City Council - January 20, 2026

Council accepts forecast showing $14.9 million shortfall

The Palo Alto City Council unanimously accepted a long-range forecast showing a $14.9 million structural General Fund shortfall for fiscal year 2027 and approved guidelines for developing the next budget. The forecast estimates $305.1 million in revenue and $320 million in expenditures.

Staff modeled a balancing strategy that includes $7 million in ongoing General Fund reductions, $1 million in capital-program reductions in each of the next two fiscal years, a $2 million use of the budget stabilization reserve, changes to discretionary pension contributions and $800,000 in additional revenue. The action did not select specific service cuts or enact those reductions.

The stabilization reserve would stand at a projected $56.8 million, or 18.5% of expenditures, after the proposed uses. The forecast projects a return to surplus in fiscal year 2033. Councilmember Greer Stone emphasized minimizing layoffs and first examining vacant positions, attrition and service effects as reductions are developed.

Staff plans to return with the fiscal year 2026 midyear budget review and a recommendation on a Section 115 pension trust in February. Proposed operating and capital budgets are scheduled to come to the Council in May, with adoption planned for June.

In related consent actions, the Council accepted a CalPERS valuation reporting a $566.4 million unfunded accrued liability, an estimated $71.1 million fiscal year 2027 employer cost and a $109.9 million Pension Trust balance. It also approved including midyear appropriation amendments that would recognize a $1.5 million increase in excess-liability insurance costs. The $6.6 million insurance cost would require using $900,000 from the General Liability Insurance Fund, reducing its balance from $2.1 million to $1.2 million.

Legislative agenda adds housing language and SB 79 follow-up

The Council unanimously approved amended 2026 state and federal legislative guidelines and utility legislative policy guidelines. The amendments add advocacy language intended to clarify and streamline affordable-housing development on City-owned land and support increased, flexible and ongoing funding for affordable housing, homelessness programs and supporting infrastructure.

The guidelines also call for future legislative positions to align with any Council-recommended reforms to SB 79. Staff was directed to review the climate and utility guidelines during the next annual update to ensure they are mutually supportive.

Councilmembers also discussed e-bike safety regulation, local authority over autonomous vehicles and telecommunications infrastructure, and a possible City position on the Connect Bay Area regional transit measure. The Council did not formally adopt a position on the transit measure; following informal direction, staff will bring a support-position item to a future consent calendar.

In a separate 7-0 consent vote, the Council authorized a $186,000 increase to its contract with Townsend Public Affairs for legislative advocacy and grant consulting through Dec. 31, 2026. The amendment raises the contract’s not-to-exceed total to $744,000. Staff also reported that a pending federal appropriations bill includes an $850,000 earmark for Fire Station 4, subject to final congressional approval.

Council reviews survey as members question representation

The Council concluded a study session on the 2025 community survey without taking action, after members questioned whether the results adequately represent younger residents, renters, non-English speakers and residents in survey Area 6.

The random-sample survey received 574 responses and had a margin of error of plus or minus 4 percentage points. Seventy-eight percent of respondents rated City service quality favorably. Of 88 evaluative items, 22 scored above the national benchmark, 61 were similar and five were lower. Housing affordability and the cost of living remained notable concerns, while respondents showed limited familiarity with City sustainability programs.

Councilmember Julie Lythcott-Haims raised concerns that English-only mailed invitations could underrepresent non-English-speaking residents; only two Spanish and two simplified-Chinese online responses were reported. Councilmembers also asked staff to compare perceptions of neighborhood crime and utility reliability with objective data where possible.

The consultant clarified that a housing-and-construction theme found in 21% of open responses included both positive and negative comments and did not represent a single position. Members also debated whether the approximately $33,000 survey should remain annual or be conducted every other year, but made no change to its schedule.

Staff said it would issue a corrected report attachment after discovering that Appendix F contained the wrong survey and outreach materials. Staff also indicated it may test targeted follow-up questions or more focused surveys to examine lower ratings and geographic differences.

Dark-sky ordinance clears second reading

A separately considered second reading of the City’s dark-sky ordinance carried. The available meeting record establishes that the action passed but does not contain the motion text or exact vote count.

Procurement review points to higher purchasing thresholds

The Council voted 7-0 on the consent calendar to approve a contract-solicitation and authority-level advisory report and the accompanying management response. The action did not itself change procurement thresholds; the response contemplates returning with revisions to City policies, ordinances and procedures.

The materials list a current $10,000 informal-bid and purchasing-card threshold and an $85,000 formal-solicitation threshold for professional services and public works. They propose considering a $15,000 purchasing-card threshold and formal procurement at $100,000 or more, while separately noting a $220,000 informal public-works threshold under the California Uniform Public Construction Cost Accounting Act.

Council allows evening alcohol use on California Avenue through May

The Council unanimously adopted a resolution allowing alcohol consumption on California Avenue between El Camino Real and Birch Street from 5 to 10 p.m. Wednesdays through Sundays. The authorization remains in effect through May 31, 2026.

Primary sources

Watch the meeting on YouTube · Read the official meeting packet