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HomeMy WebLinkAbout2026-10-13 Policy & Services Agenda PacketPOLICY AND SERVICES COMMITTEE Regular Special Meeting Tuesday, October 13, 2026 Council Chambers & Hybrid 6:00 PM 6:30 PM Amended Agenda Policy and Services Committee meetings will be held as “hybrid” meetings with the option to attend by teleconference/video conference or in person. Information on how the public may observe and participate in the meeting is located at the end of the agenda. The meeting will be broadcast on Cable TV Channel 76, live on YouTube https://www.youtube.com/c/cityofpaloalto, and streamed to Midpen Media Center https://midpenmedia.org. VIRTUAL PARTICIPATION CLICK HERE TO JOIN (https://cityofpaloalto.zoom.us/j/94618744621) Meeting ID: 946 1874 4621 Phone: 1(669)900-6833 PUBLIC COMMENTS General Public Comment for items not on the agenda will be accepted for up to three minutes or an amount of time determined by the Chair. In-person comments will be heard at the beginning of the agenda and remote comments will be heard at the end of the agenda. In- person general public comment will be heard for 30 minutes. Additional in-person public comments, if any, will be heard at the end of the agenda. Public comments for agendized items will be accepted both in person and via Zoom for up to three minutes or an amount of time determined by the Chair. Requests to speak will be taken until 5 minutes after the staff’s presentation or as determined by the Chair. Written public comments can be submitted in advance to city.council@PaloAlto.gov and will be provided to the Council and available for inspection on the City’s website. Please clearly indicate which agenda item you are referencing in your subject line. Multiple individuals who wish to speak on the same item may designate a spokesperson. Spokespersons must be representing five or more verified individuals who are present either in person or via zoom. Spokespeople will be allowed up to 10 minutes, at the discretion of the presiding officer. Speaking time may be reduced if the presiding officer reduces the speaking time for individual speakers. PowerPoints, videos, or other media to be presented during public comment are accepted only by email to city.clerk@paloalto.gov at least 24 hours prior to the meeting. Once received, the Clerk will have them shared at public comment for the specified item. To uphold strong cybersecurity management practices, USB’s or other physical electronic storage devices are not accepted. Signs and symbolic materials less than 2 feet by 3 feet are permitted provided that: (1) sticks, posts, poles or similar/other types of handle objects are strictly prohibited; (2) the items do not create a facility, fire, or safety hazard; and (3) persons with such items remain seated when displaying them and must not raise the items above shoulder level, obstruct the view or passage of other attendees, or otherwise disturb the business of the meeting. 1 October 13, 2026 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas. CALL TO ORDER   IN-PERSON PUBLIC COMMENT Members of the public may speak to any item NOT on the agenda. 1-3 minutes depending on number of speakers. In-person comments will be heard at the beginning of the agenda and remote comments will be heard at the end of the agenda. In-person Public Comment is limited to 30 minutes. Additional in-person public comments, if any, will be heard at the end of the agenda.   ACTION ITEMS   1.Discussion and Possible Recommendation to the City Council Regarding Implementation of Housing Element Program 3.9A, which is Intended to Identify Incentives at Strategic Locations to Shift the Economic Benefit of Redevelopment from Commercial Toward Home Building. CEQA Status: The Addendum to the Comprehensive Plan Environmental Impact Report (EIR), approved by the City Council on November 13, 2023, analyzed potential environmental impacts of the 6th Cycle Housing Element including Program 3.9(A). 2.Office of the City Auditor Presentation of the Below Market Rate Housing Program Audit Report. CEQA Status –Not a project. 3.Office of the City Auditor Presentation of the FY2026 Audit Recommendation Follow-up Report. CEQA Status: Not a Project. FUTURE MEETINGS AND AGENDAS Members of the public may not speak to the item(s)   VIRTUAL PUBLIC COMMENT Members of the public may speak to any item NOT on the agenda. 1-3 minutes depending on number of speakers. In-person comments will be heard at the beginning of the agenda and remote comments will be heard at the end of the agenda. In-person Public Comment is limited to 30 minutes. Additional in-person public comments, if any, will be heard at the end of the agenda.   ADJOURNMENT      2 October 13, 2026 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas. PUBLIC COMMENT INSTRUCTIONS Members of the Public may provide public comments to teleconference meetings via email, teleconference, or by phone. 1.Written public comments may be submitted by email to city.council@PaloAlto.gov. 2.For in person public comments please complete a speaker request card located on the table at the entrance to the Council Chambers and deliver it to the Clerk prior to discussion of the item. 3.Spoken public comments using a computer or smart phone will be accepted through the teleconference meeting. To address the Council, click on the link below to access a Zoom- based meeting. Please read the following instructions carefully. ◦You may download the Zoom client or connect to the meeting in- browser. If using your browser, make sure you are using a current, up-to-date browser: Chrome 30 , Firefox 27 , Microsoft Edge 12 , Safari 7 . Certain functionality may be disabled in older browsers including Internet Explorer. Or download the Zoom application onto your smart phone from the Apple App Store or Google Play Store and enter in the Meeting ID below. ◦You may be asked to enter an email address and name. We request that you identify yourself by name as this will be visible online and will be used to notify you that it is your turn to speak. ◦When you wish to speak on an Agenda Item, click on “raise hand.” The Clerk will activate and unmute speakers in turn. Speakers will be notified shortly before they are called to speak. ◦When called, please limit your remarks to the time limit allotted. A timer will be shown on the computer to help keep track of your comments. 4.Spoken public comments using a phone use the telephone number listed below. When you wish to speak on an agenda item hit *9 on your phone so we know that you wish to speak. You will be asked to provide your first and last name before addressing the Council. You will be advised how long you have to speak. When called please limit your remarks to the agenda item and time limit allotted. CLICK HERE TO JOIN Meeting ID: 946-1874-4621 Phone: 1-669-900-6833 Americans with Disability Act (ADA) It is the policy of the City of Palo Alto to offer its public programs, services and meetings in a manner that is readily accessible to all. Persons with disabilities who require materials in an appropriate alternative format or who require auxiliary aids to access City meetings, programs, or services may contact the City’s ADA Coordinator at (650) 329-2550 (voice) or by emailing ada@PaloAlto.gov. Requests for assistance or accommodations must be submitted at least 24 hours in advance of the meeting, program, or service.  3 October 13, 2026 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas. California Government Code §84308, commonly referred to as the "Levine Act," prohibits an elected official of a local government agency from participating in a proceeding involving a license, permit, or other entitlement for use if the official received a campaign contribution exceeding $500 from a party or participant, including their agents, to the proceeding within the last 12 months. A “license, permit, or other entitlement for use” includes most land use and planning approvals and the approval of contracts that are not subject to lowest responsible bid procedures and have a value over $50,000. A “party” is a person who files an application for, or is the subject of, a proceeding involving a license, permit, or other entitlement for use. A “participant” is a person who actively supports or opposes a particular decision in a proceeding involving a license, permit, or other entitlement for use, and has a financial interest in the decision. The Levine Act incorporates the definition of “financial interest” in the Political Reform Act, which encompasses interests in business entities, real property, sources of income, sources of gifts, and personal finances that may be affected by the Council’s actions. If you qualify as a “party” or “participant” to a proceeding, and you have made a campaign contribution to a Council Member exceeding $500 made within the last 12 months, you must disclose the campaign contribution before making your comments.  4 October 13, 2026 Materials related to an item on this agenda submitted to the Board after distribution of the agenda packet are available for public inspection at www.paloalto.gov/agendas. POLICY & SERVICES COMMITTEE Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Planning and Development Services Meeting Date: October 13, 2026 Report #: 2605-6379 TITLE Discussion and Possible Recommendation to the City Council Regarding Implementation of Housing Element Program 3.9A, which is Intended to Identify Incentives at Strategic Locations to Shift the Economic Benefit of Redevelopment from Commercial Toward Home Building. CEQA Status: The Addendum to the Comprehensive Plan Environmental Impact Report (EIR), approved by the City Council on November 13, 2023, analyzed potential environmental impacts of the 6th Cycle Housing Element including Program 3.9(A). RECOMMENDATION Staff recommends that the Policy and Services Committee: 1. Recommend that the City Council find that the intent of Housing Element Program 3.9(A) is being achieved and that no further amendments to reduce commercial development allowances are warranted under the program, and that the Council: a. consider any changes to the commercial linkage fee through the City's ongoing development impact fee update; and b. consider additional building standards for new office development, if still appropriate, as part of the 2028 building code update. 2. Provide direction to staff on whether to continue developing a construction labor standards ordinance, as a separate effort from Program 3.9(A), and if so, provide feedback on the scope and implementation topics identified in this report. If the Committee supports Recommendation 1, staff would prepare a consent calendar report memorializing the Committee's action for the City Council. If the Committee directs staff to continue work under Recommendation 2, staff would return to the Committee with a draft ordinance. EXECUTIVE SUMMARY This report returns to the Committee following its March 10, 2026 discussion of Housing Element Program 3.9(A), which seeks to shift the economics of redevelopment toward housing Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 1  Packet Pg. 5 of 110  in areas where both office and residential uses are allowed. At that meeting, the Committee recommended that the City Council consider three measures for new office development: requiring project labor agreements (PLAs), adopting additional building standards, and increasing the commercial linkage fee. The PLA recommendation raises approach and implementation questions that staff believes warrant further discussion by the Committee before the matter proceeds to Council. BACKGROUND 1 The City Council adopted it on April 15, 2024, and the California Department of Housing and Community Development (HCD) certified it on August 20, 2024. In addition to identifying sites for housing, 1City of Palo Alto, 2023-2031 Housing Element (adopted April 15, 2024; certified August 20, 2024). https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/housing-element/housing- element_2023_2031/palo-alto-housing-element.pdf Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 2  Packet Pg. 6 of 110  the Housing Element evaluates constraints to residential development and includes programs intended to reduce or remove them. 3 4 3City of Palo Alto, 2023-2031 Housing Element, Program 3.9: Conversion of Commercial Uses to Mixed-Use Development, p. 5- 22. https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/housing-element/housing- element_2023_2031/palo-alto-housing-element.pdf 4Policy and Services Committee, Agenda Item 2, Report #2512-5614, March 10, 2026. https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86692&dbid=0&repo=PaloAlto Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 3  Packet Pg. 7 of 110  Staff presented four categories of policy tools: fees, taxes, building standards, and land use regulation. The Committee did not support a tax on commercial construction. It also concluded that further land use restrictions, such as lower commercial floor area ratios, would provide limited benefit given existing limits and could discourage redevelopment of existing buildings. The Committee expressed interest in fees and building standards, including labor requirements. The Committee unanimously passed the following motion for City Council's consideration: Senate Bill 79. SB 79 (2025) took effect on July 1, 2026. It allows residential development at increased heights and densities on qualifying sites near major transit stations.7 For approximately two weeks, SB 79 applied in Palo Alto in its full statutory form, and during that period the City received nine SB 330 preliminary applications proposing a total of 341 units. On July 15, 2026, a City ordinance took effect, as permitted by SB 79, allowing development at up to 50 percent of the capacity the statute otherwise provides. The City Council has also directed staff to continue work that would allow SB 79 to reach its full potential at sites located along California Avenue, and potentially along portions of El Camino Real and surrounding properties, by approximately mid-2027. It has not yet been determined whether the City will prepare an alternative plan under SB 79 or allow the interim provisions to remain in place until they expire under State law. The City has not received new SB 79 applications during this interim period. Budget. The City Council recently adopted the FY 2027 budget, which closed a projected General Fund deficit of $17.1 million. The City's ability to sustain services over time depends on 7Senate Bill 79 (Wiener, 2025), Chapter 512 Statutes of 2025 (Gov. Code § 65912.155 et seq.). https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260SB79 Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 4  Packet Pg. 8 of 110  a stable and diverse revenue base, to which commercial development is an important contributor. Impact fee update. The City is updating its residential and non-residential development impact fees, including the commercial linkage fee. The update is supported by nexus studies that establish the maximum fees the City can legally adopt. This work is expected to return to the Policy and Services Committee later this year, with City Council consideration anticipated in early 2027. Building code update. The City updates its building code every three years in coordination with updates to the California Building Standards Code. The next update will take effect January 1, 2029, with local work to occur in 2028. ANALYSIS Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 5  Packet Pg. 9 of 110  housing in the near term. Staff will report on the City's progress toward the program's housing objectives through the Housing Element Annual Progress Report as projects advance. 9 It found that both generated more General Fund revenue than cost. The 2016 report showed that new residents were estimated to require more in City services than new employees, but they also produced a larger net benefit to the City, due in part to Palo Alto's high residential property values. EPS noted that its analysis did not include the cost of major infrastructure investments that could accompany growth. 9Economic & Planning Systems, Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan, 2016. https://www.paloalto.gov/files/assets/public/v/4/planning-amp-development-services/3.-comprehensive- plan/comprehensive-plan/full-comp-plan-2030_with-dec19_22-amendments.pdf Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 6  Packet Pg. 10 of 110  Staff recommends that the Committee's interest in increasing the commercial linkage fee for office development be considered through that process. The nexus study will provide the information needed to evaluate fee levels. At that time, the Committee can weigh the benefit of a higher fee to the City's affordable housing funds against its effect on commercial development. As the EPS study showed, fee increases within a typical range are unlikely on their own to shift development from office to housing. For that reason, the linkage fee is best considered as a question of fee policy and affordable housing funding rather than as part of Program 3.9(A). 11 However, the City may still adopt stricter standards for commercial development, subject to State requirements for local code amendments. 11Assembly Bill 130 (Committee on Budget, 2025), Chapter 22 Statutes of 2025. https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260AB130 Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 7  Packet Pg. 11 of 110  Since March, staff has researched how such a requirement might work in Palo Alto. That research suggests the Committee's interest may extend beyond Program 3.9(A). The program's focus is shifting development from office to housing, and labor requirements would do little toward that goal. Their value lies instead in establishing labor standards for construction in Palo Alto. For that reason, staff recommends that if the Committee wishes to pursue this work, it proceed as a separate effort from Program 3.9(A). Staff would continue this work if directed, regardless of the Committee's recommendation on Program 3.9(A). Before preparing an ordinance, staff is seeking the Committee's direction on several topics, particularly the ordinance's scope and how it would be implemented and enforced. 13 Adopted in 2023 over objections from developers and business groups, it requires apprenticeship programs and health care coverage for developments of at least 50,000 square feet, and took effect on January 1, 2024. The ordinance applies to both residential and commercial development. Attachment A summarizes the Berkeley ordinance and its results to date, and Attachment B provides the full text. Apprenticeship. During the project, each contractor would do one of the following: 13City of Berkeley, Ordinance No. 7,861-N.S., adding Chapter 13.107 to the Berkeley Municipal Code (HARD HATS Ordinance), 2023. https://berkeleyca.gov/sites/default/files/documents/2023-05- 23%20Item%2001%20Adding%20BMC%20Chapter%2013.107%20HARD%20HATS%20Ordinance.pdf Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 8  Packet Pg. 12 of 110  • participate in a State-approved apprenticeship program that meets specified criteria; or • make hourly contributions to the California Apprenticeship Council for work performed in apprenticeable trades. Health care. Each contractor would provide health care expenditures for each construction worker, in addition to regular wages, through a health plan, a health savings account, or a cash payment at one and a half times the required rate. These payments could not be counted toward any wage requirements. Certification. The applicant would sign a declaration of compliance under penalty of perjury when the building permit is issued. Each contractor would certify its compliance to the applicant within 30 days of completing its work. At the end of the project, the applicant would certify to the City that all contractors complied. Recent Office Development Patterns To help the Committee consider where and at what scale an ordinance might apply, staff reviewed office projects permitted in Palo Alto from 2011 through January 2026, excluding the Stanford Medical Center.15 The review counts projects by the size of new construction. It does not account for existing floor area that was demolished or replaced, so it should not be read as a measure of net new office space. Table 1 summarizes the results. Table 1: Permitted Office Projects by Area and Size, 2011 to January 2026 Area Under 25,000 sq. ft. 25,000–49,999 sq. ft. 50,000–99,999 sq. ft. 100,000 sq. ft. or more Total Projects Stanford Research Park 5 2 8 5 20 California Avenue Area 6 3 2 0 11 Downtown 15 0 0 0 15 El Camino Real 4 0 1 0 5 Other Areas 5 1 0 0 6 Total 35 6 11 5 57 Most office projects in Palo Alto are small. About 61 percent were under 25,000 square feet, and all Downtown projects were at that scale. Larger projects are concentrated in the Stanford 15City of Palo Alto Planning and Development Services, building permit records for non-residential office projects, 2011 through January 2026. Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 9  Packet Pg. 13 of 110  Research Park, which accounts for 13 of the 16 projects of 50,000 square feet or more, including all five projects of 100,000 square feet or more. The transit-served areas that were the focus of Program 3.9(A) saw three projects of 50,000 square feet or more over the period. Larger projects have also become less frequent: of the 22 projects of 25,000 square feet or more, four were permitted since 2021. Geographic scope. The Committee's motion arose from Program 3.9(A), which focused on the City's transit-served commercial areas. Given the development patterns described above, staff seeks feedback on whether an ordinance should be limited to those areas, include the Research Park, or apply citywide. Size threshold. Staff seeks feedback on whether an ordinance should apply only above a minimum project size, and whether Berkeley's 50,000 square foot threshold is an appropriate reference point given Palo Alto's development patterns. A lower threshold would reach more projects, including smaller ones whose sensitivity to added costs is not yet known. Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 10  Packet Pg. 14 of 110  Types of development. The Committee's motion addressed office development. Berkeley's ordinance applies more broadly, to developments of at least 50,000 square feet, including housing. Extending the requirements to residential or mixed-use projects would increase construction costs for housing. Before recommending such an expansion, staff would need to analyze the effect on housing feasibility, given the City's Housing Element obligations. Staff also seeks feedback on whether the requirements should apply to City projects. Administration and enforcement. A workable program must address how compliance is verified, how complaints from workers or labor organizations are handled and resolved, whether the program is audited, what expertise is needed to review compliance documents, and how the program is funded. Verifying payroll, apprenticeship participation, and health care payments is specialized work, closer to prevailing wage compliance than to building inspection. The City's building inspection and code enforcement staff do not currently have the capacity or training for this work, and there is no existing funding for it. City-administered. City staff or consultants verify compliance, respond to complaints, and audit projects. This provides the most oversight but requires dedicated resources and a funding source, and could add time to permit processing. Berkeley follows this approach: it retained a consultant to prequalify contractors, verify health care and apprenticeship compliance, and take and investigate complaints from the public, with the City able to issue citations for noncompliance.17 Self-certification. The City collects the required certifications at permit issuance and project completion but does not independently verify them. This requires fewer resources but provides limited assurance of compliance. Civil enforcement. The ordinance is enforced through civil action by affected workers or other parties, with the City's role limited to collecting certifications. This keeps the City out of verification and dispute resolution. 