Palo Alto’s finance committee this week is reviewing a proposed $1 billion budget for the 2026 fiscal year — a plan that will shape the city’s services and priorities.
A key element of the proposal is the $312.5 million general fund, which covers most essential services excluding utilities. About 60.8% of the general fund would go toward personnel costs, including salaries, benefits and pensions for city employees. Public safety makes up a significant portion, with police, parking and traffic services totaling $58.2 million.
The overall budget is down from $1.1 billion in 2025, largely due to the completion of several capital projects, including a regional water treatment plant, according to the city’s proposed budget.
The 2026 fiscal year runs from July 1 to June 30, 2026.
The new budget proposal includes a modest increase of 12.25 full-time equivalent positions, or 1.1%, bringing total city staffing to 1,104.35 positions.
According to the city, many of the new positions are aimed at strengthening public safety, including fully staffing a sixth fire station and boosting police recruitment, mental health response teams and emergency equipment upgrades. Other staffing expansions target planning, transportation engineering and development services, which officials say are crucial to supporting building more housing and economic recovery.
The budget also funds commercial district maintenance, on-demand transit, and infrastructure work — including traffic systems and water and gas lines. Community and library services would be expanded through additional staff supporting public art programs, youth activities, art center rentals, and extended library hours.
But the budget has drawn concern from some officials and residents after youth mental health programs were noticeably cut.
Palo Alto previously drew national attention over a high number of teen suicides. In response, the city invested in youth mental health programs. Palo Alto Chief Financial Officer Lauren Lai said the recent cut was tied to the end of a contract with nonprofit Youth Community Services. She told the council the funding and programming could still be amended.
Palo Alto, located in Santa Clara County, is among the wealthiest cities in the country. In the region, an individual earning under $111,700 is considered low income.
City Manager Ed Shikada said the budget proposal aims to strike a balance between continued progress and financial caution, citing economic uncertainty, tariffs, inflation and potential federal spending cuts.
“The proposed budget balances continued positive momentum against unknowns that could impact the city’s fiscal health,” Shikada wrote in a budget message.
He added that the city has weathered past challenges — from the COVID-19 pandemic to extreme weather — by adapting and focusing on evolving community needs.
Related Articles
San Jose proposes $5.57 billion budget without significant cuts to services
Budget cuts heighten concerns for West Contra Costa English learners
Trump won’t axe Head Start. Bay Area families are still worried.
Bracing for federal cuts, Santa Clara County executive pulls millions in federal funds out of the upcoming budget
Oakland mayor’s two-year budget calls for layoffs but spares police cuts
Although Palo Alto is currently operating with a deficit, officials project that gap will shrink from $9.6 million in 2027 to $6.2 million in 2029, with a surplus of $3.2 million expected in 2030.
Even with that outlook, Shikada said the city plans to maintain a conservative approach to ongoing costs.
“(That’s) needed to ensure that current one-time surpluses are managed in a way that will not exacerbate future deficits and allow flexibility to pivot, as needed,” he said.
The city council is expected to adopt the final budget in June, following recommendations from the finance committee.