Colleagues’ Memo seeks renewed focus on affordable housing strategies

September 21, 2019 – Palo Alto Matters

The city’s ambitious Housing Work Plan was approved to great fanfare in 2018. It outlined a balanced array of strategies designed to address housing production, affordability, and preservation. But key opportunities for the city to expand BMR supply and preserve existing, naturally more affordable units remain untapped. 

First year policy changes pursuant to the HWP created new potential for significant growth in market rate, multifamily housing units and enabled approval of the Wilton Court project, a 59-unit, 100 percent affordable housing development in the Ventura neighborhood. However, Palo Alto still needs well over 1,000 new affordable units by 2023 to meet state mandated housing targets and inaction on housing preservation left the city with little recourse when faced with the conversion of the 75-unit President Hotel Apartments to hotel use. Since January 2019, the public has seen little action to move the remainder of the work plan forward. 

On September 23, City Council will consider a Colleagues’ Memo by Councilmembers DuBois and Kou asking council to prioritize outstanding HWP affordable housing items as well as additional strategies to “produce affordability within the extremely low (0-30 percent Area Median Income), very low (31-50 percent AMI), and low (51-80 percent AMI) income limits.” 

The Colleagues’ Memo calls for urgent action to:

  • Implement the “Palmer Fix,” a recent state law restoring the authority of local governments to require new multi-family rental housing to include a minimum percentage of Below Market Rate units (current city law only requires for-sale projects to include BMR housing). (HWP item 3.1)
  • Increase development impact fees to $64 per square foot for commercial projects. Santa Clara County recently adopted the same fee for commercial development at Stanford, based on a nexus study showing that the public cost to meet housing demand created by commercial growth in the area far exceeds that amount. 

In addition to seeking action “as soon as possible” on those items, the memo asks council to:

  • Explore a “no net loss” policy when housing is redeveloped. (HWP item 3.3) The memo suggests considering an in-lieu fee or off-site replacement requirement if existing units are removed. 
  • Explore protections for existing, naturally more affordable housing types such as cottage clusters and duplexes in low-density zones (HWP item 2.9) in order to preserve both “missing middle housing” and transitions between low and higher density zones. 
  • Ensure that when mixed-use projects (mix of commercial, residential and/or retail use) are awarded density bonuses (typically extra floor area) the bonus is applied to the housing portion of the project to the extent legally permissible.
  • Explore citywide regulations to prevent conversion of existing housing to commercial/hotel use.

Staff indicates that a study of the Palmer Fix and possible adjustment of the city’s current inclusionary rate is currently underway and will be presented to the Planning and Transportation Commission in October, with possible council action on a new ordinance early next year. For all the other items, however, staff expects significant additional work would be required.

Market-rate housing production on pace, but affordable units lag far behind regional requirements

Since adoption of Palo Alto’s 2018 Comprehensive Plan Update, we often hear about the city’s goal of producing an average of 300 new housing units a year for the period 2015-2030. To meet the Regional Housing Needs Allocation, or RHNA requirements, set by the Association of Bay Area Governments, we need a total of 1,988 new units during the period 2015-2023. With only five years left in the plan horizon, that translates to an average of 308 new units per year from here on out. But those overall targets don’t tell the whole story. Built into the 1,988 total are specific targets for multiple levels of affordability.

What we don’t hear much about is that a full 70 percent of that mandated 1,988 total must be new Below Market Rate units. 

According to the 2018 Housing Work Plan, the city anticipates exceeding the RHNA mandated target for the above moderate income category (serving households earning more than 120 percent of Area Median Income). The city’s 2018 progress report to the state bears that out, showing that more than half of the required above moderate income units were permitted in the first four years of the nine year RHNA planning horizon. If the recent annual average of 76 market rate units per year continues through 2023, Palo Alto will exceed its required market rate target by 97 units. 

The first year of the city’s ambitious two-year Housing Work Plan saw intensive policy action to spur new housing by loosening zoning standards to allow significantly greater density and floor area, make housing projects more profitable through parking and design flexibility, and streamline approvals by reining in the public review process. But those development incentives are likely to overwhelmingly benefit market rate rather than affordable projects.