17City of Berkeley, Request for Proposals, Specification No. 24-11631-C (Reissued), Labor Standards Compliance Consultant for HARD HATS, January 2024. https://berkeleyca.gov/sites/default/files/documents/24-11631-C%20(reissued)%20- %20Labor%20Standards%20Compliance%20Consultant%20for%20HARD%20HATS.pdf Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 11  Packet Pg. 15 of 110  FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 1 Item 1 Staff Report        Item 1: Staff Report Pg. 12  Packet Pg. 16 of 110  Memorandum To: Ordinance; 241108 3, 2026 The City of Palo Alto’s 2023-2031 Housing Element includes an objective “to reduce commercial floor area allowances or other commercial incentives at strategic locations to shift the economic benefit of redevelopment toward home building in strategic locations.” To support this objective, the City retained Economic & Planning Systems (EPS) to evaluate development feasibility and assess whether City actions could shift market preferences toward housing. The City’s Policy and Services Committee requested additional research on local labor requirements for private commercial development as a potential policy tool to advance the Housing Element objective. This memorandum evaluates Berkeley’s HARD HATS ordinance as a potential policy model for influencing private development economics in Palo Alto. EPS finds that a HARD HATS-style requirement is more likely to affect marginal, cost-sensitive projects than Class A commercial development, because large office and other complex non- residential projects already tend to rely heavily on union labor. The policy may increase compliance obligations and certain building fit-out costs for commercial projects, but it is unlikely by itself to shift high-value commercial redevelopment toward housing. This memorandum summarizes EPS research on local labor requirements for private development, with Berkeley’s Helping Achieve Responsible Development with Healthcare and Apprenticeship Training Standards (HARD HATS) ordinance serving as the principal policy example. Berkeley adopted HARD HATS in 2023 to require healthcare and apprenticeship standards for private projects of 50,000 square feet or more, including both residential and non-residential development. EPS has not identified any comparable local ordinance that targets commercial office projects or another single land use category. EPS reviewed Berkeley’s HARD HATS ordinance language, staff reports, news coverage, and interviews with City of Berkeley staff and external stakeholders to assess how the ordinance works and what it may imply for commercial development feasibility. The Key Findings below focus on three issues most relevant to Palo Alto: whether HARD HATS has affected Berkeley development activity, how the policy may alter project costs and Item 1 ​​Attachment A - Overview and Analysis of City of Berkeley’s HARD HATS Ordinance        Item 1: Staff Report Pg. 13  Packet Pg. 17 of 110  Overview and Analysis of City of Berkeley’s HARD HATS Ordinance; Page 2 feasibility, and whether a similar requirement could materially change the economics of commercial redevelopment in Palo Alto. Key Findings Berkeley’s HARD HATS ordinance is among the first local policies to impose healthcare and apprenticeship standards on private development. The ordinance does not expressly require union labor, but developers would likely comply most efficiently by using union labor or a functionally equivalent contracting approach. Because no covered Berkeley project has yet complied with HARD HATS, the policy’s effect on development activity remains uncertain. No major commercial project has broken ground in Berkeley since 2022, and eligible residential projects to date have used California State Density Bonus Law (SDBL) concessions to avoid the requirements. HARD HATS is likely to have a smaller incremental effect on Class A commercial development than on low- and mid-rise residential or mixed-use projects. Large office and other complex non-residential projects commonly use Type I construction, steel and concrete systems, and specialized trades that already tend to be delivered with substantial union labor participation. A similar requirement in Palo Alto therefore may not substantially change labor practices for high-value commercial projects, although it could still add documentation, monitoring, and cost exposure for some project elements, such as interior fit-out, drywall, painting, and other finish work. Construction trade unions support HARD HATS because it expands the potential use of union-served construction labor by requiring healthcare coverage and qualified apprenticeship pathways. Developers object that the ordinance increases costs and weakens feasibility, particularly where projects would otherwise use non-union labor. The use of SDBL concessions to avoid HARD HATS requirements for high-density residential projects has drawn criticism from labor unions and prompted proposed state legislation, SB 1383 (Arreguín), that would limit the ability to use density bonus concessions to avoid local labor standards. HARD HATS may increase construction costs materially where it requires a project to shift from non-union labor to union labor or a comparable compliance approach. Strategic Economics estimated an 18 to 25 percent cost increase for a typical mid-rise multifamily housing project and found that the added cost would further weaken feasibility for already-challenged mid-rise projects. Berkeley’s analysis did not evaluate non-residential land uses, but the expected commercial impact is likely more limited for Class A office and other complex projects that already rely heavily on union labor. For those projects, the more relevant effects may be administrative compliance costs and reduced flexibility in contractor selection, rather than a major cost premium. Item 1 ​​Attachment A - Overview and Analysis of City of Berkeley’s HARD HATS Ordinance        Item 1: Staff Report Pg. 14  Packet Pg. 18 of 110  Economic & Planning Systems, Inc. Page 3 Overview of HARD HATS Program The following sections explain the HARD HATS requirements, Berkeley’s anticipated compliance process, and early implementation lessons for jurisdictions considering whether labor standards would meaningfully affect commercial development feasibility. HARD HATS applies to contractors and subcontractors performing work worth more than 0.5 percent of total project cost on private projects involving at least 50,000 square feet of construction, alteration, or demolition. Covered contractors must provide qualifying healthcare expenditures and participate in approved apprenticeship training programs, or approved equivalents, for the duration of the project. These requirements apply across land uses, so the ordinance reaches commercial projects even though Berkeley’s policy record focuses primarily on housing feasibility and workforce standards. The policy requires healthcare and apprenticeship training: • Healthcare plans: Each contractor must contribute to a healthcare plan, either through an existing plan or through a plan established for the project’s covered workers. In 2026, Berkeley’s mandated “Healthcare Expenditure Rate” (to satisfy the HARD HATS healthcare requirement) is $5.07 per worker per hour for employers that contribute to a health plan or Health Savings Account (HSA), or $7.61 per worker per hour as cash in lieu of an employer-subsidized health plan or HSA. To comply with HARD HATS, contractors must demonstrate that they made qualifying healthcare contributions to their employees for 180 days before submitting their contract bid. • Apprenticeship training: A contractor must satisfy the apprenticeship training requirement through one of three options: participation in a Joint Labor-Management Apprenticeship Program; participation in an apprenticeship program accredited by the California Division of Apprenticeship Standards that meets the graduation-rate requirements listed in the ordinance; or in-lieu contributions to the California Apprenticeship Council. HARD HATS requirements generally align with the use of union labor. Developers likely will satisfy the ordinance by hiring unionized workers or entering into a Project Labor Agreement (PLA), both of which the ordinance presents as compliance pathways. Developers that do not use union labor options must submit documentation showing that the project satisfies all healthcare and apprenticeship requirements. HARD HATS is unusual because it applies labor standards to private development citywide rather than only to public projects or voluntary incentive programs. By contrast, San Francisco’s Citywide Project Labor Agreement and Los Angeles County’s Countywide Community Workforce Agreement apply to public projects, while New York City’s Affordable Neighborhoods for New Yorkers program uses incentives tied to union labor. EPS also identified apprenticeship and health insurance requirements for projects of Item 1 ​​Attachment A - Overview and Analysis of City of Berkeley’s HARD HATS Ordinance        Item 1: Staff Report Pg. 15  Packet Pg. 19 of 110  Overview and Analysis of City of Berkeley’s HARD HATS Ordinance; Page 4 30,000 square feet or more in Hayward’s Downtown Specific Plan area, including private projects, although those requirements appear less extensive than HARD HATS. Implementation and Enforcement HARD HATS compliance monitoring has not yet been tested because no covered project has been required to comply with the ordinance. The main administrative challenge would arise when a developer does not comply through a PLA or unionized labor force, requiring the City to verify contractor-by-contractor healthcare expenditures and apprenticeship participation. The Berkeley municipal code suggests that enforcement would rely in part on project developers and contractors self-reporting compliance to the City. During preconstruction, City staff would work with a project’s general contractor and developer to verify healthcare expenditures and apprenticeship participation for projects subject to HARD HATS. City staff noted in interviews that ongoing compliance monitoring during construction would likely involve both City employees and on-site labor consultants.1 The project applicant and each contractor or subcontractor must submit documentation to the City at multiple project phases to demonstrate compliance with HARD HATS. 1. Applicant Declaration: A declaration signed by the applicant at the time of permit issuance stating intent to comply with HARD HATS. 2. Contractor Pre-Qualification Questionnaire: Each contractor on the project provides a statement and proof that they have provided healthcare expenditures for a minimum of 180 consecutive days prior to prequalification submission. 3. Contractor Satisfaction Statements: Within 30 days of completing their work on the Project, the contractor submits to the applicant a statement affirming compliance with HARD HATS. 4. Applicant Certification of Compliance: Prior to receiving a Certificate of Occupancy, the applicant submits a signed statement certifying that all contractors satisfied HARD HATS requirements. City staff must verify submitted information and perform required inspections. City staff indicated Berkeley has considered hiring a consultant or seeking support from the Alameda County Building and Construction Trades Council for verification and enforcement. Under the ordinance, the City may revoke permits, issue administrative citations, or impose fines on non-compliant contractors.2 1 Personal communication with Emily Rose of the City of Berkeley Health, Housing, and Community Services Department (6/9/26). 2 Berkeley Municipal Code 13.107.111. Item 1 ​​Attachment A - Overview and Analysis of City of Berkeley’s HARD HATS Ordinance        Item 1: Staff Report Pg. 16  Packet Pg. 20 of 110  Economic & Planning Systems, Inc. Page 5 Cost Implications for Development Strategic Economics and Street Level Advisors completed a 2024 feasibility study evaluating how HARD HATS requirements could affect residential development feasibility in Berkeley.3 The study assumed that HARD HATS would affect hard costs similarly to a shift from largely non-union labor to union labor and found that the requirements would increase project costs by about 18 to 25 percent for mid-rise projects. Relatedly, a workforce-development literature review prepared for the City of Burbank found that prevailing-wage and skilled-and-trained workforce programs increase construction hard costs by an average of 19.5 percent.4 Smaller mid-rise residential projects, which are more likely to use non-union labor, would face a greater cost burden and feasibility impact than high-rise residential or Class A commercial projects that already rely heavily on union contractors. For high-grade commercial projects built with concrete and steel systems, a HARD HATS-style requirement would likely have a limited incremental effect on construction labor practices. However, the ordinance could still increase costs or reduce flexibility for portions of the work that are less consistently unionized, including drywall installation, painting, and other building fit-out activities, for example. Outcomes to Date and Policy Implications No private project has complied with HARD HATS since the policy became active in 2024. Some projects submitted applications before the ordinance took effect, while later residential projects used SDBL concessions to avoid compliance. Because state law supersedes local development standards, Berkeley could not reject qualified exemption requests without risking legal action. These outcomes suggest that residential developers treat HARD HATS as a meaningful cost or entitlement risk, even though the ordinance has not yet produced a tested compliance record. Three downtown Berkeley projects that would provide market-rate and affordable units sought HARD HATS exemptions as SDBL concessions. The developer of one project stated that HARD HATS would have increased project costs by about $5 million and prevented the project from moving forward. City staff also described projects that withdrew and revised applications to reduce project size below the 50,000-square-foot threshold. Together, these examples indicate that developers view HARD HATS as a significant feasibility constraint where the ordinance meaningfully changes expected labor costs or compliance obligations. Class A office construction and high-rise residential projects already tend to rely primarily on union labor because their materials, construction methods, and quality expectations require specialized trades. These projects typically use Type I construction with fire- 3 Strategic Economics. Berkeley In-Lieu Fee and Housing Policies Economic Feasibility Analysis (City of Berkeley, April 12, 2024). 4 BAE Urban Economics. Prevailing Wage and Skilled and Trained Workforce Cost/Benefit Analysis (City of Burbank, April 29, 2024). Item 1 ​​Attachment A - Overview and Analysis of City of Berkeley’s HARD HATS Ordinance        Item 1: Staff Report Pg. 17  Packet Pg. 21 of 110  Overview and Analysis of City of Berkeley’s HARD HATS Ordinance; Page 6 resistive steel and concrete systems. The Strategic Economics study found that even a non-union general contractor on a high-rise project would likely use union trades for roughly 80 percent of the work. Accordingly, a HARD HATS-style policy would be less likely to change labor sourcing for premium commercial projects, given baseline contracting conditions. Looking Forward HARD HATS has generated developer concern in Berkeley, but its practical effect remains uncertain because compliance has largely been avoided through SDBL concessions. SB 1383, proposed by former Berkeley Mayor and current State Senator Jesse Arreguín, would prohibit concessions or incentives related to labor standards and thereby limit this avoidance pathway. As of July 2026, the bill passed the Senate and was under consideration in the Assembly. The Berkeley City Council has adopted a support position. For Palo Alto, the key policy implications of a HARD HATS-style requirement on commercial uses primarily include effects on labor-standard objectives and administrative burden. While financial feasibility might be affected for marginal projects, EPS does not anticipate that redevelopment economics would shift away from commercial uses and toward housing. EPS finds that HARD HATS is unlikely to serve as a standalone tool for discouraging high-value commercial redevelopment, but it could influence smaller projects at the margin and add compliance costs for covered projects. Item 1 ​​Attachment A - Overview and Analysis of City of Berkeley’s HARD HATS Ordinance        Item 1: Staff Report Pg. 18  Packet Pg. 22 of 110  13.107.010 13.107.020 13.107.030 13.107.040 13.107.050 13.107.060 13.107.070 13.107.080 13.107.090 13.107.110 13.107.111 13.107.112 13.107.113 13.107.114 13.107.115 Chapter 13.107 ESTABLISHING HEALTHCARE AND APPRENTICESHIP STANDARDS FOR PRIVATE DEVELOPMENT Sections: Title. Purpose. Definitions. Apprenticeship Requirements. Health Care Expenditures. Required Applicant and Contractor Statements. Notice and Posting. Retaliation Prohibited. Retention of Records. City Access. Implementation and Enforcement. City Undertaking Limited Promotion of General Welfare. No Preemption of Higher Standards. City Manager Regulations. Severability. 13.107.010 This Ordinance shall be known as the Helping Achieve Responsible Development with Healthcare and Apprenticeship Training Standards ("HARD HATS") Ordinance. (Ord. 7861-NS § 1, 2023) 13.107.020 The purpose of this Chapter is to address the shortage of qualified construction workers, rising labor costs, and to refine labor standards in the local construction industry. These measures are intended to improve the recruitment, training, and retention of skilled construction workers. The requirements of this Chapter ensure that larger projects within the City are awarded to contractors that participate in high quality, industry-proven apprenticeship programs, and that apprentices working under such contracts are competently trained. Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 1 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 19  Packet Pg. 23 of 110  The requirements of this Chapter also enhance the good health of construction workers working in the City, thereby increasing the pool of labor available to complete current and future projects, including City public works projects for which the City contracts on a regular basis. Together, the requirements of this Chapter will help promote the retention and growth of a skilled labor pool in the construction industry that can live as well as work in the City. (Ord. 7861-NS § 1, 2023) 13.107.030 "Applicant" shall mean any individual, person, firm, partnership, association, joint venture, corporation, entity, combination of entities or authorized representative thereof, who undertakes, proposes and/or applies to the City for, a Covered Project. "Apprenticeable Craft or Trade" is defined in California Labor Code section 1777.5. "Contractor" shall mean contractors or subcontractors of any tier that have contracted to perform work on the Covered Project in excess of ½ of one percent of the total Cost of the Covered Project. "Cost of the Covered Project" shall mean the amount determined by the Chief Building Official for purposes of setting the building permit fee in accordance with the most recent building valuation date specified in the building permit fees section of the resolution establishing fees and charges as adopted by the City Council. "Covered Project" shall mean a private development project within City limits consisting of construction, alteration, or demolition of 50,000 square feet or more of floor area which has not received its final permits, variances, approvals and/or other entitlements by the effective date of this Ordinance. "Covered Construction Worker" shall mean any construction worker employed by the Contractor at any time over the duration of the Covered Project. "City" shall mean the City of Berkeley and any implementing department or official. "Health Care Expenditures" shall mean the amount calculated by multiplying the number of hours worked by a Covered Construction Worker on the Covered Project by the hourly Health Care Expenditure Rate. "Health Care Expenditure Rate" shall mean the rate determined annually from the City of Berkeley Health and Dental Plan Monthly Premium Rates for the Kaiser HSA-Qualified Deductible HMO Plan, or a successor plan, for the applicable fiscal year. The Health Care Expenditure Rate shall be prorated on an hourly basis, and arrived at by dividing the total monthly premium for the Kaiser HSA-Qualified Deductible HMO Plan, or a successor plan, by one hundred and fifty (150), the typical number of hours worked in a month by a construction worker. "Joint Labor-Management Apprenticeship Program" shall mean an apprenticeship program jointly managed and administered by both a union and contractor or contractor association, and (i) approved by the State of California’s Division of Apprenticeship Standards; (ii) registered with the U.S. Department of Labor; or (iii) registered with a Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 2 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 20  Packet Pg. 24 of 110  State Apprenticeship Agency granted authority by the U.S. Department of Labor to register apprenticeship programs for federal purposes, pursuant to 29 CFR Part 29. "Project Labor Agreement" shall mean a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project. "Repeat Offender" shall mean an Applicant, Contractor, or entity that has received three or more violations of this Chapter within the last 24 months. (Ord. 7861-NS § 1, 2023) 13.107.040 a. During the duration of the Covered Project, each Contractor shall do at least one of the following: i. participate in a Joint Labor-Management Apprenticeship Program; ii. participate in an apprenticeship program approved by the State of California Division of Apprenticeship Standards that has a graduation rate of 50% or higher and has graduated an average of at least thirty (30) apprentices annually for the five (5) years immediately preceding the start of construction date on the Covered Project. The Contractor will also maintain at least the ratio of apprentices required by California Labor Code section 1777.5 for the duration of the Covered Project. Any change in program participation must be immediately provided to the City; or iii. make hourly contributions on a monthly basis to the California Apprenticeship Council for every hour worked by any Covered Construction Worker in any Apprenticeable Craft or Trade on the Covered Project of at least the apprenticeship contribution rate for the classification of "plumber, pipefitter, steamfitter" in Alameda County. b. A Contractor without Covered Construction Worker employees shall comply with this Section by showing a contractual obligation that its subcontractors comply with this Section. c. Contributions to an apprenticeship program or the California Apprenticeship Council shall not be credited towards compliance with BMC Chapter 13.99 (Minimum Wage). d. Applicant shall ensure that the Apprenticeship requirement in this Section is included in all construction contracts for the performance of the Covered Project. (Ord. 7861-NS § 1, 2023) 13.107.050 a. Prequalification. In order to be prequalified, each Contractor will sign and submit to the City a statement stipulating to and providing documented proof that the Contractor and its subcontractors, have provided Health Care Expenditures to or on behalf of each Covered Construction Worker for the 180 consecutive day period prior Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 3 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 21  Packet Pg. 25 of 110  to the submission of the prequalification documents ("Contractor Prequalification Questionnaire"). This requirement is in addition to the regular hourly wages paid to its employees. In the case of a Contractor that has employed no Covered Construction Workers for the 180 consecutive day period prior to the submission of the prequalification documents, said Contractor shall show a contractual obligation that its subcontractors provide Health Care