Palo Alto's city budget for fiscal 2027

Palo Alto runs a budget of about $1 billion a year, large for a city of 69,000 people. The main reason is the city-owned utilities. Electricity, gas, water, wastewater and refuse service all run through City Hall. Customers' bills flow into separate enterprise funds. The part that pays for police, fire, libraries, parks and planning, the General Fund, is about a quarter of the total.

This page summarizes the adopted budget for fiscal 2027, which runs from July 1, 2026 to June 30, 2027. The City Council adopted it on June 15, 2026. All figures come from the city's Budget in Brief, the adopted transmittal letter and the adopted operating budget, all posted on the City Budget page. For how the council and city manager build the budget, see how city government works.

The big numbers

By fund type, the Budget in Brief splits citywide expenses this way: enterprise funds 59.7 percent, General Fund 25.9 percent, capital improvement funds 9.6 percent, internal service funds 2.9 percent, debt service 1.1 percent and special revenue funds 0.7 percent.

General Fund spending

The Budget in Brief groups General Fund spending into five service areas:

Public safety takes about 40 percent of the General Fund. Smaller lines include the municipal golf course at $4.0 million, animal services at $2.4 million and support for nonprofits at $1.0 million. Our police and fire guide explains what those departments do.

Where General Fund money comes from

Taxes supply about 55.6 percent of General Fund revenue, according to the Budget in Brief. The adopted operating budget lists the six largest taxes:

The rest comes from charges for services, permits, rent, transfers from other funds and similar sources. One example in the Budget in Brief: Stanford pays $12.6 million for fire and public safety communications services.

A few notes on these taxes. Property tax goes mainly to the county, schools and other agencies; the city receives only part of each bill, as our property tax page explains. The hotel tax rate is 15.5 percent on stays of 30 days or less, so business travel matters to the city's finances. The utility users tax is 5 percent on electric, gas and water charges and 4.75 percent on telephone service. The documentary transfer tax is charged when property sells, so it rises and falls with the housing market. The city also notes in its transmittal letter that part of the business tax helps pay for railroad grade separation projects.

The gap and how it was closed

Staff projected a General Fund shortfall of $17.1 million, or 5.5 percent, for fiscal 2027. The transmittal letter cites a lower sales tax baseline tied to changes in how the state administers the tax and slower property tax growth. The adopted budget closes the gap with:

• $5.9 million in spending reductions
• $1.7 million in revenue enhancements
• $2.6 million in one-time resources
• $1.5 million less transferred to capital projects
• $4.5 million in pension and retiree health savings

The pension piece comes from the city's Section 115 pension trust, which is paying $20 million toward the unfunded liability plus a $6 million required contribution to CalPERS. Staff positions fell by a net 21.25 full-time equivalents. Six more positions are frozen. The Budget Stabilization Reserve, at 17.2 percent of spending, sits below the council's long-term target of 18.5 percent.

Enterprise funds and utilities

Enterprise funds are businesses the city runs and pays for with customer charges rather than taxes. In Palo Alto they include electric, gas, water, wastewater, refuse and storm drainage. The Budget in Brief reports for fiscal 2027:

• Total enterprise expenses of $627.4 million and revenue of $672.0 million
• Net sales to customers of $504.9 million
• Other revenue of $137.2 million, including an $80.0 million first borrowing for electric grid modernization
• A $44.6 million addition to fund balances, with utilities up $47.9 million and Public Works funds down $3.3 million

The capital budget includes $198.1 million for enterprise projects, including $85.3 million for the electric utility and $44.0 million for wastewater treatment. The adopted budget includes utility rate increases from July 1, 2026. The city estimates that the median monthly residential utility bill rises 8.0 percent, from $441.53 to $476.74. Our utilities guide breaks the bill down by service and our utility bill help page covers discounts.

Capital projects

The fiscal 2027 capital budget totals $316.8 million: $198.1 million for enterprise funds, $106.5 million in the main Capital Improvement Fund, $11.3 million for internal service funds and $0.9 million for Cubberley property infrastructure. The five-year plan totals $1.2 billion. Grid modernization, at $57.0 million in this year's plan, is one of the largest single investments.

Reading the budget documents

The city posts several documents each year. Each serves a different reader. The Budget in Brief is a short summary with charts and is the best place to start. The transmittal letter from the city manager explains the year's priorities, the deficit and the balancing plan. The operating budget runs to hundreds of pages, with a chapter for each department listing staff, programs and performance measures. The capital budget lists every project with its cost and schedule. The municipal fee schedule sets charges such as permit fees and facility rentals. All of them sit on the city's budget page under the fiscal year. If two documents give slightly different totals, check whether one is rounding or counting transfers between funds.

How to follow the budget

1. Winter. A long-range financial forecast sets the stage. The forecast for fiscal 2027 to 2036 is dated January 20, 2026.
2. Spring. The proposed budget is released and public budget hearings run through May.
3. June. The council adopts the budget, usually in mid June.
4. During the year. Mid-year adjustments come back to the council. Comment at any meeting; see attending city council.

Frequently asked questions