Meanwhile, we are and have historically been WAY behind in meeting required targets for Below Market Rate housing. According to the Housing Work Plan, during the period from 1998 through 2017, only 24 percent of approved new units qualified as affordable. To meet RHNA targets for units accessible to people earning up to 80 percent of the Area Median Income, the city will need an additional 1,022 subsidized units between now and 2023. Add in the moderate income category (81-120 percent of AMI) and the total affordable units still needed jumps to 1,258 — 82 percent of the city’s entire remaining RHNA obligation. 

New Affordable Housing district unlikely to build sufficient supply

The principle affordability effort of the Housing Work Plan to date was the creation of an Affordable Housing overlay making special development incentives available to housing projects with 100 percent of units serving people earning up to 120 percent of AMI. Designed to accommodate a specific project, the overlay paved the way for the January 2019 approval of a 59-unit, 100 percent affordable project near Wilton Avenue in the Ventura neighborhood.

As important as that project is, it represents a mere drop in the bucket toward our 1,258 unit affordable housing deficit. Furthermore, given Palo Alto’s land costs, such projects are few and far between. If the city hopes to make more progress toward affordable housing targets, it will need several more of these AND an expanded toolkit.

State and local development incentives create urgent opportunity

What is the Palmer Fix?

For many years Palo Alto required inclusion of BMR units in both for-sale and rental housing projects, but in 2009 a California Court of Appeals in the “Palmer” case struck down a Los Angeles inclusionary rule, thereafter forbidding local governments from imposing inclusionary requirements on rental housing. The inability to condition development entitlements on inclusion of a limited number of BMR units has contributed to a decline in BMR production in communities across the state. 

Following a failed legislative attempt in 2013 to reverse the Palmer rule, a 2015 State Supreme Court decision regarding a San Jose inclusionary law paved the way for the 2017 enactment of AB 1505, a State law explicitly authorizing local inclusionary rules for rental housing projects. That law became known as the “Palmer Fix” and since 2017 affordable housing advocates across the state have encouraged local governments to implement it.

Time is of the essence to implement the Palmer Fix

This year’s passage of substantial new state and local development incentives designed to spur market rate, multifamily housing production could lead to thousands of new market rate housing units in Palo Alto in the coming years. But because the city’s current inclusionary requirements only apply to certain for-sale units, that market rate growth won’t produce as many Below Market Rate units as it could. 

The Housing Work Plan called for an economic study in mid-2018 of the impacts of a Palmer Fix at various inclusionary rates, and for council action at the end of last year. Yet the study, which also explores possible adjustments to the city’s existing inclusionary rate of 15 percent, has yet to see the light of day and staff doesn’t expect an ordinance to go to council until early next year.  Every market rate rental project approved while city action on the Palmer Fix is delayed could represent a lost opportunity to expand BMR housing in the city.

Will recent action by Santa Clara County spur Palo Alto to raise commercial development impact fees?

Palo Alto, like most cities, imposes affordable housing impact fees on commercial development to offset some of the public cost of meeting the BMR demand created by a new commercial project. In 2017, Palo Alto’s commercial impact fees became a source of significant controversy. Supported by a nexus study showing that impact fees could be justified at up to $264 per square foot, the previous council had voted to raise the fees imposed on office and research and development projects from $20.37 to $60 per square foot. By the time the ordinance came up for a second reading, however, a new council majority had taken over. Under the new leadership, council reversed course, lowering the affordable housing fees to $35/sf.

In order to inform its decision on Stanford’s General Use Permit Application, Santa Clara County commissioned a nexus study in 2018 to understand the public cost of meeting affordable housing demand created by Stanford growth. The nexus study revealed that the public cost far exceeded the $36.22 per square foot impact fee the county then charged the university. County staff recommended raising the fee to $143.10/sf, but the Board of Supervisors opted for a more moderate increase to $68.50/sf. In addition the County Planning Commission conditioned its recommendation for approval of the Stanford GUP on a requirement that Stanford itself build at least 2,172 new housing units (not counting student beds) on campus.

