City reviews FY26–27 budget highlights and a draft $203 million CIP with large unfunded portion

City staff presented the second session of the FY 2026–27 budget hearing to the East Palo Alto City Council on May 19, 2026, covering legal, clerk, finance, public works and East Palo Alto Sanitary District (EPSD) budgets and a two‑year Capital Improvement Program (CIP) update.

Finance Director Tomo told the council the finance department produced two recent measures that staff expect to yield ongoing fiscal benefits: an updated cost‑allocation plan that staff said recovers about $2.6 million to the general fund and a successor‑agency bond defeasance projected to free roughly $1.6 million annually in property‑tax benefit. Tomo described the combined effect as about $4.2 million in recurring general‑fund benefit and said the department continues to pursue long‑range financial planning to address structural deficits.

The city attorney outlined core services and a modest net increase in the office budget driven by personnel costs and contingencies for settlements and union negotiations. The city clerk reviewed progress digitizing records and noted the clerk’s office uses an AI‑assisted tool to draft full minutes, with human review required before publication.

Public Works Director Hamza Javed presented accomplishments and capital work in the past year: the University Avenue pedestrian overcrossing (about $14 million) recently completed and entering closeout, a large trash‑capture installation (Caltrans‑administered federal funds) and a water‑main replacement program that spent over $7 million and replaced more than a mile of water main. He noted street resurfacing close to $6 million that paved 16 centerline miles, installation of numerous ADA curb ramps and other active‑transportation improvements.

Javed described department priorities for FY26–27 including flood protection and Safer Bay/levee projects, completion of the Newell Bridge replacement, continued water‑infrastructure work and a sidewalk inventory and citywide tree inventory. He listed planned capital investments and flagged grant application activity, regional coordination and regulatory compliance work at Cooley Landing.

EPSD staff summarized the sanitary district budget and long‑term pressures: staff said sewer service charges alone do not cover operating costs and the district projects an operating shortfall of approximately $1.7 million that is being offset in the near term by non‑operating revenues (property taxes and investment earnings). The West Bay Sanitary District operations contract and wastewater treatment costs were identified as major and growing cost drivers; staff recommended a forthcoming long‑term financial sustainability discussion that would include a rate study, capital financing strategies and reserve planning. EPSD also plans an audit of the district’s ~4,300 parcel charge list to ensure correct assessments.

The two‑year CIP update, presented by Public Works management analyst Jessica Felix, added 22 projects to the plan and summarized funding sources and expenditures. The draft update shows approximately $203,191,970 in projected expenditures for FY26–27; Felix and Javed emphasized that roughly $150 million of that total is for new city facility projects that currently lack identified funding. Staff described other funding sources already allocated for a set of active projects (about $50 million) and outlined next steps to pursue grants and prioritize projects.

Councilmembers asked for additional time to review EPSD details and flagged the need for a comprehensive long‑term financial plan that would analyze treatment‑cost escalation, rate implications and the appropriate use of property‑tax support for capital versus operating uses. One councilmember urged continued focus on streetlighting timing and traffic signal coordination and suggested bringing consultants or funding for traffic‑timing work.

Next steps: staff said they will return with additional budget detail, a long‑term financial strategy for EPSD, and further CIP prioritization; the proposed budgets and CIP are slated for adoption in upcoming meetings in June, pending council direction and any requested revisions.