East Palo Alto is heading into the 2026–27 fiscal year with a multimillion-dollar gap that has city leaders bracing for hard choices. The projected shortfall is big enough that officials are already talking about slowing projects, holding back on hiring and dipping into one-time reserves to keep basic services steady.
City finance director Tomo Oku is forecasting about $35 million in general-fund revenue for 2026–27, while the proposed spending plan lands closer to $40 million. That leaves a roughly $4.7 million hole, according to Palo Alto Online. Staff are urging a cautious, belt-tightening approach and the use of reserves next year instead of immediate layoffs, city leaders say.
What’s driving the gap
City documents and recent council briefings point to a familiar-sounding squeeze: revenues that are barely growing and costs that are not sitting still. Property-tax growth is close to flat, sales-tax revenue has slipped in recent years, and hotel taxes are still crawling back from the pandemic slump. The city’s adopted budget and staff reports note that earlier one-time federal funds and savings from unfilled positions helped paper over some of these pressures, leaving a structural risk for the 2026–27 fiscal year, as detailed in City of East Palo Alto budget materials.
Departments, projects and tradeoffs
The draft budget shifts money toward what officials describe as core services, while trimming expectations elsewhere. The police department would get about a $1.2 million boost to bring on additional dispatch staff and raise wages, and public works would see roughly $133,000 for top-priority infrastructure needs. Other departments are in line for smaller tweaks, according to reporting. To close the remaining gap, the staff proposes pulling about $4.7 million from reserves and holding back on new projects and hires instead of rushing a fresh tax measure to voters, per Palo Alto Online.
Council reaction and next steps
During recent meetings, council members pushed staff to keep the basics front and center: code enforcement, potholes, and the kind of infrastructure fixes residents notice every day. Community members, for their part, pressed the city to deal with clogged flood drains and aging water pipes and warned against piling on new initiatives while the budget is under strain. The council is set to continue its budget talks Thursday, when members are expected to give staff direction on how far to lean on reserves, what to cut and whether to explore new revenue options, according to City of East Palo Alto meeting materials.
For now, the choices on the table are straightforward, if not exactly painless: tap one-time reserves to ease through the year ahead, trim programs and projects, or start laying the groundwork for a future revenue measure that would put the question to voters. Officials describe their current strategy as cautious stewardship while the council sorts through public priorities ahead of the July 1 start of the new fiscal year.