Although the council’s political dynamics have not changed significantly since 2017, recent research and action taken by Santa Clara County may make the council more inclined to consider a higher fee.

Council discussion of the Colleagues’ Memo is scheduled to begin at 9:30 pm on Monday, September 23. 

Want to keep your underground utilities? Reach for your wallet.

September 8, 2019 – Palo Alto Matters

Green Acres I may have to self-fund keeping their electric utilities equipment underground 

Under a program started in 1965, 33 districts in Palo Alto had their utility wires undergrounded, with transformers and other equipment placed in subsurface vaults. As utilities standards have changed over the years, most of those subsurface vaults have been converted to above-ground, pad-mounted installations, but nine districts still enjoy fully underground electric utilities in their neighborhood. One of those, Green Acres I, is due for a system rebuild. Citing aesthetics, safety and property values, many residents want to keep their system fully undergrounded. 

City of Palo Alto Utilities says meeting current functional and safety requirements while keeping the infrastructure fully underground would require costly and extensive new subsurface construction. So if the neighborhood wants to avoid the switch to pad-mounted, above ground equipment boxes, city staff and the Utilities Advisory Commission recommend making the neighborhood responsible for raising funds and paying up front for the cost difference.

A resolution going to City Council for a vote on September 16, would amend city regulations to allow a community to keep the equipment underground if they pay both the incremental installation costs and ongoing ownership costs for undergrounding. CPAU roughly estimates that for the Green Acres I project, property owners would have to prepay a total of about $475,000. The remaining eight districts that have not already been converted to above ground equipment boxes would also have access to the self-funding option when their area comes due for a system rebuild.

To initiate subsurface installation under the proposed self-funding option, a proponent would have 45 days to collect signatures from owners of at least 60 percent of the affected parcels and gather funds sufficient to cover the cost of developing a cost estimate for non-standard, subsurface improvements. CPAU would then prepare a cost estimate for the installation and the neighborhood would have 90 days to collect and prepay the difference between the planned standard installation and the fully subsurface installation (including the net present value of the higher continuing ownership costs).  

Council discussion will begin at 7:00 pm on September 16. For more information about the thinking behind the self-fund option, read the staff report.

Business tax favored to fund “transportation and/or housing investments”

September 8, 2019 – Palo Alto Matters

The city aims to decide in the next couple of months on the core attributes of a local tax measure for the 2020 ballot. To that end, staff and the Finance Committee have been analyzing and evaluating alternatives and narrowing the parameters for a tax proposal.  On September 16, City Council will weigh in on the Finance Committee’s efforts and confirm identified next steps and areas for further staff analysis.

Over three meetings since June, the Finance Committee narrowed its focus to direct further analysis toward a general business tax based on either number of employees or square footage and a parcel tax based on square footage, with an overall goal of generating between one and six percent of General Fund revenues.

Both flat and tiered pricing structures remain on the table and agreement has not been reached on whether to pursue a general tax (with non-binding advisory language on intended use of funds) or a special tax (designating specific uses). A general tax can be approved by a simple majority of voters while a special tax requires a two-thirds majority of voters to pass. The business community strongly encouraged the city to pursue the special tax route.

Analysis and costing for possible exemptions or phase-in strategies remains to be done, but the Finance Committee is interested in exemptions for public utilities, hospitality, retail, restaurants, and small medical facilities/clinics. Full discussion of desired exemptions will have to wait until an ongoing review of potential financial conflicts of interest is completed.

Transportation (grade separations and expanded city shuttles are most often cited), infrastructure improvements, and affordable housing are all on the city’s wish list for use of business tax revenues, but targeted allocations will be determined at a later date and informed by polling. Potential uses of new tax revenues will also consider the nexus between the use of the funds and those paying the tax. The Finance Committee agreed that unfunded infrastructure projects like the Cubberley redevelopment, the Palo Alto History Museum, and expansion of the animal shelter should wait for a parcel tax or general obligation bond at a future date.

