated that his fleet-related questions would be deferred until the following day. Councilmember Lu reviewed proposed Utilities Department staffing reductions related to the fiber program and questioned whether increased contract services and material costs offset the anticipated salary savings from eliminating vacant positions. Director Kurotori introduced Utilities Strategic Business Manager David Yuan to discuss the fiber-related budget assumptions. Manager Yuan explained that increased contract service costs are associated with outsourced installation and marketing efforts for the fiber-to-the-premise pilot program, while increased materials costs are tied to expansion of the fiber backbone infrastructure. Further discussion addressed whether the contract expenditures were replacing the frozen fiber-related FTE positions. Manager Yuan stated that the contract services are not intended as substitutes for the frozen positions and noted that additional staffing would likely be needed if the fiber program expands beyond the pilot phase. Councilmember Lu referenced declining fiber customer account metrics and questioned whether increasing contract and materials costs, combined with staffing freezes and lower customer counts, indicated broader concerns regarding the financial health of the fiber system. Manager Yuan explained that dark fiber revenues declined following the COVID-19 pandemic due to customer consolidation, business closures, and companies relocating from Palo Alto, although new development activity continues to generate interest in fiber services. Manager Yuan characterized the market as cyclical and expressed optimism regarding future growth. Councilmember Lu suggested that the City may need a broader review of its fiber operations given the simultaneous expansion of the fiber-to-the-premise pilot program and declines within portions of the existing fiber utility business. Manager Yuan noted that staff plans to return to the Finance Committee and UAC later in July or August with additional updates on fiber initiatives. Chair Lauing asked for clarification that previously discussed airport fee increases had been incorporated into the proposed budget and noted that the Airport Fund reflects additional projected revenue from those adjustments. Director Eggleston confirmed that the revised airport fees are included in the current budget assumptions. Chair Lauing expressed support for the proposed expansion of utility assistance programs for lower-income residents and emphasized the importance of communicating those benefits to the public. Director Kurotori explained that the proposed changes would increase the number of eligible households and the utility discount level while maintaining the existing income verification process through customer service. Additional comments noted that the revised income thresholds would apply to S/CAP-related assistance programs. Chair Lauing encouraged staff to explore whether similar assistance options could be developed for qualifying seniors on fixed incomes. SUMMARY MINUTES Page 32 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 Chair Lauing asked about the timing of debt service payments associated with the grid modernization program. Director Kurotori and Manager Yuan explained that the first tranche of approximately $80M in revenue bonds is anticipated to be issued in September 2026, with the first debt service payment occurring in FY 2028. Manager Yuan further noted that additional bond issuances would likely occur in future years depending on project spending schedules. Director Eggleston addressed concerns raised during the prior Council meeting regarding staffing retention, turnover, and anticipated retirements at the RWQCP. It was noted that the department has taken steps to strengthen staffing at the facility, including positions added in the prior fiscal year and the 3 additional FTEs proposed in the current budget. Additional comments described efforts to improve operations support, maintenance management, asset management systems, and IT staffing at the plant. Director Eggleston highlighted ongoing organizational improvements led by newer plant management staff, including efforts focused on training, advancement opportunities, and reducing barriers to employee promotion and career development. Chair Lauing confirmed that the proposed 10-hour shift structure at the RWQCP would operate as a 4-day workweek. Councilmember Burt thanked staff for the additional information regarding plant staffing and sought clarification regarding the extent to which retention challenges are related to staffing levels, advancement opportunities, compensation competitiveness, and other factors. Director Eggleston acknowledged ongoing retention concerns and reported that 8 of the facility’s 26 operators had departed over approximately the past 1½ years, including several who accepted higher-paying positions with Silicon Valley Clean Water. Councilmember Burt expressed concern regarding the City’s long-term competitiveness for specialized utility positions and suggested that compensation issues may require additional review. Director Eggleston responded that the operational and organizational changes previously discussed would not fully resolve all retention-related challenges. Councilmember Burt asked about workforce training pipelines and qualification requirements for RWQCP operators. Director Eggleston invited the plant manager to address the question. RWQCP Plant Manager Aaron Gilbert explained that senior operator positions require advanced certification levels that generally involve several years of operational experience, additional coursework, and passage of difficult certification exams. Manager Gilbert described operator recruitment and retention as highly competitive across the wastewater industry, with operators frequently moving between agencies for higher compensation or more desirable schedules. Additional comments addressed ongoing efforts to improve internal training, increase technical knowledge among operators, and recruit candidates with stronger science and math backgrounds to support the plant’s increasingly advanced treatment systems. Manager Gilbert further stated that upcoming facility upgrades are expected to make the Palo Alto water plant one of the more advanced treatment facilities on the West Coast, which could improve recruitment opportunities. However, it was noted that long-term retention will continue to depend significantly on compensation and benefits competitiveness. Manager Gilbert added that the department currently sees strong interest from entry-level operators seeking training SUMMARY MINUTES Page 33 of 33 Sp. Finance Committee Meeting Summary Minutes: 05/05/2026 and advancement opportunities and estimated that entry-level operator pay is approximately $40 per hour. CFO Lai requested tentative approval of the agenda item and asked whether Councilmembers wished to add any parking lot or referral items. Councilmember Burt requested a referral regarding tree-trimming criteria and consistency among crews and CFO Lai explained that the matter could be handled as a referral item. Councilmember Lu asked whether there was support for considering additional airport fee increases during the current budget cycle. Chair Lauing responded that there may be additional revenue potential but suggested allowing more time following the recently adopted fee adjustments before considering further increases, while expressing general support for revisiting the issue in the future. MOTION: Chair Lauing moved, seconded by Councilmember Lu, to recommend the City Council 1. Tentatively approve the Public Works and Utilities Operating Proposed Budgets, and MOTION PASSED: 3-0 Adjournment: The meeting was adjourned at 4:51 p.m.