City Council - June 16, 2025

Council adopts $1 billion budget and keeps savings target

The City Council approved Palo Alto’s fiscal 2026 operating and capital budget 6-0-1, with one member absent, while keeping a plan for staff to identify $6 million in additional savings. Staff is expected to present specific recommendations to the Finance Committee on Aug. 19, with council review anticipated in September. At least $2 million of the savings is intended to be ongoing.

The citywide budget totals $1 billion, including about $313 million in capital spending, while the five-year capital plan exceeds $1.1 billion. General Fund projections show about $302 million in revenue and $313 million in expenses. The budget stabilization reserve is projected at $54 million, or 17.6% of expenses.

The budget authorizes 18 additional full-time-equivalent positions citywide, including 11 in the General Fund. Nine of the General Fund positions are in the Fire Department and support a single-role ambulance model planned to begin operating in April 2026. The council also authorized Measure B funding and advance recruitment for the Safe Routes to School planner position, with a funding-shift plan due back in August.

Water, gas and electric rates rise as gas credit is delayed

The council adopted a 10% water-rate increase on a 6-0-1 vote. Staff estimated the change would add about $11.40 a month for a residential customer. Eight written protests were received from 19,441 affected customers, well below the 9,721 needed for a majority protest.

Public commenters questioned the affordability of the increase and the assumptions behind regional drought planning. Council members asked for future review of water-demand projections, capital planning and whether additional usage tiers could reduce costs for general customers. Staff said the rates do not include construction of any large alternative water-supply project, although some study costs are incorporated.

The council also approved a 5% gas-rate increase and a 5.1% electric-rate increase, estimated at $3.70 and $5 a month, respectively, for a median residential customer. A stormwater fee increase tied to inflation was approved as well.

The council removed a proposed one-time gas credit of up to $1.1 million from both the gas action and the budget. The credit, which would have used interest income and cap-and-trade funds, will instead go to the Utilities Advisory Commission for consideration alongside an updated gas cost-of-service analysis. Public commenters had argued that cap-and-trade money should not subsidize natural-gas use.

For the fiber program, the council authorized flexible rate ranges and directed staff to evaluate promotional pricing and lower prices for higher-speed service. The initial pilot area has approximately 800 to 900 potential customers and an initial target take rate of roughly 30%.

Palo Alto Link receives six months of funding

The council limited Palo Alto Link’s fiscal 2026 budget authorization to six months rather than approving funding for the full year. Members questioned the service’s financial sustainability and asked staff to confirm the city’s contract-termination options before any longer commitment.

The full-year proposal was estimated at $1.1 million, including $500,000 from the General Fund, about $520,000 in Stanford reimbursement and roughly $80,000 in rider revenue. Staff is pursuing transportation grants, with results expected after October.

Budget adds nonprofit funding while process questions remain

The final budget incorporated the first phase of nonprofit awards covering 22 organizations and added support for several groups. It provides $150,000 for Magical Bridge Foundation and $45,000 for UNAF, increases the Community Services budget by $10,780 for Environmental Volunteers and adds up to $17,500 to the City Manager’s budget for Neighbors Abroad hosting and reception reimbursements.

The underlying nonprofit recommendations totaled $426,646, about $30,646 above the Finance target. Council members disagreed over how much contingency funding to use immediately, but broadly called for clearer eligibility rules, better coordination with the Human Services Resource Allocation Program and consideration of multiyear grants in future funding rounds.

Bridge contract can advance after Caltrans review

The council voted 6-0-1 to authorize the city manager to approve and execute a bridge construction contract after receiving and considering Caltrans feedback on the contractor’s disadvantaged-business-enterprise good-faith-efforts package. Caltrans has up to 15 business days to complete that review.

The construction bid was 22% below the engineer’s estimate. Staff said federal highway bridge-program reimbursement is expected but has not yet been authorized. The project was presented as supporting flood control, public safety and transportation improvements.

Primary sources

Watch the meeting on YouTube · Read the official meeting agenda