Council discussion of this topic will begin at 8:00 pm on September 16. More information can be found in the staff report.

Mixed-use project on San Antonio Road seeks expansion of city’s Housing Incentive Program

September 8, 2019 – Palo Alto Matters

When City Council approved a new Housing Incentive Program early this year for Downtown, California Avenue, and El Camino Real area commercial zones, at least one property owner was paying attention. 

Where applicable, the HIP allows for significant increases in built floor area relative to lot size, known as Floor Area Ratio, along with other housing development incentives. In October 2018, council had prescreened a project at 788-796 San Antonio Avenue that sought a zoning change from CS (Commercial Service) to RM-40 (Residential Mixed Use) to allow redevelopment of the site as a four-story, 54-unit residential project. Subsequent passage of the Housing Incentive Program (HIP), however, gave the applicant a better idea: if I stick with CS zoning and can get the city to extend the HIP to this part of town, I can build a much bigger project. 

The property owner pitched City Council the idea of extending the HIP in May 2019. Despite last year’s sizable controversy over approval of two nearby Marriott hotels due to anticipated congestion impacts, City Council appeared open to the prospect, even though it would further densify the immediate area. So the applicant submitted new plans and requested zoning code amendments extending the HIP to all CS zoned properties adjacent to San Antonio Road between Middlefield and Charleston Roads. The new plans envision a mixed-use project with 102 for-sale housing units, with 15 percent restricted to below-market rate. The Architectural Review Board provided initial feedback on the project’s architecture, massing and site design on August 15.   

This week the Planning and Transportation Commission will hold a public hearing on the scope of a required Environmental Impact Report for the project and will offer initial comments on the proposed zoning amendments which include the following:

  • Establishing a HIP that includes a waiver to allow up to a 2.0 FAR for housing projects (doubling the current FAR for combined residential and commercial use in that CS zoned site) and changes to lot coverage restrictions;
  • Eliminating unit density limits;
  • Allowing rooftop gardens to count towards required open space;
  • Excluding the first 1,500 square feet of retail floor area from parking requirements;
  • Amending the citywide retail preservation requirements to:
    • Modify waiver standards to allow exceptions for housing projects; or
    • Establish minimum retail floor area replacement requirements for housing projects, but not require full replacement; or
    • Waive all or part of the required replacement retail floor area from the maximum FAR for housing projects.

Though not subject to PTC review, the project also seeks approval of a nine percent parking reduction and a partial waiver of retail space requirements. In addition, the project requires demolition of a building that appears to be eligible for listing on the California Register for Historic Resources.

The PTC hearing will begin at 6:00 pm on September 11. More detail about the project is available in the staff report.

Council to act on new rail committee September 9

September 7, 2019 – Palo Alto Matters

Discussion of a new Rail Blue Ribbon Commission to advise the council on political and funding strategies was mostly deferred on August 19. City Council and many public speakers were unenthusiastic about staff’s proposal to comprise the RBRC of former mayors and council members, and many questions were raised about the roles and interaction between the proposed RBRC and the existing Expanded Community Advisory Panel, or XCAP. Staff returns to City Council on September 9 for a full discussion. 

The recommendation for exclusive appointment of former elected officials has been softened, but staff still urges a non-voting role for the Chamber of Commerce, Stanford, Caltrain, the Valley Transportation Authority (VTA) and the Silicon Valley Leadership Group.

A revised staff report clarifies that the XCAP is primarily involved in building an informed understanding of grade separation options – developing and evaluating grade separation alternatives reflective of neighborhood perspectives. While the XCAP informs the process, they are not charged with making recommendations to council. As that process wraps up, the RBRC will engage to consider the political viability of the alternatives and potential funding strategies, leading to a design and funding strategy recommendation to City Council. Unlike the XCAP, the RBRC will report directly to council and be subject to the Brown Act and conflict of interest rules to ensure the RBRC’s recommendations are not tainted by potential real estate or financial interests of its members.

