Palo Alto finance committee sets $6 million holdback, votes to delay gas rate overhaul and tentatively trims budget items

The Palo Alto City Council finance committee on May 7 moved to preserve at least $6 million of the city’s uncertainty reserve and directed staff to pursue a mix of one‑time and ongoing budget reductions and funding swaps while continuing the multiweek budget review. The committee also voted to approve an alternative approach to a disputed gas cost‑of‑service (COSA) proposal and gave tentative approval to multiple operating budgets, while asking staff to return with detailed plans on capital project cuts and staffing changes.

The committee’s core financial instruction was to identify ways to reduce the proposed use of reserves by $6 million: about $4 million in one‑time reductions and roughly $2 million in ongoing savings. The intent is to leave the city with a stronger buffer going into fiscal 2027 while still buying staff time to prepare longer‑term structural reductions. Finance staff said the $6 million target is a minimum, and scope includes deferring or reprioritizing capital projects, reallocating funding sources and tightening consultant spending.

Why it matters: committee members repeatedly raised the risk that the city will rely heavily on reserves under the proposed budget and urged early action to avoid ‘‘kicking the can’’ to later years. Several members said they want to prioritize ongoing savings that reduce structural budget pressure rather than one‑time fixes only.

Pension and reserves: CFO Lauren Lai and budget manager Paul Harper briefed the committee on pension prefunding and other long‑term liabilities. The proposed budget continues a supplemental contribution to the Section 115 pension trust intended to move the plan toward a 90% funding goal within about 15 years; staff said the city’s funding policy uses a conservative assumed return and prefunding target designed to…