Expenditures to or on behalf of each Covered Construction Worker employee for the 180 consecutive day period. b. Covered Project Duration. For purposes of the Covered Project, each Contractor shall make Health Care Expenditures to or on behalf of each Covered Construction Worker, in addition to their regular hourly wages, during periods of employment on the Covered Project (and sign a statement certifying that it will do so as part of the Contractor Prequalification Questionnaire). In the case of a Contractor that will employ no Covered Construction Workers on the Covered Project, said Contractor shall show a contractual obligation that its subcontractors will provide Health Care Expenditures on behalf of each Covered Construction Worker for the duration of the Covered Project. A Contractor shall make Health Care Expenditures on behalf of the Covered Construction Workers employed by its subcontractors in the event said subcontractors fail to make required Health Care Expenditures. c. Health Care Expenditures may be made to: (1) a health plan in which the Covered Construction Worker is enrolled at the Health Care Expenditure Rate; (2) a Covered Construction Worker’s health savings account at the Health Care Expenditure Rate; and/or (3) a Covered Construction Worker in the form of cash at one and a half (1.5) times the rate of the Health Care Expenditure Rate. d. Health Care Expenditures shall not be credited towards compliance with BMC Chapter 13.99 (Minimum Wage). e. The Applicant shall ensure that the Health Care Expenditures requirements in this Section are included in all construction contracts for the performance of the Covered Project. (Ord. 7861-NS § 1, 2023) 13.107.060 A declaration must be signed by the Applicant at the time of permit issuance for the Covered Project, attesting to compliance with this Chapter under penalty of perjury ("Applicant Declaration"). By signing the Applicant Declaration, the Applicant commits to ensuring that all Contractors on the Covered Project have and will comply with the Apprenticeship and Health Care Expenditures requirements of this Ordinance, including by ensuring that all contracts for the performance of the Covered Project so require, requiring all Contractors complete the statements established by this Section, and submitting all Contractor statements to the City within seven (7) days of receipt. Prior to executing their contract for the Covered Project, but no later than seven (7) calendar days before their first day of work on the Covered Project, each Contractor will sign and submit to the Applicant a statement stipulating that on the Covered Project it will comply with the Apprenticeship and Health Care Expenditures as set forth in this Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 4 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 22  Packet Pg. 26 of 110  Chapter during the duration of the Covered Project, and that it has met the Health Care Expenditures prequalification requirements ("Contractor Prequalification Questionnaire"). Within 30 calendar days of completing their work on the Project each Contractor must sign and submit to the Applicant a statement certifying that it complied with the Apprenticeship and Health Care Expenditures requirements of this Chapter ("Contractor Satisfaction Statement"). Prior to issuance of a certificate of occupancy for the Covered Project, the Applicant shall sign and submit to the City a certification that all Contractors on the Covered Project satisfied the Apprenticeship and Health Care Expenditures requirements of this Ordinance ("Applicant Certification of Compliance"). (Ord. 7861-NS § 1, 2023) 13.107.070 a. The City shall publish and make available to Contractors a notice in English, Spanish, and any other primary languages as determined by City staff, for posting by Contractors in the workplace informing Covered Construction Workers of their rights under this Chapter ("Sample Notice"). b. A Contractor shall give written notification to each current Covered Construction Worker and to each new Covered Construction Worker at time of hire of their rights under this Chapter. The notification shall be in English and Spanish, and any other primary languages as determined by City staff, and shall also be posted prominently in areas at the work site where it will be seen by all Covered Construction Workers. Failure to post such notice shall render the Contractor subject to administrative citation, pursuant to the provisions of this Chapter. A Contractor’s use of the City’s Sample Notices shall constitute compliance with this Section. (Ord. 7861-NS § 1, 2023) 13.107.080 A Contractor shall not discharge, reduce the compensation of, discriminate against, or take any adverse employment action against a worker, including discipline, suspension, transfer or assignment to a lesser position in terms of job classification, job security, or other condition of employment, reduction of hours or denial of additional hours, informing another employer that the person has engaged in activities protected by this Chapter, or reporting or threatening to report the actual or suspected citizenship or immigration status of an employee, former worker or family member to a federal, state or local agency, for making a complaint to the City, participating in any of the City’s proceedings, using any civil remedies to enforce their rights, or otherwise asserting their rights under this Chapter. Within one hundred twenty (120) days of a Contractor being notified of such activity, it shall be unlawful for the Contractor to discharge any workers who engaged in such activity unless the Contractor has clear and convincing evidence of just cause for such discharge. (Ord. 7861-NS § 1, 2023) Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 5 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 23  Packet Pg. 27 of 110  13.107.090 Applicants and Contractors shall maintain the following records for the Covered Project at least three (3) years after receiving approved final inspection: 1. Applicant Declaration; 2. Contractor Prequalification Questionnaires; 3. Contractor Satisfaction Statements certifying compliance with the Health Care Expenditures and Apprenticeship requirements (Sections 13.107.040 and .050) of this Chapter; 4. Records reflecting Contractors’ compliance with the Health Care Expenditures and Apprenticeship requirements (Sections 13.107.040 and .050) of this Chapter, including records of names of all Covered Construction Workers, dates those workers worked for the Contractor, and Health Care Expenditures the Contractor made to or on behalf of those workers; and 5. Applicant Certification of Compliance. (Ord. 7861-NS § 1, 2023) 13.107.110 Applicant and Contractors shall permit access to Covered Project work sites and relevant records for authorized City representatives for the purpose of monitoring compliance with this Chapter and investigating worker complaints of noncompliance. Access to records will be provided within a reasonable amount of time of the City’s request, but no longer than 30 days. Failure to provide access to records may be subject to City enforcement as permitted in Section 13.107.111. (Ord. 7861-NS § 1, 2023) 13.107.111 a. Issuance and Revocation of Permits. The City shall issue permits for the Covered Project only where an Applicant meets the requirements of this Ordinance and submits the Applicant Declaration. The City shall include conditions of approval requiring compliance with this Chapter for all permits issued for Covered Projects. The City may revoke or modify the applicable permits for the Covered Project pursuant to Section 23.404.080 where an Applicant or Contractor is out of compliance with this Ordinance. b. Community Benefits Agreement Exception. If a Covered Project is covered by a Project Labor Agreement (or community workforce agreement or similar labor agreement) with the local Building and Construction Trades Council, Contractors will be deemed in compliance with this Chapter. c. Collective Bargaining Agreement Exception. A Contractor that is signatory to a valid collective bargaining agreement with a labor union that requires participation in a state-approved apprenticeship program and the Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 6 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 24  Packet Pg. 28 of 110  provision of health care expenditures to all construction craft employees shall be deemed in compliance with this Chapter. d. City Enforcement. The City may take appropriate enforcement action to ensure compliance with this Chapter, including issuing an administrative citation pursuant to Chapter 1.28 of the Berkeley Municipal Code. The City may issue a citation to any Contractor or Applicant that has not complied with the requirements of this Chapter, including but not limited to, the following violations: 1. failing to post the required notice (Section 13.107.070); 2. refusing to or not providing timely access to records or work sites (Section 13.107.110); 3. failing to submit or submitting a false or misleading Applicant Declarations, Contractor Prequalification Questionnaires, Contractor Satisfaction Statements, and/or Applicant Certificates of Compliance (Section 13.107.060) ; and/or 4. failing to comply with the Apprenticeship and/or Health Care Expenditures requirements of this Chapter (Sections 13.107.040 and 13.107.050). The fine shall vary based on the provisions of this Chapter violated, but may be up to a maximum of $5,000/month per Covered Construction Worker during the period of the violation. In the event that any person identifies a Contractor or Applicant on a Covered Project not complying with this Ordinance as required, the person may file a complaint with the City. Complaints shall be made on a form prepared by the City and made available through the City’s website. Upon receipt of such a complaint, the City shall investigate the complaint and, if a violation is found, issue a citation to the Applicant and/or the Contractor. The citation will give the Applicant and/or Contractor ten (10) days to correct the violation. If a Contractor or Applicant subject to a citation does not correct the violation within ten (10) days, the City shall issue a penalty of $1,000 per calendar day for the first calendar week, increasing to $2,500 per calendar day for successive calendar weeks. If the Contractor or Applicant has received a citation or has otherwise been penalized under this Ordinance, within the prior twelve (12) months, the penalty shall be $2,000 per calendar day for the first calendar week, increasing to $3,500 per calendar day for successive calendar weeks. If a subcontractor receives a citation under this Ordinance, the prime contractor shall be jointly and severally liable for the penalty. d. Private Right of Action. A Covered Construction Worker, or a joint labor-management committee established pursuant to the federal Labor Management Cooperation Act of 1978 (29 U.S.C. sec. 175a) on a Covered Construction Worker’s behalf, may bring a civil action in a court of competent jurisdiction against the Contractor (and in the case of a Repeat Offender, the Applicant or Contractor who contracted with the Repeat Offender) violating this Chapter and, upon prevailing, shall be awarded reasonable attorneys’ fees and costs and shall be entitled to such legal or equitable relief as may be appropriate to remedy the violation including, without limitation, the payment of Health Care Expenditures that may have been unlawfully withheld and/or injunctive Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 7 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 25  Packet Pg. 29 of 110  relief. Nothing in this Chapter creates a private right of action or otherwise authorizes legal action against the City, its officers, agents, or employees, for failure to enforce these provisions. e. Repeat Offender List. The City shall review the complaints filed under this Ordinance on a monthly basis to determine if any person or entity has received three or more violations of the Ordinance within the last 24 months. Any such person or entity shall be designated a Repeat Offender and be placed on a public list available on the City of Berkeley’s website and shall be prohibited from working on future Covered Projects for a period of 24 months from their most recent violation. The City shall provide a notice of Repeat Offender designation through personal service, or by registered mail, postage prepaid, addressed to the person or entity’s address on file with the City. If, after being designated a Repeat Offender, the Repeat Offender again violates the Ordinance as determined by the City or the Superior Court, then the Applicant or Contractor who contracted with the Repeat Offender shall be jointly and severally liable for any and all penalties, damages, or other financial obligations incurred by the Repeat Offender. Any person or entity shall be entitled to appeal the City’s decision to place it on the Repeat Offender List by filing a written notice of appeal with the City Manager within ten days from the date the notice of Repeat Offender designation is mailed. The appeal shall clearly and concisely set forth the grounds upon which it is based. If the permittee files a timely request for appeal, a hearing shall be held before the City Manager or their designee. The decision of the City Manager or their designee shall be final. (Ord. 7861-NS § 1, 2023) 13.107.112 In undertaking the adoption and enforcement of this Chapter, the City is undertaking only to promote the general welfare. The City is not assuming, nor is it imposing on its officers and workers, an obligation for breach of which it is liable in money damages to any person who claims that such breach proximately caused injury. This Chapter does not create a legally enforceable right by any member of the public against the City. (Ord. 7861-NS § 1, 2023) 13.107.113 The purpose of this Chapter is to ensure minimum labor standards. This Chapter does not preempt or prevent the establishment of superior employment standards or the expansion of coverage by ordinance, resolution, contract, or any other action of the City. (Ord. 7861-NS § 1, 2023) 13.107.114 The City Manager may promulgate regulations for the administration and enforcement of this Chapter. (Ord. 7861-NS § 1, 2023) Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 8 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 26  Packet Pg. 30 of 110  The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Disclaimer: The City Clerk’s Office has the official version of the Berkeley Municipal Code. Users should contact the City Clerk’s Office for ordinances passed subsequent to the ordinance cited above. City Website: www.berkeleyca.gov Hosted by ICC Code Solutions. 13.107.115 If any part or provision of this Chapter, or the application of this Chapter to any person or circumstance, is held invalid, the remainder of this Chapter, including the application of such part or provision to other persons or circumstances, shall not be affected by such a holding and shall continue in full force and effect. To this end, the provisions of this Chapter are severable. (Ord. 7861-NS § 1, 2023) Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 9 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Item 1 ​Attachment B - City of Berkeley Municipal Code Chapter 13.107 (HARD HATS Ordinance)        Item 1: Staff Report Pg. 27  Packet Pg. 31 of 110  1 0 5 3 3 Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Auditor Meeting Date: October 13, 2026 Report #:2608-6683 TITLE Office of the City Auditor Presentation of the Below Market Rate Housing Program Audit Report. CEQA Status –Not a project. RECOMMENDATION The Office of the City Auditor recommends the Policy & Services Committee accept the results of the Below Market Rate Housing Program Audit Report. BACKGROUND Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), performed a citywide risk assessment that evaluated a wide range of risk areas, including strategic, financial, operational, compliance, technological, and reputational risks. The purpose of the assessment was to identify and prioritize risks to develop the annual audit plan. OCA identified affordable housing and the Below Market Rate Housing program, or BMR program, as a potential area of risk and proposed the topic for the FY26 Audit Plan, which was approved by City Council. ANALYSIS The objectives of the BMR program audit were to: 1) Determine if the BMR program1, maximizes the retention of affordable housing stock in comparison to similar programs. 2) Determine if the program is administered in a timely manner that meets the needs of the community it is intended to serve. 1 The BMR program, as assessed in this audit, refers to the administration of below-market-rate units after broader housing policies, development requirements, agreements and development decisions result in these units. The BMR program does not include all below-market-rate housing in the City, only a portion of ownership and rental units meeting specific criteria. Item 2 Item 2 Staff Report        Item 2: Staff Report Pg. 1  Packet Pg. 32 of 110  1 0 5 3 3 3) Evaluate the administration of the program for adequate internal controls to safeguard the City from fraud, waste, and abuse. The BMR program itself does not directly create housing units but administers the program after broader City housing policies, development requirements, agreements, and development decisions result in those units. Once qualifying ownership units are ready to enter ongoing administration, the City partners with Alta Housing to oversee purchase and rental of applicable units in accordance with the relevant eligibility requirements. It is important to note that the BMR program does not encompass all below market rate housing units in the City, only a portion of them. The City has created a substantial number of BMR units over time, with 247 active ownership units. The audit assessed the BMR program’s retention policies, unit management, applicant processes, and internal controls. In addition, the audit team researched best practices related to the management and administration of below market and affordable housing programs and conducted benchmarking to compare the City’s processes with peer cities to identify strengths and challenges. The audit has three findings. The first finding noted that the BMR program administers, rather than creates, BMR units through broader City housing policies and through this role has visibility into factors that may affect continued affordability and long-term retention of BMR units. The audit noted that HOA-related costs and the long-term preservation of an aging ownership portfolio may create retention pressures that warrant continued attention from the City. We recommend the City strengthen its approach to preserving BMR ownership units by improving visibility into HOA, maintenance, and other retention risks and evaluating practical options to help address significant HOA-related costs. The second finding notes that while program administration is consistent, performance monitoring can be strengthened. The City has established a working administrative structure with Alta Housing that is commensurate with many of its peers. However, oversight practices are not yet fully formalized, and the City has limited summarized information on program performance, eligibility trends, appeals, complaints, rental waitlist practices, enforcement activity, turnover, vacancy timelines, and applicant demand. We recommend the City strengthen its oversight function by formalizing coordination, documentation and trend reporting related to Alta Housing’s administration of the BMR program. Finally, the audit found that a recently filled vacancy in the Planning and Development Services Department provides an opportunity for increased administration and participant support. While the City provides some participant supports comparable to peers, the City has not yet centralized or clearly communicated referral pathways for BMR participants who may need help with affordability, tenancy, ownership and/or housing-stability concerns. We recommend the City centralize referral-based participant support and strengthen BMR program administration. Item 2 Item 2 Staff Report        Item 2: Staff Report Pg. 2  Packet Pg. 33 of 110  1 0 5 3 3 A more detailed discussion of the audit’s findings and recommendations can be found in the attached audit report. OCA is aware of the City’s current budget deficit and implementation of some recommendations may not be feasible in the near term. FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Item 2 Item 2 Staff Report        Item 2: Staff Report Pg. 3  Packet Pg. 34 of 110  September 22, 2026 City of Palo Alto Office of the City Auditor Below Market Rate Housing Audit Report Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 4  Packet Pg. 35 of 110  Contents Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. Table of Contents Executive Summary 1 Purpose of the Audit 1 Report Highlights 1 I. Background, Scope, and Methodology 5 II. Findings and Recommendations 11 Finding 1: The BMR Program Administers, Rather than Creates, BMR Units Through Broader City Housing Policies. Through This Role, the Program Has Visibility into Factors That May Affect Continued Affordability and Long-Term Retention. 11 Finding 2: Program Administration Is Consistent, but Performance Monitoring Can Be Strengthened 14 Finding 3: Senior Housing Specialist Role Provides an Opportunity for Increased Administration and Participant Support 31 Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 5  Packet Pg. 36 of 110  1 Executive Summary Purpose of the Audit Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted a Below Market Rate (BMR) Housing Program Audit hereafter referred to as the BMR program, based on approved Task Order 4.35 as part of the City’s FY 2026 Audit Plan. The objectives of this audit were to: (1) Determine if the BMR Program 1 ,maximizes the retention of affordable housing stock in comparison to similar programs. (2) Determine if the program is administered in a timely manner that meets the needs of the community it is intended to serve. (3) Evaluate the administration of the program for adequate internal controls to safeguard the City from fraud, waste and abuse. Report Highlights (Page 13) The BMR program administers, rather than creates, BMR units established through broader City housing policies. Through this role, the Program has visibility into factors that may affect continued affordability and long-term retention. The audit objective asked whether the BMR program maximizes the creation and retention of affordable housing. The City’s process shows that housing creation occurs through broader policy, development requirements, and development activity, while the BMR program primarily administers qualifying units after they are created. Within that role, HOA-related costs and the long-term preservation of an aging ownership portfolio may create retention pressures that warrant continued attention. We noted the following observations: • The BMR program does not independently control housing production; broader City policy and development activity determine whether and how affordable units are created. • Regular HOA dues are considered when maximum affordable ownership prices are established, but dues may change after purchase. 1 The BMR program, as assessed in this audit, refers to the administration of below-market-rate units after broader housing policies, development requirements, agreements and development decisions result in these units. The BMR program does not include all below- market-rate housing in the City, only a portion of ownership and rental units meeting specific criteria. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 6  Packet Pg. 37 of 110  2 EXECUTIVE SUMMARY • Significant HOA special assessments and major maintenance or repair needs may create unexpected costs that affect practical affordability and long-term retention. • The City has limited consolidated information on HOA-related and maintenance pressures across the BMR ownership portfolio, and peer interviews did not identify a common HOA-specific assistance model. • A portion of the ownership portfolio is aging and will require ongoing monitoring of deed restriction end dates, unit condition, and preservation options to ensure continued inclusion in the program. Key Recommendations The City should strengthen its approach to preserving BMR ownership units by improving visibility into HOA, maintenance, and other retention risks and evaluating practical options to help address significant HOA-related costs. This should include using existing City and Alta Housing information to identify significant HOA dues, special assessments, and maintenance pressures; evaluating whether existing assistance is sufficient and clearly communicated; exploring feasible additional preservation or repair support options; and continuing to monitor affordability restriction terms, unit condition, and other long-term portfolio risks. Finding 2: (Page 18) be strengthened. The City and Alta Housing have established a workable administrative structure for the BMR program, and several current practices are consistent with peers. The City receives quarterly invoices and activity reports from Alta Housing, which provide a useful foundation for contract and invoice oversight. However, oversight practices are not yet fully formalized, and the City has limited summarized information on program performance, eligibility trends, appeals, complaints, rental waitlist practices, enforcement activity, turnover, vacancy timelines, and applicant demand. We noted the following observations: • The Alta contract defines administrative tasks and responsibilities but does not include outcome-based performance expectations. • Program oversight has historically relied more on informal communication and issue- based coordination than consistently documented management practices. • The City does not maintain a formal complaint history for BMR program integrity concerns. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 7  Packet Pg. 38 of 110  3 EXECUTIVE SUMMARY • Alta appears to administer eligibility decisions consistently at the transaction level, but the City has limited summarized information on denials, appeals, complaints, and applicant experience trends. • Palo Alto’s occupancy verification practices are generally aligned with peers, but subleasing monitoring and enforcement documentation could be more formalized. • Palo Alto maintains a central ownership waitlist and property-specific rental waitlists, but the City has limited visibility into rental waitlist practices which are specific to each property and maintained by the property owner/manager. • The City does not currently track a defined set of program-level performance metrics for the BMR program, including unit turnover, vacancy timelines, and applicant demand. Key Recommendations To strengthen the City’s oversight foundation, the City should further formalize coordination, documentation, and trend reporting related to Alta Housing’s administration of the BMR program. These steps would help the City preserve the benefits of its current contracted model while improving consistency, transparency, and follow-up on program activity. We recommend the City: • Continue to formalize City-Alta coordination and role clarity. • Continue the quarterly invoice and report review process, with clearer documentation of follow-up. • Maintain a formal complaint history for BMR program integrity concerns. • Use periodic eligibility and applicant-experience summaries to improve City visibility. To improve performance monitoring, the City should also define a core set of program metrics that can be used to assess service timeliness, unit utilization, applicant demand, waitlist activity, and portfolio risks over time. Establishing regular performance reporting would give the City better visibility into whether the program is operating efficiently and where additional management attention or policy direction may be needed. We recommend the City: • Work with Alta Housing to strengthen waitlist management to improve visibility into rental waitlist practices, including aggregating rental applicant income levels and family composition to determine equitable program access. • Establish core BMR performance monitoring reporting aligned with program goals. • Track turnover and vacancy-related metrics using existing systems and workflows where possible. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 8  Packet Pg. 39 of 110  4 EXECUTIVE SUMMARY • Establish a basic written inspection protocol. Finding 3: (Page 34) A filled vacancy provides an opportunity for increased administration and participant support. Participant support is a service delivery issue because referral-based assistance can help BMR households remain stably housed after eligibility approval and placement. Palo Alto provides some participant support comparable to peers, including education, applicant support, homeowner assistance, and mediation access. However, the City has not yet centralized or clearly communicated referral pathways for BMR participants who may need help with affordability, tenancy, ownership, or housing-stability concerns. We noted the following observations: • Peer jurisdictions generally provide some form of light-touch participant support beyond eligibility review and placement. These supports are typically referral-based rather than intensive case management. • Palo Alto’s current participant support appears generally consistent with peers in terms of education, mediation access, and ownership-related assistance. • However, referral pathways for legal aid, emergency rental assistance, tenant protection, foreclosure prevention, fair housing, and other housing stability resources are not prominently or consistently communicated through City or Alta BMR materials. • Alta Housing reported that, aside from HOA affordability concerns, it was not aware of broader affordability complaints from BMR households. • City 311 data did not identify BMR-specific affordability or rental housing concerns, but this may reflect the absence of a dedicated BMR complaint or intake process. • The Senior Housing Specialist role provides an opportunity to connect recent administrative improvements with a light-touch participant-support function. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 9  Packet Pg. 40 of 110  5 I. Background, Scope, and Methodology Objective The objective of this audit was to evaluate the effectiveness of the BMR program in delivering affordable housing and services to eligible households and assess the adequacy of internal controls to prevent fraud, waste, and abuse. Background How This Report Uses the Term “BMR Program” The audit scope refers to the creation and retention of affordable housing stock. Interviews with Planning staff clarified that these functions occur at different points in the City’s housing process. For purposes of this report, the BMR program refers to the administration of below-market-rate units after broader City housing policies, development requirements, agreements, and development decisions result in those units. The BMR program itself does not directly create housing units. Once qualifying ownership units are ready to enter ongoing administration, Alta Housing generally administers them on the City’s behalf. It is important to note that the BMR program does not encompass all below market rate housing units in the City, only a portion of them. This distinction is important when evaluating program performance. Housing policy and development activity determine whether and how affordable units are produced. The City then formalizes the requirements that apply to those units, and Alta Housing generally becomes directly involved when qualifying ownership units are ready for sale and long-term administration. Typical Ownership BMR Process Planning staff described the following as the typical process for ownership (for-sale) BMR units. The exact path can vary by project. THE STEPS TO THE BMR PROGRAM This flow applies primarily to ownership (for-sale) BMR units. 1 APPLICATION SUBMITTED Developer submits an application for a housing project. Developer -> City Application and project information 2 REVIEW & REQUIREMENT CHECK - City reviews the project for compliance. - For ownership, an affordable housing plan is generally required. - If information is missing, the City requests additional information through development review. City Planning <-> Developer Comments, requests, and additional information as needed Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 10  Packet Pg. 41 of 110  6 BACKGROUND, SCOPE, AND METHODOLOGY 3 AFFORDABLE HOUSING PLAN - Developer prepares a plan to meet applicable City requirements. - For ownership, the plan generally identifies the BMR units and applicable affordability levels. - Other compliance approaches may be available depending on the Developer <-> City Plan submittal, review, and confirmation of the proposed approach 4 AGREEMENT WITH THE CITY - City and developer establish what requirements will apply to the BMR units. - The agreement may address AMI/income eligibility, maximum affordable sales prices, maximum rents where applicable, occupancy requirements, and resale or other affordability restrictions. City <-> Developer Executed agreement governing the BMR units 5 UNITS ENTER BMR PROGRAM - When qualifying ownership units are ready to be sold, the City coordinates with Alta Housing. - This is the transition from development activity into ongoing BMR City -> Alta Housing Notice that units are ready for administration 6 ALTA ADMINISTERS THE UNITS - Apply affordable sales prices and income eligibility requirements. - Identify qualified purchasers from the waiting list and verify household eligibility. - Support ongoing compliance and administer resale restrictions and Alta Housing Manages qualifying ownership units over the long term RENTAL UNITS Rental affordable housing can follow a different and less standardized pathway than ownership BMR units. POSSIBLE PATHWAYS TO CREATION INCLUDE: - Rental affordable units created through applicable City policies or development requirements. - Units proposed as an alternative means of satisfying another housing requirement. - Other project-specific approaches reviewed and approved by the City. - Special circumstances in which the City and developer determine an appropriate approach based on the project. KEY PLAYERS & COMMUNICATIONS - Developer works with the City to identify the applicable pathway. - Planning and, as needed, other City departments review the proposed approach. - Communication and oversight depend on the project, applicable requirements, and the governing agreement. - Rental affordable units do not necessarily follow the same administrative pathway as ownership BMR units or enter the UNIQUE CIRCUMSTANCES Some projects may not follow the typical ownership or rental pathway. The process shown above is therefore intended to Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 11  Packet Pg. 42 of 110  7 BACKGROUND, SCOPE, AND METHODOLOGY Housing Production, Reporting, and Policy Creation The City also evaluates housing production through broader planning and reporting mechanisms, including the Regional Housing Needs Allocation (RHNA) and Housing Element framework. These mechanisms are separate from day-to-day BMR administration. However, information about BMR inventory, production, affordability, turnover, and preservation can still provide useful input when the City evaluates housing needs and future policy choices. Interviews did not identify a formal feedback process that specifically evaluates BMR program results and then determines whether individual policy tools should change. The relationship is better understood as: policy establishes requirements and tools; development activity produces affordable units; the City formalizes unit requirements; Alta administers qualifying units; and broader reporting and program information can inform future housing policy decisions. REPORTING & DATA City reports housing production and affordability information through the RHNA/Housing Element annual reporting framework and maintains related > POLICY CREATION BMR inventory, production, affordability, turnover, and preservation information can help inform future housing planning and policy decisions. > GOALS Increase housing supply; expand options across income levels; preserve existing affordable housing; promote equal housing opportunity; and support inclusive communities. Broader Housing Policy Context The BMR program represents one component of the City’s broader affordable housing strategy. The Comprehensive Plan and Housing Element establish broader housing goals and planning responsibilities, while City code and related development policies establish affordable housing requirements that are applied through individual development review. Affordable housing remains a significant regional need, and demand for affordable opportunities continues to exceed supply. The comparison below places the current BMR inventory within the City’s broader housing planning context. TABLE 1. BMR WITHIN BROADER HOUSING POLICY CONTEXT Comparison Measure RHNA or Housing Stock Total Current BMR Units Current BMR Units as a Share of Total Total 2023–2031 RHNA allocation 6,086 541 8.9% Lower- and moderate-income 2023–2031 RHNA allocation 3,465 541 15.6% 2020 total housing stock 29,298 541 1.8% 2020 occupied housing units 26,150 541 2.1% The BMR inventory shown above is therefore an output of broader policy and development activity rather than a direct measure of Alta Housing’s performance. Once units enter ongoing administration, the BMR program helps manage eligibility, sales, compliance, and long-term affordability requirements. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 12  Packet Pg. 43 of 110  8 BACKGROUND, SCOPE, AND METHODOLOGY Ownership unit production has been uneven. The City has created a substantial number of BMR units over time, with 247 active ownership BMR units. However, production has been uneven and closely tied to development cycles. Ownership unit production peaked in earlier decades and experienced a complete pause during the 2010s, with modest increases resuming in recent years. Table 2 summarizes unit production by decade. TABLE 2. OWNERSHIP UNIT PRODUCTION TRENDS Decade Units Added Notable Properties / Notes 1970s (1974–1979) 43 Earliest cohort; Greenhouse I & II, Villa San Alma, Ponce Drive. Oldest units in portfolio. 1980s (1980–1989) 89 Peak production decade. Birch Court, Palo Alto Redwoods, Loma Verde, Barron Square, Abitare, Channing Place. 1990s (1990–1999) 26 Sharp decline from 1980s pace. Promenade, Jacobs Court, Loma Verde Townhomes; isolated scattered additions. 2000s (2000–2009) 74 Recovery era. 800 High Street, Echelon, Vantage, Arbor Real drove significant volume. 2010s (2010–2019) 0 Zero new ownership BMR units placed in the program. Represents a 10- year production gap. 2020s (2020–2025) 15 Gradual resumption. Villa San Alma, 28Fifty/Josephine Lane, Woodcrest, Caminian. Historical production trends provide context for the units available for ongoing BMR administration. They should not be interpreted as a direct measure of the BMR program’s day-to-day administration because the timing and volume of new units depend on broader City policy, development activity, and project-specific decisions. Scope and Methodology Our review scope focuses on evaluating the effectiveness of the BMR program in delivering affordable housing and services to eligible households and assessing the adequacy of internal controls to prevent fraud, waste, and abuse. This performance audit was conducted between October 2025 and August 2026 and consisted of four major phases, described on the following page. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 13  Packet Pg. 44 of 110  9 BACKGROUND, SCOPE, AND METHODOLOGY PROJECT METHODOLOGY Project Phase Description 1. Startup and Management Phase 1 involved collaborative project planning with City management, including identifying interviewees, selecting documents for review, establishing timing and methods for sharing results, and defining reporting protocols. We held a kickoff meeting with designated City leadership to confirm expectations and discuss the overall project scope, logistics, deliverables, schedule, and progress reporting requirements. Roles and responsibilities of the audit team and City personnel were clarified. Throughout the engagement, we performed project management, including regular status updates and quality assurance reviews to ensure all deliverables met professional standards before submission. 2. Fact-Finding The second phase focused on executing planned activities such as interviews, document review, best practices research, and peer comparisons. We gathered current information and insights from City leadership and staff involved in BMR administration. Documentation Review: We requested relevant documentation, including but not limited to policies and procedures, program reports, housing inventory, applicant and waitlist information, budget, contractor information, and performance metrics. Interviews: We conducted interviews with staff from the City and Alta Housing to identify strengths, challenges, and opportunities for improvement in BMR management and administration. Based on the information collected during fact-finding, we developed End of Planning findings assessing BMR-related activities. These findings identified strengths and opportunities for improvement, providing a foundation for further analysis and recommendations. 3. Analysis Best Practices: We researched best practices related to management and administration of below market and affordable housing programs, including creation and retention of units, service delivery, and vendor management. We assessed the City’s alignment with best practices. Peer Benchmarking: In peer interviews, we compared the City’s BMR management to peers and identified strengths and challenges. The following peers were included in this analysis: ● City of Sunnyvale (Sunnyvale) ● Rise Housing Solutions (Rise) ● City of Mountain View (Mountain View) ● City of Menlo Park (Menlo Park) ● Bay Area Affordable Homeownership Alliance (BAAHA) ● City of San Mateo (San Mateo) 4. Reporting We communicated the results of our analysis, with findings and recommendations presented first in a draft report that was reviewed with City management to confirm the practicality and relevance of recommendations before finalizing the report. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 14  Packet Pg. 45 of 110  10 BACKGROUND, SCOPE, AND METHODOLOGY Compliance Statement This audit activity was conducted from October 2025 to August 2026 in accordance with generally accepted government auditing standards, except for the requirement of an external peer review.2 Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings, observations, and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings, observations, and conclusions based on our audit objectives. Organizational Strengths During this audit activity, we noted the professionalism and responsiveness of the Planning and Development Services Department. We appreciated their participation in interviews, their provision of documentation, and their responses to follow-up requests. We would also like to thank Alta Housing for their participation and assistance in providing information and procedural walkthroughs. The OCA appreciates the support of the Planning and Development Services Department in conducting this audit activity. Thank you! 2 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract with Baker Tilly U.S, LLP for internal audit services for October 2020 through June 2022 with an extension through June 2025. City Council appointed Kate Murdock, Audit Manager in Baker Tilly’s Risk Advisory practice, as City Auditor in May 2024. As a result of transitions in the Audit Office and peer review delays due to the COVID pandemic, an external peer review is targeted for 2026. It should be noted that Baker Tilly’s most recent firmwide peer review was completed in November 2024 with a rating of “Pass”. The scope of that peer review includes projects completed under government auditing standards. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 15  Packet Pg. 46 of 110  11 II. Findings and Recommendations Finding 1: The BMR Program Administers, Rather than Creates, BMR Units Through Broader City Housing Policies. Through This Role, the Program Has Visibility into Factors That May Affect Continued Affordability and Long-Term Retention. The audit objective asked whether the BMR Housing Program maximizes the creation and retention of affordable housing stock. As described in the Background section, these are distinct functions. The BMR program does not independently control how much housing is produced; housing production results from broader City policy, development requirements, and development activity. The Program’s more direct role begins after qualifying units are created, when the City and Alta Housing administer eligibility, sales, compliance, resale restrictions, and other long-term affordability requirements. The audit therefore evaluated creation primarily as policy and process context, while focusing the finding on practical affordability and the City’s ability to retain BMR ownership units over time. HOA costs and special assessments may create practical affordability and retention pressures for some BMR homeowners. BMR ownership units are priced to meet established affordability requirements. Regular homeowner association (HOA) dues are considered when the City calculates maximum affordable sales prices, which helps account for recurring ownership costs at the time of purchase. Interviews nevertheless identified HOA-related costs as a potential pressure after purchase. Regular HOA dues can change over time, and significant special assessments for major building repairs or other common-area needs can create costs that were not anticipated when a household purchased the unit. These expenses are not controlled by the BMR program, but they may affect a household’s ability to remain in the unit or maintain it over the long term. The City has some existing resources that may assist homeowners with HOA assessments in certain circumstances, but interviews did not identify a consolidated approach for tracking HOA dues, special assessments, or major maintenance pressures across the ownership portfolio. Peer interviews also did not identify a common HOA-specific assistance model; peer support was generally broader, such as homeownership counseling, foreclosure prevention, legal assistance, and financial-risk monitoring. As the BMR ownership portfolio ages, understanding HOA and maintenance pressures can help the City identify whether additional preservation tools are warranted. BMR Stock Faces Future Retention Risk The long-term ability of the BMR program to meet community needs also depends on maintaining the availability and usability of existing units over time. Analysis of the City’s portfolio shows that the ownership stock is aging, with a portion of units approaching key points in their affordability lifecycle. The active ownership BMR units span entry dates from 1974 through 2025. Under the 59-year deed restriction, no units have expired as of April 2026. Although the time periods for deed restrictions generally renew each time a property is transferred, it is possible that some of the earliest properties – if they have remained with the Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 16  Packet Pg. 47 of 110  12 FINDINGS AND RECOMMENDATIONS original BMR owners – could have restrictions expiring in 2033, providing a planning horizon for City intervention. Table 2 summarizes the ownership portfolio by age band. TABLE 2. OWNERSHIP UNIT PRODUCTION TRENDS Decade Units Added Notable Properties / Notes 1970s (1974–1979) 43 Earliest cohort; Greenhouse I & II, Villa San Alma, Ponce Drive. Oldest units in portfolio. 1980s (1980–1989) 89 Peak production decade. Birch Court, Palo Alto Redwoods, Loma Verde, Barron Square, Abitare, Channing Place. 1990s (1990–1999) 26 Sharp decline from 1980s pace. Promenade, Jacobs Court, Loma Verde Townhomes; isolated scattered additions. 2000s (2000–2009) 74 Recovery era. 800 High Street, Echelon, Vantage, Arbor Real drove significant volume. 