Monday’s continued discussion is scheduled for 6:45 pm on September 9 and will focus on the RBRC’s scope of assignment, its composition, and how members would be selected. 

Remember the Stanford GUP? It’s coming back.

September 7, 2019 – Palo Alto Matters

Stanford’s application for a General Use Permit for add 3.5 million square feet of new development will take center stage again this fall as the Santa Clara County Board of Supervisors begins final deliberations. On June 27, 2019, the county Planning Commission rejected Stanford’s bid for a Development Agreement that would credit the university for housing that is existing or already in the pipeline. Instead they recommended conditioned approval of Stanford’s expansion based on Alternative A from the Environmental Impact Report, which would require Stanford to build a minimum of 2,172 new units of housing (not counting student beds) – far exceeding the 550 new units proposed in Stanford’s application. 70 percent of the units in each income category must be be constructed on campus. 

Regarding conditions related to traffic mitigation, the commission supported the recommendation that car trips be counted during the entire peak period of the commute (rather than a single hour), but did not support staff’s proposal to count reverse commute trips and average daily traffic as part of Stanford’s no-net-new-trips obligation, opting instead for further study to develop an alternative regulatory standard. 

A third major component of recommended conditions of approval for the GUP is long term protection of the Stanford foothills. On August 28, the Midpeninsula Regional Open Space District sought to shore up that recommendation of the county staff and Planning Commission. The district unanimously passed a resolution asking the county to limit development outside of the university’s current Academic Growth Boundary for 99 years unless a supermajority (4 out of 5 supervisors) approve breaching the AGB. Read the District resolution

Meanwhile, new research by a group of media organizations revealed that Stanford has been buying up single family homes in the area, now owning at least 37 in Palo Alto and 700 countywide. The media groups expect to publish and air their report in mid to late October. 

The County has scheduled study sessions and final public hearings on the following dates:

  • Tuesday, September 24: Study Session #1 at 1:30 pm
    Board of Supervisors’ Chambers, 70 West Hedding Street, San Jose
  • Tuesday, October 8, 2019: Study Session #2 at 1:30 pm
    Board of Supervisors’ Chambers, 70 West Hedding Street, San Jose
  • Tuesday, October 22, 2019: Public Hearing #1 at 6:00 pm
    City of Palo Alto Council Chambers, 250 Hamilton Avenue, Palo Alto
  • Tuesday, November 5, 2019: Public Hearing #2 at 1:30 pm
    Board of Supervisors’ Chambers, 70 West Hedding Street, San Jose

To get back up to speed on how we got here, check out our past coverage of the Stanford GUP and explore the county’s website dedicated to the project.

New study on revenue potential from 2020 tax ballot measures

August 17, 2019 – Palo Alto Matters

On August 20, the Council Finance Committee will take a deeper dive into potential Tax Measures to place on the 2020 Ballot. The latest analysis describes the process and revenue potential for a General Bond or a Parcel Tax and a commissioned study on Business Tax measures in the Bay Area over the past 10 years, including comparative research across municipalities and analysis and modeling of the range of potential revenue the city might generate via a business tax vehicle (based on employee head count, square footage, or payroll expenses).

There are a lot of variables that can impact how much revenue a given tax might generate, including potential exemptions and different pricing levels and structures. In selecting an appropriate vehicle, the city must also consider “potential areas of tax leakage” and impacts on the economic environment and tax ecosystem. With further Finance Committee and council direction to narrow the focus, more complex scenarios will be modeled. Meanwhile, In a nutshell, the initial analysis modeled the following including initial, general assessments of impacts on equity, administrability, stability, and economic benefits:

  • General Obligation Bonds ranging from $100 to $500 million in debt issuance. These would require 2/3 voter approval.
  • Parcel Taxes of either a flat $350 per parcel or a $1 per square foot per eligible parcel, yielding between $7 million and $25 million per year. City parcel taxes typically require 2/3 voter approval.
  • Business license taxes, whether based on employee headcount, square footage, or payroll size, could potentially generate $1 million to $15.5 million annually, depending on the tax rate. If the tax is considered a “general tax”, it requires only majority voter approval. If a “special tax” it would require 2/3 voter approval. Whether “general” or “special” depends on the level of specificity regarding what the revenues will be spent on.

