Mayor Vicki Veenker takes the stage this evening, Wednesday, Aug. 19, at Palo Alto High School's Performing Arts Center to deliver her 2026 State of the City address, and the city's business community will be listening for more than feel-good themes.

Palo Alto closed the fiscal year ending June 30 with an approximately $8 million sales tax shortfall, driven by a 41.6% drop in business-to-business leasing revenue and a 32.2% decline in new auto sales, Palo Alto Online reported in December. The pain is expected to deepen: the city's general fund faces a projected $17 million deficit in fiscal year 2026-27, according to the preliminary budget released in April.

Chief Financial Officer Lauren Lai told the City Council in January, according to San José Spotlight, that the city is "in a changing landscape, financially," citing lower sales tax and slower property tax growth as the primary drivers.

University Avenue's retail vacancy rate sat at 13.4% in the first quarter of 2026, according to CoStar data reported by Palo Alto Online in June. That's down from a decade-high of 17.4% at the start of 2024, but still means roughly 86,800 square feet of empty storefronts along the city's main commercial corridor. California Avenue fares better at 5.4%.

The council has moved to address the problem. In June, members unanimously approved a retail ordinance that streamlines parking requirements, removes overlapping regulations and expands allowed uses in commercial zones. Charlie Weidanz, CEO of the Palo Alto Chamber of Commerce, told the council's Economic Development Committee on June 3 that "successful business districts require flexibility, clear regulations and an environment that allows businesses and property owners to respond to the changing market conditions."

There are signs of life.

Six new businesses opened or were preparing to open in Palo Alto's commercial corridors as of June, including La Corneta Taqueria and fast-casual chicken spot Zingster's on University Avenue. Work-from-home jobs in the city have fallen from roughly 15,000 in 2021 to fewer than 8,000, according to data presented to the city's Economic Development Committee in June, translating into more foot traffic downtown. But the workforce still totals about 100,000 jobs, roughly 5,000 short of pre-pandemic levels, according to Economic Development Manager Alex Andrade.

Tonight's address, themed "One community," will cover council priorities and community successes, according to the city's announcement. As we reported Aug. 18, the city also launched its annual community survey this month.

The council adopted "enhance business vibrancy" as a 2026 priority, but neither specific timelines nor dedicated funding for filling downtown storefronts have been announced. The proposed budget instead called for cutting 22 city positions, including planners, and warned that the reductions "may negatively impact the pace of council priorities, such as enhancing business vibrancy."

Doors open at 5:30 p.m. tonight at the Palo Alto High School Performing Arts Center, with the address beginning at 6 p.m., followed by a reception.