2010s (2010–2019) 0 Zero new ownership BMR units placed in the program. Represents a 10- year production gap. 2020s (2020–2025) 15 Gradual resumption. Villa San Alma, 28Fifty/Josephine Lane, Woodcrest, Caminian. Data provided by Alta Housing. Appendix A: Ownership Unit Age Distribution and Projected . The age distribution shows that a meaningful portion of the ownership portfolio is concentrated in older cohorts. Based on current cohort data, 43 ownership units are more than 45 years into their affordability lifecycle, and another 115 units are between approximately 27 and 45 years into their affordability lifecycle. This does not mean these units are immediately at risk of leaving the program, but it does show the importance of monitoring upcoming restriction end dates, unit condition, financing constraints, and other factors that could affect long-term affordability. At the same time, historical production patterns, including the absence of new ownership units during the 2010s, mean that there is no corresponding replacement cohort to offset potential future losses in the near term. This makes long-term preservation planning especially important because future unit expirations could reduce the City’s affordable ownership stock unless the City renews, replaces, or otherwise preserves those units. This emphasis is consistent with leading affordable housing preservation and shared-equity homeownership guidance. Local Housing Solutions, a local housing policy platform with tools for cities, recommends that jurisdictions maintain preservation inventories that include information such as property age, number of units, physical condition, and affordability expiration dates 3. Grounded Solutions Network’s inclusionary housing 3 https://www.localhousingsolutions.org/housing-policy-library/preservation-inventories Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 17  Packet Pg. 48 of 110  13 FINDINGS AND RECOMMENDATIONS guidance similarly emphasizes that legal documents alone are not sufficient to preserve affordability over the long term; proactive stewardship, ongoing monitoring, and homeowner support through connection to third parties are also important 4. National Housing Conference guidance on shared-equity homeownership also notes that resale restrictions require ongoing supervision and that home improvement support may be needed to maintain permanently affordable housing stock 5. These practices reinforce that meeting community needs is not only a matter of creating units. It also requires the City to understand whether existing units remain affordable, usable, financeable, and likely to remain in the portfolio over time. RECOMMENDATION Recommendation 1: We recommend the City strengthen its approach to preserving BMR ownership units by monitoring emerging affordability and condition risks and evaluating practical options to address HOA-related costs that may threaten long-term retention. We also recommend the City: • Establish a structured process for ongoing coordination with Alta Housing to capture and report information related to unit retention, turnover, and emerging risks to affordability. • Evaluate whether existing assistance, including the City loan program that may support HOA assessments in some circumstances, is sufficient and clearly communicated to BMR homeowners. • Explore feasible additional approaches for significant HOA or maintenance-related costs, such as financing or repayment assistance, targeted preservation or repair support, and referrals to financial, legal, or homeownership counseling resources. Consider legal authority, cost, staff capacity, and the absence of a single common peer model when evaluating options. • Continue monitoring affordability restriction terms, unit condition, and other portfolio risks that could affect long-term retention, and use this information to support future preservation planning. 4 https://inclusionaryhousing.org/designing-a-policy/affordability-preservation/the-need-for-stewardship 5 https://nhc.org/policy-guide/shared-equity-homeownership-the-basics/implementing-shared-equity Management Response Responsible Department(s): Concurrence: Agree Target Date: Q3, FY 2027 Action Plan: Department staff and Alta Housing have established monthly coordination meetings to ensure alignment on program objectives, enhance communication, troubleshoot challenges, share program data and trends, clarify roles/responsibilities, and discuss policy and procedural development. During a recent coordination meeting, Alta Housing trained Department staff on its Salesforce system, which serves as a centralized platform to support administering components of the BMR program, including waitlist management, applicant intake and eligibility review and access to recorded documents/household information. The system is expected to Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 18  Packet Pg. 49 of 110  14 FINDINGS AND RECOMMENDATIONS Finding 2: Program Administration Is Consistent, but Performance Monitoring Can Be Strengthened Overall, the City and Alta Housing have established a workable administrative structure and several practices that are consistent with peers. The main opportunity is to build on this foundation by making expectations, data summaries, and performance metrics more consistent and useful for decision-making. Program Administration Is Consistent PROGRAM MANAGEMENT Palo Alto’s program management framework reflects many elements of standard practice. Effective administration of a BMR housing program in a model that relies on a contracted administrator requires clear roles and responsibilities, structured communication, and sufficient City oversight to ensure that program activities align with policy goals and regulatory requirements. Best practices emphasize regular coordination, defined expectations, and visibility into administrator activities and data. Palo Alto administers its BMR program through a contracted model with Alta Housing, with the City responsible for program management direction, approvals, and overall program oversight. Interviews indicated that the City and Alta maintain a collaborative working relationship, and recent efforts have focused on strengthening coordination through more regular meetings, policy and procedure review, and clarification of roles and expectations. However, historically, oversight has relied more heavily on informal communication and issue-based coordination rather than structured and consistently applied management practices. For example, recurring program and unit affordability requirements, and improve response times for internal and external BMR program inquiries. Department staff continue to engage regularly with Alta Housing regarding programmatic concerns, including the effect of HOA fees and special assessments on BMR homeowners. Staff are evaluating whether existing resources, including applicable City loan programs, could help address financial hardship associated with these costs. Staff are also connecting eligible BMR homeowners with Rebuilding Together Peninsula’s CDBG-funded home rehabilitation and repair program, which may provide qualifying homeowners with no-cost home repair services. Department staff concur that structured coordination with Alta Housing benefits various aspects of the BMR program, including data collection and analysis, participant customer service, communication, problem-solving, and understanding of affordability terms. Department staff and Alta Housing will continue strengthening ongoing coordination. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 19  Packet Pg. 50 of 110  15 FINDINGS AND RECOMMENDATIONS meetings were not previously standard, and oversight activities such as file review, performance evaluation, and expectations for reporting have only recently begun to be more clearly defined. Peer benchmarking indicates that while Palo Alto’s use of a contracted administrator is common, jurisdictions with stronger oversight models tend to implement more structured and proactive management practices. Peers such as Mountain View and Rise Housing Solutions emphasize recurring communication and active collaboration as key components of effective oversight. TABLE 3. PEER APPROACHES TO MANAGING PROGRAM ADMINISTRATORS Practice Palo Alto Cupertino (Rise Housing Solutions ) Mountain View Menlo Park Pacifica (BAAHA) Administrator Alta Housing Rise Housing Solutions HouseKeys Housing Inc. BAAHA Communication Cadence Historically ad hoc; moving to regular meetings Weekly standing calls Weekly meetings Biweekly check-ins + ad hoc Ongoing informal communication City Oversight Approach Contract oversight, policy review, approvals Defined roles, regular reporting, and invoicing Hands-on oversight, direct involvement, active management Collaborative program management with final City approval Advisory model with independent administrative role Access to Administrator Data No shared system; separate records City does not have access to the administrator’s system; Rise pushes reports to City management City has access to administrator system and internal tracking Partial system access Not specified Reporting Structure Quarterly reports and invoices Regular reporting tied to service model City pulls data directly; supplemental reporting Limited formal reporting; exploring expansion Not specified Note: Table 3 includes only jurisdictions that use a contracted BMR program administrator (Palo Alto, Cupertino via Rise Housing Solutions, Mountain View, Menlo Park, and Pacifica via BAAHA); fully in-house programs (Sunnyvale and San Mateo) are excluded because administrator management practices are not applicable. Palo Alto also demonstrates strengths in areas such as reporting and financial oversight. The City receives regular reports and invoices from Alta Housing and maintains clear approval authority over key program elements such as pricing and rents. Compared to some peers, where reporting is limited or still evolving, Palo Alto’s existing structure provides a solid foundation for transparency and accountability. While shared data systems vary widely across jurisdictions, Palo Alto’s approach of maintaining City-side records alongside administrator-managed systems is not uncommon. Several peers also operate with separate systems and rely on reporting or data sharing rather than full system integration. However, where feasible and Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 20  Packet Pg. 51 of 110  16 FINDINGS AND RECOMMENDATIONS consistent with data privacy and legal constraints, establishing shared or more direct access to administrator data systems could further enhance transparency, improve real-time visibility into program activity, and strengthen the City’s ability to monitor performance and address issues proactively. Overall, Palo Alto’s program management framework reflects many elements of standard practice but has opportunities to continue building on this foundation by further formalizing oversight practices and ensuring that management activities are applied consistently over time. These management practices provide the context for the more specific oversight areas discussed below, including the Alta contract, quarterly reporting, financial and structural controls, eligibility review, occupancy verification, and waitlist management. VENDOR OVERSIGHT Alta’s quarterly invoice and report provide a useful oversight foundation, but the reporting is primarily activity-based rather than performance-based. As part of this report, we reviewed the City’s current contract with Alta Housing, including the publicly available Approval of Professional Services Contract Number C25193814, Contract Exhibit A: Scope of Services, and Contract Exhibit B: Schedule of Performance, which is publicly available. The City’s contract with Alta Housing provides a clear foundation for vendor oversight by identifying Alta’s responsibilities across program outreach, ownership and rental program administration, compliance monitoring, and coordination with City staff. However, the contract primarily defines tasks and responsibilities. It does not require outcome-based performance metrics, which limits the City’s ability to evaluate vendor performance beyond task completion and general contract compliance. This distinction is discussed further in the performance metrics section below. Quarterly invoices and activity reports support invoice review, contract monitoring, and follow-up on open issues. The City receives a quarterly invoice and report from Alta Housing. The invoice identifies the reporting period, total amount due, staff roles billed, hours, and hourly rates, including BMR Administrator, BMR Manager, Alta COO, and Alta CEO time. The accompanying report provides activity-level detail on BMR sales, sales in process, upcoming sales, waitlist updates, inquiries and open issues, office visits, rental BMR activity, initial certifications and recertifications, workshops, and issues requiring future City input. For example, one report identified six homes in various stages of the sales process, a waiting list update resulting in 274 households on the list, 45 BMR-related office visits, rental certification and recertification activity, and an affordability issue requiring future City input. This reporting structure provides a strong foundation for vendor oversight. It gives the City regular visibility into services performed, supports review of billed hours and rates, and documents program activity that can be compared to Alta’s contractual responsibilities. This is different from a performance management dashboard; the quarterly report’s primary control value is that it supports invoice review, contract compliance monitoring, and follow-up on open issues. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 21  Packet Pg. 52 of 110  17 FINDINGS AND RECOMMENDATIONS The City’s current quarterly invoice and report review process provides a strong foundation for vendor oversight and should continue as currently designed unless City staff identify concerns with invoice accuracy, contract compliance, or reported program activity. To further strengthen documentation of this existing control, the City could make its review process more explicit by documenting how staff compare reported activities to contract requirements and how follow-up items are tracked before payment approval. SYSTEMS AND CONTROLS The City’s BMR financial and structural controls appear reasonable, but the City does not maintain a formal complaint history to document any fraud, waste, abuse, conflict-of- interest, or other program integrity concerns over time. The BMR program appears to have strong controls over higher-risk financial activity. Alta does not generally handle participant payments or deposits, and major payments to Alta are processed through the City’s contract and invoice review process. This structure reduces financial control risk because Alta’s role is primarily administrative rather than custodial. In addition, Alta’s limited role in rental waitlist management reduces conflict- of-interest risk because property managers, rather than Alta, maintain rental waitlists and refer applicants for eligibility review. However, the City does not maintain a formal history or tracker of complaints related to fraud, waste, abuse, conflicts of interest, or other BMR program concerns. Interviews suggested that there was not a history of significant complaints or known control issues, but the absence of a formal record means the City has limited documentation to demonstrate that concerns were tracked, reviewed, and resolved over time. Overall, the City’s financial and structural controls appear reasonable, and no fraud, waste, abuse, or conflict-of- interest concerns were identified. The primary opportunity is to make complaint tracking more formal so the City can consistently document if and when concerns are received, reviewed, and resolved. ELIGIBILITY AND APPLICATION PROCESS Alta appears to administer eligibility decisions and certifications consistently at the transaction level, but the City has limited summarized information to assess trends in appeals, complaints, denial reasons, or applicant experience across the BMR program. Program eligibility and application processes should be clear, consistent, and documented so the City can confirm that affordable housing opportunities are provided fairly and in accordance with each property’s regulatory agreement and applicable program rules. Because BMR and inclusionary housing programs are locally administered, eligibility requirements often vary by jurisdiction, property, and affordability agreement. As a result, clear procedures, documentation, and reporting are important controls for ensuring that applicants are evaluated consistently and that the City can monitor whether the program is operating as intended. Alta Housing conducts applicant eligibility review and maintains certification records in its own database, including initial and ongoing certifications. The City does not approve individual eligibility decisions made by Alta. For ownership units, the City reviews and approves ownership document packages for completion during Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 22  Packet Pg. 53 of 110  18 FINDINGS AND RECOMMENDATIONS the sales process, including documents such as the deed, promissory note, and owner/occupancy agreement. These documents are reviewed by the City Attorney, Planning and Development Services Director, and signed by the City Manager or designee. The City also indicated that it began filing ownership sales documents annually in late 2025, which may improve tracking of completed ownership sales going forward. The City does not maintain a separate complaint resolution tracker. Interviews also indicated that appeals are not tracked in SpokeHS. Approvals and denials are tracked; however, denials are not differentiated by reason in the system. As a result, while Alta appears to administer eligibility decisions and certifications consistently at the transaction level, the City has limited summarized information to assess trends in appeals, complaints, denial reasons, or applicant experience across the program. Occupancy tracking is another core administrative control. Unlike eligibility trend reporting, the City’s baseline occupancy verification practices are generally aligned with peers, although the City could still strengthen how monitoring and enforcement information is documented and summarized. OCCUPANCY TRACKING The City’s current occupancy verification practices align with peer practices for ensuring that BMR units are occupied by eligible households. The City, through Alta Housing, conducts annual occupancy verification processes. For ownership units, this includes annual primary-residence certification using documentation such as utility bills and property tax records. For rental units, compliance is generally verified annually based on the requirements outlined in each property’s regulatory agreement. These processes establish a baseline level of oversight to confirm that units are occupied by approved households. Annual Occupancy Verification: Across peer jurisdictions, annual occupancy verification is a standard practice. Most programs conduct annual owner-occupancy certification for ownership units and annual income recertification for rental units where required by regulatory agreements. Some peers supplement this with additional approaches, such as random sampling, public records review, or follow-up verification when concerns arise. Overall, Palo Alto’s reliance on annual certification processes is consistent with peer practice, indicating that the City’s foundational approach to occupancy verification aligns with industry norms. Subleasing Monitoring: Peer jurisdictions generally monitor unauthorized subleasing through a combination of annual certification processes, documentation review, complaints, public records, and property manager input. Compared to peers, Palo Alto’s approach appears more limited and primarily reactive, particularly for ownership units, where monitoring is not actively conducted and issues are typically identified through incidental triggers such as complaints or document review flags. While this approach is not uncommon, it may be less likely to detect misuse in the absence of external reporting or clear indicators. Review and Enforcement: Peers’ reviews are most commonly triggered by annual compliance processes, irregularities in submitted documentation, complaints, or external indicators such as public listings or property manager concerns. Palo Alto follows a similar trigger-based approach, relying on annual certification and issue- based follow-up. This is consistent with peer practice, although some jurisdictions incorporate a broader range of triggers—such as systematic review of listings or public records—which may enhance early detection of potential violations. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 23  Packet Pg. 54 of 110  19 FINDINGS AND RECOMMENDATIONS Enforcement responses vary across jurisdictions but generally include structured escalation steps such as out- of-compliance notices, cure periods, and, in more serious cases, investigation or legal action. In Palo Alto, rental unit issues are typically referred to property management. For ownership units, Alta sends annual logs or reports to the City summarizing enforcement actions identified, reviewed, and resolved during the prior 12 months, with City coordination when required. Peer practices confirm that clearer and more formalized enforcement pathways can improve consistency and strengthen program integrity. Overall, Palo Alto’s occupancy verification practices align with industry norms in conducting annual certification processes. However, compared to peer jurisdictions, the City’s approach to subleasing monitoring may be more reactive and less formalized. While the City meets peer standards, there is an opportunity to strengthen consistency and effectiveness by adopting more structured monitoring practices observed in stronger peer models, if that is a priority. WAITLIST MANAGEMENT Palo Alto currently maintains a central waitlist for ownership units, while rental units use property-specific waitlists, with lotteries run by the property managers. Publicly available waitlist tools are straightforward, useful, and transparent. An effective BMR waitlist process should support fair, transparent, and timely access to affordable housing opportunities. Waitlists and applicant pools should be structured so applicants understand how they enter the process, how they are prioritized or selected, and how they remain eligible for future opportunities. Because household income, household size, housing need, and interest can change over time, waitlists should also be maintained in a way that keeps applicant information current and reduces reliance on outdated applicant pools. We found that publicly available waitlist tools and information maintained by the City were straightforward, useful, and transparent. As shown in Table 4, peers use a mix of traditional ownership waitlists, continuous applicant pools, annual renewal models, property-specific rental lists, and unit-by-unit lotteries. Palo Alto’s split model—a City- administered ownership waitlist and property-managed rental waitlists—is not unusual, although it may spread responsibilities across different parties and systems. Several peers have moved away from traditional static waitlists where possible, especially for rental units, because long-running waitlists can become difficult to maintain, may include households whose circumstances have changed, and can create fairness concerns for new applicants who have limited opportunity to enter the system. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 24  Packet Pg. 55 of 110  20 FINDINGS AND RECOMMENDATIONS TABLE 4. PEER APPROACHES TO WAITLIST MANAGEMENT Waitlist Element Palo Alto Sunnyvale Rise Housing Solutions * Mountain View Menlo Park BAAHA** San Mateo Ownership waitlist? Yes No Yes Yes Yes No Yes How are ownership units managed? City- administered ownership waitlist with live/work preference and ranking. The list was reopened after being closed for several years. No traditional waitlist. Ownership applications are maintained centrally on an ongoing, first-come, first-served basis. Waitlist opens each October for one month. Applicants renew annually, and existing lottery positions are honored within preference point categories. When a unit becomes available, applicants may opt into the opportunity drawing. Ownership uses a traditional chronological waitlist that was frozen in 2021 and is now reviewed annually. No traditional static waitlist. BAAHA maintains an active database and conducts a new lottery each time a BMR unit is offered. City maintains a first-in, first- out ownership waitlist tied to household size and City eligibility verification. Rental waitlist? Yes Yes Yes Yes Yes and No No No How are rental units managed? Rental units use property- specific waitlists, with lotteries run by the property managers. Rental units use property- specific waitlists maintained by each property. Same waitlist structure applies, depending on jurisdiction and offering. Same account and opportunity drawing process as ownership units. No standing waitlist for inclusionary rentals, which use a notification list and a new lottery for each vacancy. For 100% affordable projects, the developer maintains a waitlist. No traditional static waitlist. BAAHA maintains an active database and conducts a new lottery each time a BMR unit is offered. No standing rental waitlist. Lotteries are run for new and vacant inclusionary units. * Rise Housing Solutions administers and monitors the Below Market Rate (BMR) Housing Programs for the cities of Cupertino, Novato, Alameda, and San Leandro. ** BAAHA reports serving multiple locations, including Pacifica and East Palo Alto. As shown in Table 5, peers commonly use annual renewals, continuously open account-based systems, or unit- specific re-entry processes to keep applicant pools current. Palo Alto historically updated its ownership waitlist annually, but that practice stopped because it was administratively burdensome. More recently, the City reopened and refreshed the ownership waitlist, which is consistent with peer practices emphasizing periodic maintenance. For rental units, however, list maintenance is handled by property managers rather than Alta or the City. This is driven by regulatory agreements, which state that the developer, owner, or property manager will select tenants and maintain waiting lists for affordable units. While this approach is consistent with the BMR program’s management structure, it limits the City’s insight into rental trends that affect its applicants. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 25  Packet Pg. 56 of 110  21 FINDINGS AND RECOMMENDATIONS TABLE 5. PEER APPROACHES TO WAITLIST CURRENCY Peer How waitlists or applicant pools are kept current Palo Alto Historically, the ownership waitlist was updated annually, but that practice stopped because it was administratively burdensome. More recently, the City reopened and refreshed the ownership waitlist. Rental waitlist maintenance is handled by property managers rather than Alta. An annual update request is sent to households on the ownership unit waiting list to ensure continued interest and up-to-date information. Sunnyvale Rental properties conduct annual eligibility review/recertification for applicants on their lists. Ownership applications are maintained centrally on an ongoing basis rather than through a traditional waitlist. Rise Housing Solutions Annual renewal, workshops, and marketing pushes help keep the list active and current. Mountain View The system remains open continuously, allowing applicants to join at any time. Mountain View also tracks how long it takes from account creation to obtaining a BMR unit. Menlo Park Ownership waitlist is reviewed annually to confirm continued eligibility and interest. Rental vacancies are handled through individual lotteries rather than a standing list. BAAHA / Pacifica Applicant pool is kept current by inviting households to apply at the time of each offering rather than relying on older waitlist positions. San Mateo Doorway functions as the active entry point for rental opportunities. Ownership waitlist is maintained through ongoing administration of for-sale opportunities. Peer practices also highlight several tools that can improve fairness and usability, including transparent lotteries, live/work preferences, annual renewal requirements, software-enabled applicant visibility, and outreach to broaden participation. Palo Alto already uses some of these practices, including a live/work preference and a visible ownership ranking structure. The primary opportunity is not to replace the City’s current approach, but to ensure that both ownership and rental waitlist processes are maintained consistently, remain current, and provide the City with enough visibility to assess whether applicants are being served fairly and efficiently. RECOMMENDATIONS The City should continue building on its current oversight foundation by formalizing coordination with Alta Housing, documenting key control activities, and obtaining periodic summaries that help City staff identify trends and follow-up needs. Recommendation 1: Palo Alto has opportunities to continue building on its current oversight of Alta Housing by formalizing coordination, clarifying expectations, and enhancing data visibility. • Continue implementing a consistent monthly meeting cadence with Alta Housing to support ongoing coordination and timely issue resolution. • Continue refining and documenting roles and responsibilities for both the City and Alta Housing, ensuring alignment with the contract and consistent application in practice. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 26  Packet Pg. 57 of 110  22 FINDINGS AND RECOMMENDATIONS • Evaluate opportunities to establish shared access to administrator-managed data systems, where feasible and legally permissible, to improve transparency and support more effective oversight. Recommendation 2: The City should continue the quarterly invoice and report review process, with clearer documentation of follow-up. The City should continue its current quarterly invoice and report review process unless staff identify concerns with invoice accuracy, contract compliance, or reported program activity. Recommendation 3: The City should maintain a simple formal complaint history for the BMR program to document any allegations or concerns related to fraud, waste, abuse, conflicts of interest, or other program integrity issues. • Record the date, source, general issue type, responsible reviewer, resolution status, and outcome of each complaint or concern. • Include complaints received by the City, Alta, or other parties when they relate to BMR program integrity. • Review the complaint history periodically to identify any recurring issues or control concerns. Recommendation 4: The City should use periodic eligibility and applicant-experience summaries to improve City visibility. A simple periodic summary from Alta on eligibility and applicant experience trends could improve visibility without duplicating Alta’s database or creating a burdensome new process. • Continue to define the information Alta should summarize, such as approvals, denials, denial reasons, appeal requests, complaint themes, and resolution status. Build on information already captured in reports, such as denials due to over-income status. • Establish a reasonable reporting frequency, such as quarterly or annually, aligned with existing Alta reporting. • Assign City responsibility for reviewing the summary and following up on patterns, recurring issues, or items that may require policy or process clarification. Recommendation 5: The City should strengthen waitlist management to improve visibility into rental waitlist practices. The City should continue using its current waitlist approach while strengthening expectations for keeping waitlists current and improving visibility into rental waitlist practices. • City management should determine an appropriate schedule for refreshing or confirming the ownership waitlist, communicate that expectation to Alta, and document the schedule and process. • Work with Alta and property managers to define minimum expectations for rental waitlists and lotteries, including how lists are maintained, how households are selected, what documentation should be retained, and what information should be shared with Alta or the City when filling a BMR rental unit. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 27  Packet Pg. 58 of 110  23 FINDINGS AND RECOMMENDATIONS • If the City experiences ongoing limitations in rental waitlist visibility or identifies inconsistencies across properties, it should consider whether a longer-term system change, such as a centralized rental applicant portal or lottery process, would improve transparency and consistency. Regulatory agreements state that the developer, owner, or property manager will maintain waiting lists for affordable units, so this recommendation depends on their cooperation and Alta’s capacity to aggregate such information. Management Response Responsible Department(s): Concurrence: Agree Target Date: Q3, FY 2027 Action Plan: Department staff strongly support continuing to work closely with Alta Housing to clarify roles and assess how to improve systems (i.e. waiting list management). Recommendation 1: Department staff and Alta Housing have established monthly coordination meetings to discuss program administration and to clarify roles/responsibilities. Through this process, Alta Housing has started training Department staff on its Salesforce system, which is used to support administration of the BMR program. Recommendation 2: Department staff will continue to review Alta Housing’s quarterly invoices and program reports and follow-up when concerns are identified regarding invoice accuracy, contractual requirements, or reported program activity. Recommendation 3: Department staff will work with Alta Housing to formalize a complaint/grievance history record for allegations or concerns involving fraud, waste, abuse or other BMR program-integrity matters. Currently, the City does coordinate with Alta Housing on programmatic concerns/complaints — but can use the Salesforce system to better track/organize the information. Recommendation 4: Department staff will work with Alta Housing to develop periodic eligibility and applicant-experience summaries using information already maintained through program administration. The summaries may include approvals, denials and denial reasons, appeals, complaint trends, and resolution status. Staff will establish a reporting frequency aligned with existing Alta Housing reporting. Recommendation 5: Department staff will work with Alta Housing to document appropriate schedule, process for refreshing or confirming the ownership waitlist. As a current practice, the City reaches out to all households on the ownership waitlist annually to update participant information and to confirm continued interest in the program. For rental units, staff will coordinate with Alta Housing and property managers to establish minimum expectations for waitlist and lottery administration, including record Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 28  Packet Pg. 59 of 110  24 FINDINGS AND RECOMMENDATIONS Performance Monitoring Can Be Strengthened PEER PERFORMANCE METRICS While performance tracking varies across peers, several peers track broader and more structured metrics that support oversight. Best practices in effective program management require a defined set of performance metrics that allow the City to monitor outcomes, assess administrator performance, and identify emerging risks. HUD’s Public Housing Assessment System guidance describes performance measurement as a management tool for evaluating essential housing operations, and HUD’s public housing dashboard tracks indicators such as occupancy trends, eligibility information, funding, and assessment scores 6. Currently, Palo Alto’s BMR program has limited formal performance metrics. The City receives quarterly reports and invoices from Alta Housing, but both City and Alta staff indicated that higher-level, decision-useful metrics are not consistently defined or tracked. Key information such as turnover rates, time to fill units, waitlist outcomes, and certain compliance or violation trends are not systematically tracked or reported. In some cases, data exists within systems or files but is not compiled into usable metrics, while in other cases, information (e.g., appeals, violations) is not consistently recorded in a centralized manner. Peer benchmarking shows that while performance tracking varies across jurisdictions, several peers track a broader and more structured set of metrics to support program oversight. It is important to note that OCA was unable to compare staffing levels and/or models across benchmarked BMR programs. There was significant variability with regards to internal versus contract staffing and program staff having other responsibilities beyond BMR program support. 6 U.S. Department of Housing and Urban Development. PHAS Indicator Calculations Worksheet Instructions. HUD Exchange. Accessed April 27, 2026. https://files.hudexchange.info/resources/documents/PHA-Indicator-Calculations-Worksheet-Instructions.pdf implementation will require their cooperation. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 29  Packet Pg. 60 of 110  25 FINDINGS AND RECOMMENDATIONS TABLE 6. PEER APPROACHES TO PERFORMANCE METRICS Metric Category Palo Alto Sunnyvale Rise Housing Solutions Mountain View Menlo Park BAAHA San Mateo Compliance / Recertification KPIs (e.g., % completed, timeliness) No formal KPIs tracked Tracks compliance through audits (limited KPI structure) Tracks portfolio activity; limited formal KPI structure Tracks compliance activity; some structured metrics No formal KPIs Tracks compliance status (household- level) Tracks compliance through monitoring (limited KPI structure) Vacancy / Turnover KPIs (e.g., time-to-fill, vacancy duration) Not tracked Not tracked Tracks turnover volume (not time-to-fill KPI) Tracks vacancy activity (not formal KPI targets) Not tracked Not tracked Tracks days to close (ownership only) Waitlist / Applicant KPIs (e.g., applicants per unit, time to placement) Limited tracking Tracks applications centrally (limited KPIs) Tracks waitlist activity in system Tracks applicant activity, timelines, and drawing metrics Limited tracking Maintains active pool (no formal KPIs) Tracks inquiries (limited KPIs) Customer Service / Outreach KPIs Not tracked Not specified Not specified Tracks inquiries, outreach participation, and engagement metrics Not tracked Not specified Not specified Portfolio Risk KPIs (e.g., foreclosure, default risk, affordability stress) Not systematically tracked Tracks financial warning indicators Tracks foreclosures and portfolio risks Tracks tenancy patterns and demand indicators Exploring risk tracking Tracks compliance risks Tracks loan and affordability status Formal KPI Reporting Structure Limited to quarterly reports (not KPI-driven) Internal monitoring Structured reporting tied to service model City-driven dashboards and reporting Limited formal reporting Not specified Internal tracking systems Note: The table reflects whether formal KPIs are tracked, not whether underlying activities (e.g., compliance, recertification) are performed. All peers perform core functions such as compliance monitoring, recertification, and unit placement; however, few jurisdictions track these activities using consistent, program-level performance metrics. Palo Alto is consistent with peers in this regard. No peer jurisdiction was identified as maintaining a comprehensive, fully developed KPI framework across all categories. While no single peer tracks all possible metrics, stronger programs tend to track at least a core set of indicators, including metrics related to compliance, vacancy or turnover activity, applicant demand, and emerging risks. These metrics provide the foundation for understanding whether the program is operating effectively and where adjustments may be needed. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 30  Packet Pg. 61 of 110  26 FINDINGS AND RECOMMENDATIONS Palo Alto’s limited KPI framework reduces visibility into program performance and may constrain the City’s ability to: • Evaluate how efficiently units are being utilized. • Identify bottlenecks or delays in service delivery. • Monitor trends in demand and access. • Detect emerging risks to affordability or compliance. The sections below highlight specific areas where more consistent metrics would improve visibility: turnover and vacancy activity, waitlist trends, and inspection practices. TURNOVER RATES Alta Housing does not systematically record key dates such as when a unit becomes vacant, when a new household takes occupancy, or the time elapsed between vacancy and re-occupancy. Based on interviews with Alta Housing, the City does not currently track turnover rates, vacancy duration, or time-to-fill for BMR units. Specifically, Alta Housing does not systematically record key dates such as when a unit becomes vacant, when a new household takes occupancy, or the time elapsed between vacancy and re- occupancy. The current system used for program administration (SpokeHS) does not capture this information, and staff indicated that compiling it would require significant manual effort. As a result, the City does not have a consistent way to assess how efficiently units are being filled or whether delays in placement are occurring. Best practices in housing program administration emphasize the importance of tracking vacancy and lease-up timelines to identify delays, improve coordination, and optimize utilization of available units. Peer benchmarking indicates that most jurisdictions similarly do not formally track turnover rates or time-to-fill metrics. However, there are notable exceptions: • Rise Housing Solutions tracks turnover activity within its Salesforce system across its portfolio. • Mountain View tracks turnover and vacancy activity internally using a City-maintained tracker and data pulled from its administrator, HouseKeys. These examples demonstrate that while not yet widespread, some jurisdictions have begun to track turnover- related information to improve oversight and program efficiency. Industry guidance on affordable housing and property management highlights the importance of minimizing vacancy periods and monitoring lease-up timelines as key performance indicators. For example, the U.S. Department of Housing and Urban Development (HUD)7 and affordable housing practitioners emphasize tracking vacancy rates and time-to-lease as standard operational metrics. 7 U.S. Department of Housing and Urban Development Office of Policy Development and Research. Collecting, Analyzing, and Publicizing Data on Housing Turnover, December 2024. https://www.huduser.gov/portal/portal/sites/default/files/pdf/Housing-Turnover-Report.pdf Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 31  Packet Pg. 62 of 110  27 FINDINGS AND RECOMMENDATIONS Palo Alto’s current approach is consistent with many peer jurisdictions in not formally tracking turnover metrics. However, compared to emerging practices and industry guidance, the absence of turnover and vacancy tracking limits the City’s visibility into how effectively units are being utilized. Without this information, the City may be less able to identify delays, assess service timeliness, or proactively improve placement processes to better serve eligible households. WAITLIST TRENDS Although Palo Alto provides useful public-facing waitlist information, the City does not yet routinely summarize waitlist activity as a performance metric. Useful measures could include ownership waitlist size over time, applicant refresh or renewal activity, applicants referred for available units, time from application or list placement to unit placement, and rental lottery or waitlist activity reported by property managers. Without periodic waitlist trend reporting, the City has less visibility into program demand, applicant movement through the process, and whether rental and ownership opportunities are being filled in a timely and transparent manner. This does not mean the current waitlist process is ineffective. Rather, it means the City lacks summarized information that would allow staff and decision-makers to evaluate how well the process is working over time. Waitlist trend metrics would also complement the City’s existing waitlist management practices by showing whether applicant pools remain current, whether certain unit types are difficult to fill, and whether demand indicators should inform future program or policy decisions. INSPECTIONS Palo Alto is largely in line with peers; it conducts routine inspections of ownership BMR units at resale but not during occupancy and does not conduct inspections of rental units. Property inspections are important for service delivery because they help confirm that BMR units remain safe, livable, and suitable for eligible households. They also help ensure that affordable units are reasonably comparable to market-rate units and continue to function as usable affordable housing over time. Even when routine inspections are not required, a clear inspection approach would clarify responsibilities among the City, Alta Housing, and property managers to identify condition issues and support participant confidence in the program. Palo Alto conducts routine inspections of BMR units at resale but not during occupancy. For ownership units, Alta Housing described conducting visual and termite inspections at resale. For rental units, Alta Housing stated that it does not conduct inspections and was not aware of routine City inspections. No clearly identified written inspection checklist or standard was identified for the City’s BMR inspection practices. Peer approaches to BMR inspections vary widely. Routine ongoing inspections of occupied BMR units are uncommon, and most peers inspect units at resale, through the development or permitting process, or when a complaint or issue is identified. San Mateo was the clearest exception, with City staff conducting on-site inspections for some units every other year and rotating between on-site inspections and file reviews for others. Inspection responsibilities also varied by peer, with inspections performed by City staff, contracted administrators, property managers, or some combination depending on the unit type and trigger. Several peers Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 32  Packet Pg. 63 of 110  28 FINDINGS AND RECOMMENDATIONS described at least some inspection criteria or review standards, including resale inspection checklists, review for compliance with BMR agreements, habitability standards, or HUD-based guidance. HUD’s National Standards for the Physical Inspection of Real Estate (NSPIRE) emphasize inspection standards that assess the condition of affordable housing and prioritize health, safety, and functional defects 8. HUD describes NSPIRE as a model intended to improve confidence that housing remains in compliance by accurately assessing unit condition and prioritizing resident health and safety. HUD’s Housing Quality Standards inspection checklist also provides a structured example of documenting whether a unit meets basic housing quality requirements 9. Palo Alto is broadly aligned with peers in not maintaining a routine ongoing inspection program for occupied BMR units. However, the absence of a clearly defined inspection role and written inspection standard may limit consistency when inspections do occur, particularly at resale or when issues are reported. A basic written protocol would improve documentation and clarity without requiring the City to adopt a more intensive inspection model. RECOMMENDATIONS Establishing a defined set of key performance metrics would help the City monitor program performance, identify trends and risks, and support data-driven decision-making for the BMR program. Recommendation 1: We recommend the City establish core BMR performance monitoring reporting aligned with program goals, including: • Developing and implementing a core set of performance metrics aligned with program goals, which may include measures related to compliance and recertification (e.g., completion rates), vacancy and turnover activity (e.g., time to fill), waitlist and applicant demand (e.g., applicants per unit, time to placement), and portfolio risk indicators; • Incorporating metrics into regular reporting to provide a clear, consistent view of program performance over time; and • Periodically reviewing administrator performance and overall program outcomes using these metrics to identify areas for improvement and ensure alignment with program objectives. Recommendation 2: We recommend the City track turnover and vacancy-related metrics, using existing systems and workflows where possible. To gain visibility into unit utilization and service timeliness, the City should leverage existing systems to minimize administrative burden, capturing a small number of useful lifecycle dates rather than creating a complex new reporting process. 8 U.S. Department of Housing and Urban Development. “National Standards for the Physical Inspection of Real Estate (NSPIRE).” Accessed April 27, 2026. https://www.hud.gov/reac/nspire. 9 U.S. Department of Housing and Urban Development. Inspection Checklist: Housing Choice Voucher Program. Form HUD-52580. Washington, DC: U.S. Department of Housing and Urban Development, 2024. https://www.hud.gov/sites/dfiles/OCHCO/documents/52580.pdf Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 33  Packet Pg. 64 of 110  29 FINDINGS AND RECOMMENDATIONS • Identify a practical method to capture key unit lifecycle dates—such as vacancy date and occupancy date—within existing systems (e.g., SpokeHS, Salesforce, or City-managed trackers), rather than creating a new standalone system. • Work with Alta Housing to determine whether minor adjustments to current data entry practices (e.g., adding fields, recording key dates during certification or placement processes) could support consistent tracking. • Where system limitations exist, coordinate with Alta Housing and property managers to establish a simple, standardized approach to capturing and sharing this information with the City. • Incorporate turnover and vacancy metrics into regular reporting to monitor timeliness, identify delays, and support ongoing process improvements. Recommendation 3: We recommend the City track waitlist and applicant trends in regular program reporting. • The City should continue using its current waitlist approach while adding summaries of ownership waitlist activity to regular program reporting if and when the waitlist is reopened. The City should consider tracking ownership waitlist size, list refresh activity, applicants contacted for available units, time to placement where available, and reasons units may be difficult to fill. • For rental units, the City should work with Alta Housing to improve visibility into rental waitlist practices, including aggregating rental applicant income levels and family composition to determine equitable program access. • If feasible, the City should explore options to work with Alta and property managers to identify a practical reporting approach for rental waitlist or lottery activity, including the number of applicants considered, households referred for certification, and units filled. Recommendation 4: Establish a basic written inspection protocol. To strengthen consistency in BMR unit inspections without creating a burdensome new inspection program, the City should establish a basic written inspection protocol. • Define when inspections or condition reviews should occur, such as at resale, in response to complaints, or when significant condition concerns are identified. • Clarify whether the City, Alta Housing, property managers, or another party is responsible for each type of inspection or condition review. • Develop a simple checklist or minimum review standard, drawing from existing resale practices, regulatory agreement requirements, and applicable habitability guidance. • Maintain inspection or condition review documentation in the relevant unit file to support future oversight and follow-up. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 34  Packet Pg. 65 of 110  30 FINDINGS AND RECOMMENDATIONS Management Response Responsible Department(s): Concurrence: Agree Target Date: Q4, FY 2027 Action Plan: Department staff support improving performance monitoring and data visibility but must balance the scope/frequency of additional monitoring activities with staff capacity, existing contractual responsibilities, and the regulatory requirements applicable to the BMR program. Recommendation 1: Department staff will work with Alta Housing to identify a limited set of performance measures that can be produced with information already collected through existing reporting. Information may include certification or recertification completion, unit vacancies and turnover, ownership program waitlist activity, and identified compliance concerns. Staff will evaluate whether this information can be incorporated into Alta Housing’s existing reports or a simplified City monitoring summary. Recommendation 2: the Department will work with Alta Housing to determine which vacancy and occupancy dates can be captured consistently through existing systems like Salesforce. Staff will prioritize metrics that provide meaningful oversight without requiring a new standalone tracking system or duplicative data entry. Where Alta Housing does not directly manage a property’s lease-up/waiting list process, implementation will depend on cooperation of property managers — and information the City may request could be limited based on the executed regulatory agreement language. Recommendation 3: the Department will coordinate with Alta Housing to incorporate available ownership waitlist and applicant-placement information into regular program reporting if and when the ownership waitlist is reopened. For rental units, staff will work with Alta Housing to identify information that can reasonably be obtained from property managers regarding waitlist or lottery activity, applicant referrals, certifications, and unit placement. Rental unit waitlists are generally maintained by individual property owners or managers under the respective regulatory agreements. For Recommendation 4, the Department will evaluate development of a basic protocol identifying when a unit inspection may be appropriate, such as during an ownership resale, following a complaint, or when significant property-condition concerns are identified. The protocol will clarify the responsibilities of the City, Alta Housing, property owners, and property managers and will address documentation and follow-up requirements. Important note: the City’s BMR rental portfolio is not subject to a general annual inspection requirement comparable to the Housing Quality Standards inspection requirements applicable to certain HUD-assisted housing programs. Property owners and managers remain responsible for maintaining rental units in accordance with applicable regulatory agreements, lease requirements, building and housing codes, and state habitability standards. Department staff will continue to coordinate with Code Enforcement if a renter (including in a BMR unit) reaches out with habitability concerns. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 35  Packet Pg. 66 of 110  31 FINDINGS AND RECOMMENDATIONS Finding 3: Senior Housing Specialist Role Provides an Opportunity for Increased Administration and Participant Support Participant support is a service delivery issue because referral-based assistance can help BMR households remain stably housed after eligibility approval and placement. Palo Alto provides participant support comparable to peers but has opportunities to improve visibility of available assistance. Beyond program administration and performance monitoring, another consideration is whether BMR participants have access to support that helps them remain successfully housed once they enter the program. While the BMR program is not intended to function as a full-service case management program, peer practices show that light-touch education, referrals, and problem-solving support can help households address affordability or tenancy issues before they result in displacement or loss of housing stability. Palo Alto also refers participants to various additional support programs. The table below provides an overview of supports across benchmarked cities. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 36  Packet Pg. 67 of 110  32 FINDINGS AND RECOMMENDATIONS TABLE 7. PEER APPROACHES TO PARTICIPANT SUPPORT Peer Support Channel Examples of Participant Support Palo Alto Internal and through third- party referrals. Alta provides information and resources to applicants and homeowners, including financial literacy workshops, required homeownership education, and assistance related to trusts to avoid probate. The City also has a loan program that may assist with HOA assessments in some cases. The City also provides access to the Palo Alto Mediation Program/Mandatory Response Program and can identify referral pathways for legal aid, emergency rental assistance, tenant protection, foreclosure prevention, fair housing, and other housing stability resources. Sunnyvale Internal and through third- party referrals. Provides referrals to mediation, dispute resolution, foreclosure prevention, fair housing support, and tenant relocation resources. Staff may also intervene early when annual monitoring identifies financial concerns. Rise Housing Solutions Third-party referrals. Refers households to third-party resources for foreclosure counseling, landlord mediation, and tenant protection support. Mountain View Internal and through third- party referrals. Provides referrals through its Housing Help Center for landlord-tenant mediation, legal services, and rental assistance. Mountain View also assists households seeking to move from moderate-income units to lower-income units after a loss of income. Menlo Park Internal and through third- party referrals. Coordinates referrals to legal assistance and is exploring both internal legal assistance for households facing eviction and restarting a rental assistance fund. BAAHA Internal and through third- party referrals. Conducts deeper household-level review when financial or compliance concerns arise and partners with nonprofits for homebuyer education and counseling. San Mateo Internal and through third- party referrals. Refers BMR tenants to emergency rental assistance and third-party legal assistance. The City has also adopted a 4% annual rent increase cap for inclusionary rental BMR units. Peer practices indicate that most jurisdictions provide some form of participant support beyond eligibility review and placement. These supports are typically limited and referral-based, rather than intensive case management. However, they can help households address affordability, tenancy, or ownership-related issues before those issues threaten housing stability. Palo Alto’s participant support appears generally consistent with this peer model in terms of education, mediation access, and ownership-related assistance. Alta provides education, applicant support, homeowner assistance, and information about ownership-related resources, including support related to HOA assessments. In addition, the City has access to the Palo Alto Mediation Program for landlord-tenant disputes. Examples of resources that may be relevant to Palo Alto BMR households include the Palo Alto Mediation Program and Mandatory Response Program, Santa Clara County Homelessness Prevention System and Emergency Assistance Network, Project Sentinel, Law Foundation of Silicon Valley, Bay Area Legal Aid, and Community Legal Services in East Palo Alto. While some of these resources may exist elsewhere in the Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 37  Packet Pg. 68 of 110  33 FINDINGS AND RECOMMENDATIONS community, they are not prominently communicated through the BMR website or Alta BMR materials. As a result, it is difficult to determine from publicly available information what services are available to BMR households and how participants would access them. This suggests that, as the City considers practical affordability, it may benefit from more clearly connecting available referral pathways so BMR staff, Alta, and BMR participants understand what support is available when affordability or housing stability concerns arise. To assess whether affordability concerns were being reported by BMR participants, we requested information about affordability-related complaints. Alta Housing reported that, aside from concerns related to HOA affordability, it was not aware of broader affordability complaints from BMR households. We also reviewed 311 service request data for BMR-related issues. The review included keyword searches in the description field and did not identify any requests related to below market rate housing. A separate review of rental housing-related requests also did not identify BMR-specific concerns. A City staff member reviewed the City’s website for a BMR-specific complaint inbox or similar intake channel and did not identify one. While this may suggest that formal BMR-related affordability complaints are limited, it could simply reflect the absence of a dedicated process for collecting and monitoring BMR program affordability or tenancy concerns. Recent staffing changes have strengthened program management. The City recently refilled and retitled a position to serve in a Senior Housing Specialist role, which provides an opportunity to strengthen BMR program management. This position is already working to establish more systematic communication, monitoring, and reporting practices. This position also provides functional support to other housing programs in the City. Regular City-Alta communication, clearer roles, documented procedures, and summarized program information can help the City manage the program more consistently and identify emerging issues earlier. However, these administrative improvements have not yet been extended into a clearly documented participant-support referral model. The City has not yet centralized referral resources, defined how BMR participants with affordability, tenancy, ownership, or housing-stability concerns should contact the City or Alta for help, or developed routine contacts with pass-through service providers. As a result, the Senior Housing Specialist role provides an opportunity to connect administrative improvements with a light-touch participant-support function. RECOMMENDATION Recommendation 1: We recommend the City use the Senior Housing Specialist role to establish a light-touch participant support process that helps BMR households connect to appropriate external resources when affordability, tenancy, ownership, or housing- stability concerns arise. • Compile and maintain a participant resource guide for common issues, including mediation and dispute resolution, legal aid, tenant protection, fair housing, emergency rental and utility assistance, foreclosure prevention, homeownership counseling, HOA assessment support, and other housing stability resources. • Include referral information in City and Alta BMR materials and identify a clear contact path for participants who need help identifying appropriate resources. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 38  Packet Pg. 69 of 110  34 FINDINGS AND RECOMMENDATIONS • Develop working contacts with key pass-through providers, such as the Palo Alto Mediation Program/Mandatory Response Program, Santa Clara County Homelessness Prevention System, Emergency Assistance Network agencies, Project Sentinel, Law Foundation of Silicon Valley, Bay Area Legal Aid, and Community Legal Services in East Palo Alto. • Coordinate with Alta and property managers so staff know when to provide referrals, when to document participant concerns, and when to elevate recurring issues to City management. • Periodically review the types of participant concerns and referrals provided to identify trends that may affect affordability, tenancy stability, or program design. Additional Observation Resale Restrictions Create Significant Price Differences Between Older and Newer Units The City’s ownership BMR program uses resale restrictions to preserve affordability over time. These restrictions limit the price an owner may receive when selling a BMR unit, generally tying resale value to the program formula rather than market appreciation. This approach is central to long-term affordability because it keeps units accessible to future eligible buyers, even in a market where unrestricted home values have increased significantly. However, interviews with Alta Housing and peer jurisdictions indicate that long-standing resale formulas can also create significant price differences between older and newer BMR units. Older units may have resale prices that remain far below newer BMR units because their prices have been governed by capped appreciation over a longer period. Newer units, by contrast, may enter the program at pricing levels based on current affordability assumptions or current income limits. Over time, this can lead to large price differences across the BMR ownership portfolio, even when units are part of the same general program. Alta reported that some program participants may try to “hold out” for older, lower-priced units because they can be substantially more affordable than newer BMR units. This can affect how applicants respond to available units and may make some newer ownership opportunities harder to place, particularly when HOA fees, unit condition, mortgage qualification, or other ownership costs are considered. Peer interviews also identified resale pricing, owner equity, and buyer affordability as common challenges in shared-equity and inclusionary homeownership programs. This dynamic reflects a policy tradeoff. Strong resale restrictions preserve affordability for future buyers, but they may also limit owner equity growth and create uneven affordability across different cohorts of units. Less restrictive resale formulas may provide more equity to owners, but they can also make units less affordable for future buyers. For this reason, affordable homeownership resources emphasize the importance of carefully designed resale formulas, ongoing stewardship, and regular review of whether pricing models continue to balance affordability, buyer access, and owner equity. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 39  Packet Pg. 70 of 110  35 FINDINGS AND RECOMMENDATIONS AMI-based pricing models may be one option for the City to evaluate, but any change would require policy direction and careful analysis of affordability, owner equity, legal constraints, and long-term preservation goals. The key near-term need is for the City to better summarize resale pricing trends, price differences between older and newer units, and applicant response to available ownership units so that future policy discussions are informed by program-level data. Item 2 Attachment A - Below Market Rate Housing Program Audit Report        Item 2: Staff Report Pg. 40  Packet Pg. 71 of 110  7 6 6 2 Policy & Services Committee Staff Report From: City Auditor Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: October 13, 2026 Report #:2506-4887 TITLE Office of the City Auditor Presentation of the FY2026 Audit Recommendation Follow-up Report. CEQA Status: Not a Project. RECOMMENDATION The Office of the City Auditor recommends the Policy & Services Committee accept the results of the FY2026 Audit Recommendation Follow-up Report. BACKGROUND Baker Tilly Advisory, in its capacity serving as the Office of the City Auditor (OCA), conducted a follow-up assessment of outstanding recommendations from previously issued audit and assessment reports to determine the status of recommendation implementation. The report provides the current implementation status of recommendations from 14 audit engagements and 4 advisory assessments, encompassing 83 recommendations. ANALYSIS Departments assessed include: Administrative Services, City Manager’s Office, Information Technology (IT), Office of Transportation, Public Works, Planning & Development Services, Human Resources, City of Palo Alto Utilities, Fire, Office of Emergency Services, Community Services, and Police. Of the 83 total recommendations reviewed across all engagements, OCA has verified that 32 (38.5%) have been completed, 32 (38.5%) are reported by management as in progress, 15 (18%) have not been started, and 4 (5%) are no longer relevant. Item 3 Item 3 Staff Report        Item 3: Staff Report Pg. 1  Packet Pg. 72 of 110  7 6 6 2 The follow-up report includes “Progress Comments” from each department describing actions to date as well as noting any constraints preventing implementation from starting. Some audit recommendation timeline targets remain in the future and subsequent audit follow-up assessments will continue to track and monitor progress on these outstanding recommendations. FISCAL/RESOURCE IMPACT For each audit, at the time of reporting, management reported on the timeline and resource needs for implementing management’s action plans. STAKEHOLDER ENGAGEMENT The OCA would like to thank all of the departments noted above for their timely and thorough response in providing progress updates as well as documentation to support their activities. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by CEQA because contracting for auditing services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5). ATTACHMENTS Attachment A: FY2026 Audit Recommendation Follow-up Report APPROVED BY: Kate Murdock, City Auditor Item 3 Item 3 Staff Report        Item 3: Staff Report Pg. 2  Packet Pg. 73 of 110  September 30, 2026 City of Palo Alto Office of the City Auditor FY2026 Audit Recommendation Follow-up Report Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 3  Packet Pg. 74 of 110  Table of Contents Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. Executive Summary ............................................................................................................................ 1 Detailed Results .................................................................................................................................. 3 Appendix ............................................................................................................................................. 5 Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 4  Packet Pg. 75 of 110  Executive Summary Purpose of the Follow-Up Baker Tilly Advisory Group, LP (Baker Tilly), in its capacity serving as the Office of the City Auditor (OCA) for the City of Palo Alto (the City), conducted a follow-up review of outstanding recommendations from previously issued audit and assessment reports. This follow-up report provides the current implementation status of recommendations from 14 audit engagements and 4 advisory assessments, encompassing 83 individual recommendations. These were completed in less than six (6) years since the new contract with Baker Tilly was executed in October 2020. The purpose of this follow-up work is to evaluate the implementation status of corrective actions in response to prior audit findings and assessment observations. Follow-up activities are a critical component of the audit process, as they help ensure accountability, promote continuous improvement, and verify that identified risks are being appropriately managed. Audit engagements are conducted in accordance with generally accepted government auditing standards (GAGAS) and result in formal findings, recommendations, and management responses. Advisory assessments, while not conducted under GAGAS, provide valuable observations and recommendations intended to strengthen City operations and risk management. Both types of engagements are included in this follow-up to provide a comprehensive view of the City’s progress toward addressing identified areas for improvement. Summary of Results Of the 83 total recommendations reviewed across all engagements, OCA has verified that 77% of recommendations are either completed or in progress: 32 (38.5%) have been completed; as reported by management, 32 (38.5%) are in progress 1, 15 (18%) have not been started, and 4 (5%) are no longer relevant. Exhibit 1: Overall Implementation Status Implementation Status Count Percentage Completed 32 38.5% In Progress 32 38.5% Not Started 15 18.0% No Longer Relevant 4 5.0% Total 83 100% 1 Management reported 2 of the 32 “in progress” recommendations as “complete”. However, OCA did not receive supporting documentation to verify the implementation status. OCA will follow-up on these recommendations for supporting documentation during the next follow-up assessment. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 5  Packet Pg. 76 of 110  2 Government auditing standards require an external peer review at least once every three (3) years. The last peer review of the Palo Alto Office of the City Auditor was conducted in 2017. The Palo Alto City Council approved a contract with Baker Tilly U.S, LLP for internal audit services for October 2020 through June 2022 with an extension through June 2025. City Council appointed Kate Murdock, Audit Manager in Baker Tilly’s Risk Advisory practice, as City Auditor in May 2024. As a result of transitions in the Audit Office and peer review delays due to the COVID pandemic, an external peer review is targeted for 2026. It should be noted that Baker Tilly’s most recent firmwide peer review was completed in November 2024 with a rating of “Pass”. The scope of that peer review includes projects completed under government auditing standards. Methodology The OCA performed the following procedures to assess the implementation status of prior audit recommendations and assessment observations: • Reviewed the original audit reports and advisory assessment reports, along with associated recommendations, to establish the baseline for follow-up evaluation. • Contacted responsible departments via email to request status updates, supporting documentation, and updated completion timelines for each outstanding recommendation. • Evaluated management responses and supporting evidence provided by departments to assess whether corrective actions adequately address the intent of the original recommendations. • Assessed the current implementation status of each recommendation and categorized them as Completed, In Progress, Not Started, No Longer Relevant, or No Response. • Documented remaining recommendations requiring continued monitoring in future follow-up cycles. Statement This follow-up review was conducted from March 2026 through September 2026. The scope included recommendations from 14 previously issued audit reports and 4 advisory assessments, totaling 83 recommendations. Audit engagements included in this review were conducted in accordance with generally accepted government auditing standards (GAGAS), except for the requirement of an external peer review 2. This follow-up does not constitute a new audit or assessment engagement. Rather, it is intended to provide City leadership and stakeholders with an assessment of management’s progress toward implementing previously agreed-upon corrective actions. The Office of the City Auditor greatly appreciates the support of the departments involved in conducting this audit activity. Thank you! Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 6  Packet Pg. 77 of 110  Detailed Results The tables below summarize the implementation status of recommendations organized by engagement type. The OCA will continue to track open recommendations and report on implementation progress in subsequent follow-up cycles. Exhibit 2: Audit Engagement Implementation Status Audit Engagement Completed In Progress Not Started Total Asset Capitalization Audit Update (July 2021) 3 0 0 1 4 2021) 0 2 3 0 5 Review (April 2022) 12 2 0 2 16 Audit (August 2024) 2 4 0 0 6 2024) 4 0 0 0 4 (December 2024) 2 1 0 0 3 (September 2025) 2 0 0 0 2 (November 2025) 2 8 0 0 10 Audit (December 2025) 0 1 0 0 1 Management Audit (December 2025) 0 1 1 0 2 (June 2026) 0 0 5 0 5 Total 30 23 10 3 66 Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 7  Packet Pg. 78 of 110  Exhibit 3: Advisory Assessment Implementation Status Advisory Assessment Complete In Progress Not Started Total Technology Applications Disaster Preparedness Assessment (September 2024) 0 5 0 1 6 2025) 1 3 0 0 4 Levels Advisory Assessment (January 2026) 0 1 0 0 1 2026) 1 0 5 0 6 Total 2 9 5 1 17 Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 8  Packet Pg. 79 of 110  Appe Appendix Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 9  Packet Pg. 80 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Asset Capitalization Audit Update - Issued July 30, 2021 Configure SAP and WBS elements to separately track capitalizable and noncapitalizable costs, and document the related criteria and procedures. the criteria in No longer relevant begun monthly review of transactions - d in FY2021, the accounting Completed newly developed and implemented which include , as well -year Completed Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 10  Packet Pg. 81 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Update CIP and fixed asset policies to clarify project setup, cost review, monitoring, and reporting requirements, and review them at least every three years. Completed newly and supporting and use. IT Risk Management Audit - Issued September 2021 -year IT strategy with a risk In progress - te, by Q3 FY . In Progress Coordination with the City’s Risk Manager -specific criteria to rank to the process will Not started has not begun this due to completing priorities -evaluate project scope in with the City’s Risk Manager to Q2 FY 2027. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 11  Packet Pg. 82 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments a solicitation to contract with a third party to develop and implement a Risk Management Framework. -sized Risk Management Not started -evaluate project scope in collaboration h Not started -evaluate project scope in collaboration f 311 data. Building Permitting Process Audit Review - Issued April 10, 2022 ake steps to ensure that all relevant -line. In progress ng Standards Code, effective January 1, 2026. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 12  Packet Pg. 83 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments inspection checklists to reflect the January 2026 adopted code. Both items are currently in progress, with completion anticipated by Q2 FY 2027. OPS to incorporate relevant - Completed -application process in ACA (as application moves from pre-application to - ee calculator Completed assessed the updated building permit which provides more guidance, and information on reasons for rejected s. notifications for all involved -application - -person or -application to Completed assessed the updated building permit -person or Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 13  Packet Pg. 84 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Digitize data collection from PDF to Completed evelop a robust set of internal -examining n but will l this In progress rces and procedures have also been and include: naming conventions, S evelop an updated strategic plan -learned throughout the orting within three No Longer Relevant -quality and ertise, customer service and professional growth Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 14  Packet Pg. 85 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Staff recommend that a strategic plan as initially recommended by the auditors is no longer relevant. The Department has made significant changes to permitting operations and service delivery since the end of the pandemic and continually assess for improvement opportunities, including staffing models, ontinue exploring technology . Completed 3C24181451 for electronic plan review. reate materials to train from and Completed , meets with the team 2x per week to review , and -application situations as they arise. Other periodically – California Building Permit Tech Academy, International Permit Tech Certification, Project and the CALBO Education 3 https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=82584&dbid=0&repo=PaloAlto&searchid=80831be2-e2e4-4f21-bac1-2b3de845a212&cr=1 Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 15  Packet Pg. 86 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Limit interim code interim . -mandated cycle. ds Completed 4. is greater emphasis on quality . Completed : • Application Processing/Project Coordinators: The program has strengthened quality control consistency. The program has also implemented an 80% target on time rate for application processing and this has been incorporated into staff evaluations. • Building Inspection: The program implemented ongoing quality control practices for building inspections, including daily route sheet reviews, random permit history checks, Accela "incorrect final status" report monitoring, and review of records for outstanding issues on scheduled final inspections. On a bi-weekly basis, individual inspector result history is audited reviewing partial approvals and non-approval statuses to ensure corrections are consistent and understandable, with unclear corrections discussed directly with the inspector and team-wide inconsistencies addressed at weekly staff meetings. Periodically, the Manager conducts joint field inspections with 4 City Council Item 6, https://www.paloalto.gov/files/assets/public/v/5/agendas-minutes-reports/agendas-minutes/city-council-agendas-minutes/2022/20221114/20221114pccsm-linked-cq- ppts.pdf Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 16  Packet Pg. 87 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments needed or to check in on project status for larger jobs. iew as a comment ation and ensure evelop plans to best utilize/balance -house plan en difficult since Completed assessed employee roster and confirmed there -house inspection reviewers and the department . In addition, the -23 - Completed assessed and confirmed onboarding of new . -set or No Longer Relevant t unnecessary and not -times. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 17  Packet Pg. 88 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments and consultant funding requested in the FY22-23 budget, combined with sed in City building code or find Completed hen fully staffed, onal staff resources to manage Completed nspection times have been restored to Parking Permit Technology Contracts Audit - Issued August 2024 In progress Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 18  Packet Pg. 89 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments When implementing a system such as the parking permit systems, the City document procedures related - ccess In progress stablish a list of individuals who have -up. Staff procedures In progress - In progress Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 19  Packet Pg. 90 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Establish a formal vendor performance assessment for all third- ng value in -party Completed ll technology - -ranked, and Completed as stated above. Procurement Process Review - Issued August 2024 Create a comprehensive procurement checklist that captures all required supporting documentation, references, and explanations for exceptions throughout the procurement process. intake process to automate Completed assessed new intake process and checklist . Completed assessed updated purchasing manual and the addition of design build specifications. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 20  Packet Pg. 91 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Integrate standardized needs assessment and market analysis procedures that are applicable across all departments to enable the procurement professionals to gather and analyze the information. The expectations and guidance should be formally documented in the City’s and to leverage a buying me and cost Completed assessed the needs assessment questions and documentation mplement application controls that mplement procedures where vendor Completed assessed the duplicate vendor check process Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 21  Packet Pg. 92 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Technology Applications Disaster Preparedness Assessment - Issued July 2024 here necessary. In progress stablish a formal standard operating outlines the well as any documentation . In progress 5 — IT maintains a standard operating -premises In progress disaster recovery- solution for identified . Formalizing the procedures and/or 5 Auditor did not receive evidence of completion. Status marked as In progress. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 22  Packet Pg. 93 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Establish and document a formal process for periodically testing restoration from backups, including roles, responsibilities, results, and corrective actions for failures. In progress 6 - IT has implemented a robust disaster -business continuity project solution for . A process to validate -annually, address failures, and monitoring onfigure Synology to encrypt backup -level No Longer Relevant In progress disaster recovery- solution for identified applications which is being and expect to complete by Q1 FY ADA Compliance - Issued November 2024 Address barriers to fully using the ADA budget, consider outside resources, and improve tracking and reporting of ADA project progress, spending, and status. Completed assessed updated Construction Contract and confirmed steps were added to provide 6 Auditor did not receive evidence of completion. Status marked as In progress. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 23  Packet Pg. 94 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Establish a centralized process to log, route, track, and resolve ADA requests and grievances, regularly review the grievance policy, and assess whether ADA coordination resources are sufficient. Not Started cal expertise -evaluation In progress -evaluation Recruitment and Succession Planning - Issued December 2024 Formalize and monitor the Recruitment Strategic Plan with clear priorities, timelines, documentation, and regular reporting to ensure accountability and implementation. Completed integrating it into bi-weekly -ins with the City Manager's Office and the use of ty re-assessment. For example, -year implementation period of the A system upgrade within the City Applicant -to-fill or critical positions. Thus, there is no longer on an outside Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 24  Packet Pg. 95 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments as of March 2026. This can be reevaluated when the budget stabilizes. -10 to In progress tments. Completed ongoing and documentation supporting . The WCACP now includes an annual -assessment by the Executive Leadership Team of nce merit/management process for Grant Management - Issued March 2025 Update the grant policy to define grant lifecycle responsibilities, train departments on the revised process, and use the Grant Analyst role to support coordinated oversight. In progress nt policy, however, will undergo with the City Council grant analyst A completed policy revision is Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 25  Packet Pg. 96 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Consider establishing a complete, central repository of all City grants including such information as how many active grants there are, if they are federal or local, and dollar amount. Additionally, the City should consider whether they can set up a separate to the appropriate - Completed he City should consider the merits of nts would e City should continue t. Completed administration efforts as well monthly meetings with management Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 26  Packet Pg. 97 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Improve adjustment controls by automating approvals where possible or strengthening procedures, checklists, training, and documentation requirements, including support for stale-dated -off instructions will In progress • Staff agreed automation could reduce human error and are evaluating SAP S/4HANA enhancement opportunities. Target completion: January 31, 2027. • Processing Adjustment procedures were updated with checklists and added to SharePoint. • Additional process improvements are underway, including clearer training, documentation, review expectations, and ICWEB record requirements. • Adjustment approvals are being transitioned to DocuSign workflows based on authority levels. Target completion: August 31, 2026. • Forms, logs, and procedures for adjustments were updated to include SAP verification and approval steps. • Quarterly Write-Off training was updated to include stale-dated check procedures.7 -up, training rengthen In progress • Staff agreed standardized processes and stronger internal controls are needed to reduce risks of errors and fraud. • Processing Adjustment procedures and checklists are being updated to strengthen approvals, documentation, and oversight. • Customer Service authorization levels and approval thresholds were updated and published to SharePoint. Completed March 2026. • Implausibles investigation documentation is 7 Due to length of response auditor summarized progress comments. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 27  Packet Pg. 98 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments checkpoints, and resolution processes. Target completion: September 30, 2026. • Additional training and documentation updates are in progress for CSR and CSS staff related to billing investigations and follow-up procedures. • DocuSign review expectations and approval timelines are being formalized. Target completion: August 31, 2026. • Staff are coordinating with Utilities, Administrative Services, and Meter Shops to resolution. 8 Purchasing Card Program Audit - Issued September 2025 -Card compliance -person and hybrid -Card training, continue exploring -based training tools, and peated non-compliance. Completed ed new p-card training ppt and p-card s and -Card post-audit controls -Card transactions, Completed ed the newly updated credit limit s, p-card sampling procedures, -card misuse tracker, and single credit limit exception s. 8 Due to length of response auditor summarized progress comments. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 28  Packet Pg. 99 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Dispatch Center Assessment - Issued October 2025 Completed -priority -time e an appropriate call In progress is in the future; the audit -up procedures at a future -up on dispatcher -up procedures need - In progress is in the future; the audit -up procedures at a future ive training manual and Q1 FY 2027 - -sized call In progress is in the future; the audit -up procedures at a future Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 29  Packet Pg. 100 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments not currently have a formal process for evaluating the service provided on other calls received. The City should consider developing and incorporating formal feedback procedures into the Communication Training Manual including processes for addressing performance deficiencies. Emergency Preparedness Wildfire - Issued November 2025 Continue efforts to underground WUI distribution infrastructure and prioritize as appropriate maintenance and possible replacement of the oldest poles should they remain in place. -risk overhead ditional engineering and In progress -energized overhead lines and poles will be 9 . In progress . nd Completed and -inspections and compliance. 9 Due to length of response auditor summarized progress comments. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 30  Packet Pg. 101 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments monitoring of properties with violations that require re-inspections. . -term In progress of - ge. In progress -party partner regarding a potential cost-sharing ment the strong interoperability and 7 In progress are considering how to document the Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 31  Packet Pg. 102 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments The emergency plans align with the majority of FEMA guidance; however, they would be strengthened by incorporating a more comprehensive revision history and an enhanced review process. The City should also review its evacuation plans and consider if plans could be enhanced by reviewing best practices in other cities such as establishing evacuation locations and sheltering agreements with neighboring communities. In progress staff planning ity is performing a -driven Evacuation Plan that identifies tions Plan and Hazard . - - -review process until In progress encourage participation through websites, Completed City’s efforts to continue to its emergency alert system, addition, signing up for in FY27. Additionally, continue to utilize the City’s Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 32  Packet Pg. 103 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments alert sign-ups, and share details via the City Hall lobby screen, City website, and social media channels. tual -aid agreements to rough existing regional processes. In progress establishing a file in as a central repository of all auto-aid to allow other impacted departments Staff expect this Continue to the next page. Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 33  Packet Pg. 104 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Building Permit and Inspection Fees Audit - Issued December 2025 Review and resolve inappropriate fee charges, reinstate periodic internal audits, improve fee simplification and automation where feasible, strengthen staff training, and retain required documentation. - solutions and future In progress -recommendations have been have -live of FY2027 fees, staff will ff have updated e Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 34  Packet Pg. 105 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments CSD Equipment and Materials Inventory Management Audit - Issued December 2025 Implement a centralized inventory tracking process, conduct periodic inventory audits, and assign trained staff to monitor inventory consistently across facilities. - em. In progress -Fleet Equipment was uploaded to Maintenance ency, draft a Standard Operating Procedure for -out a policy will document ain value or type (e.g., electronics Not Started Contract Solicitation and Authority Levels Advisory Assessment - Issued January 2026 Review and update procurement ordinances and policies to raise thresholds, add useful exemptions, adjust P-Card limits, consider - es. In progress Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 35  Packet Pg. 106 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Public Safety Staffing and Overtime Audit - Issued June 2026 Police may not have sufficient sworn staffing to meet operational demands. -hire positions if ic engagement, Not started he audit team will conduct follow-up procedures at a . r some sworn functions could Not started is in the future ; the audit -up procedures at a future . -related risks within rporate fatigue assessment Not started is in the future; the audit -up procedures at a future Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 36  Packet Pg. 107 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Inconsistent and manual overtime tracking may cause the City to make staffing decisions based on inaccurate data. reliability of information. The prise Not started is in the future; the audit -up procedures at a future ons. The department will also -range planning ation. Not started is in the future; the audit -up procedures at a future Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 37  Packet Pg. 108 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Utility Reserves Advisory Project - Issued June 2026 Update dated reserve policies. nting for the fund’s is in the future; the audit team -up procedures at a future date. . . is in the future; the audit -up procedures at a future . -specific rate cing reserve adequacy, financial is in the future; the audit -up procedures at a future Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 38  Packet Pg. 109 of 110  Recommendation Summary Department/Concurrence/Target Date Corrective Action Plan Summary Progress Status Progress Comments Consider adjusting rate stabilization reserve policy to align with benchmark communities. is in the future; the audit -up procedures at a future . ion-based quarterly -of-funds and is in the future; the audit -up procedures at a future Item 3 Attachment A - FY2026 Audit Recommendation Follow-up Report        Item 3: Staff Report Pg. 39  Packet Pg. 110 of 110