Following the Finance Committee meeting, staff will return to City Council with an update and confirm timing for next steps, including polling and stakeholder outreach, with an eye toward a decision about the type of measure to pursue by October/November. Click here for the staff report. 

Fry’s site owner reluctant to redevelop just as city’s NVCAP costs may escalate

August 16, 2019 – Palo Alto Matters

The North Ventura Coordinated Area Plan will return to City Council for endorsement of an expanded planning process for the 60 acre area surrounding the Fry’s Electronics property. The Fry’s Electronics site, a 12 acre parcel at the core of the study area for the NVCAP is coveted in the city’s Housing Element for its potential for a “realistic yield” of 221 new housing units. Indeed, the potential redevelopment of the site following the upcoming expiration of the Fry’s Electronics lease was a driving factor in initiating the NVCAP to ensure the area evolves into a vibrant, well connected, mixed-use neighborhood. The city received a two-year grant from Caltrans in 2018 to develop the coordinated area plan, with local matching funds provided by the Sobrato organization, the property owners for the Fry’s site. 

To accommodate council direction from a March 11 Town Hall meeting, process concerns expressed by NVCAP Working Group members, and an expanded environmental analysis related to the Fry’s site’s historical significance, staff hopes to receive a one-time, two year extension of the project deadline under the Caltrans grant. 

March council direction included study of alternatives for naturalizing Matadero creek, analysis of stronger housing, displacement prevention, and office size limits, and objective accounting to assess impacts of potential zoning changes on both property owners and community amenities.

On Monday August 19, staff will seek council endorsement of a revised overall approach and schedule for the project and staff’s response to Working Group members’ concerns as well as authorization to expand the scope (and cost) of the planning consultant’s contract and add a new contract to study the feasibility of naturalizing the creek.

If approved, the expanded scope of the NVCAP project will escalate costs by 40 percent, including up to $367,112 that will not be covered by the Caltrans grant. In order to fund the expanded scope, staff proposes exploring opportunities to share plan development costs with large property owners in the study area. 

Recent indications that the Sobrato organization has little interest in redeveloping the Fry’s site suggests a change of heart since their 2018 investment of $138,000 in the NVCAP planning process. Whether that is due to the direction the NVCAP is heading, a hardening negotiating position, or other factors remains to be seen. However it does complicate the framework for council’s August 19 decision making. 

Without redevelopment of the Fry’s property, the NVCAP’s housing potential would be significantly diminished as would opportunities for enhanced neighborhood amenities and mobility across the 60-acre plan area. The city must nonetheless complete the NVCAP within one to three years (depending on extension of the Caltrans grant) or assume responsibility for moneys already paid out of the grant. Adding new investment in the NVCAP, despite diminished expectations regarding the Fry’s site, entails risk. But opting out of the proposed new scope for the project could undermine credibility and limit the future promise of the plan. 
This item is scheduled for council action on August 19, beginning at 6:50 pm. Click here for the staff report.

Council may turn to strategic Blue Ribbon Committee to speed action on grade separations

August 15, 2019 – Palo Alto Matters

The ongoing saga of deciding how best to separate roadways from the train tracks may see a new player as City Council considers appointing a Rail Blue Ribbon Committee, comprised of former Palo Alto mayors and city council members. On August 19, council will consider staff’s recommendation to appoint a politically savvy group to supplement the work of the Expanded Community Advisory Panel, or XCAP, that took over from the original Community Advisory Panel earlier this year. As proposed, the new group of former electeds may be joined by non-voting representatives from the Palo Alto Chamber of Commerce, Stanford University, Caltrain, Valley Transportation Authority, and the Silicon Valley Leadership Group. The RBRC’s primary role would be to advise council on the selection of grade separation alternatives, but may also extend to development of a funding strategy for implementation – a function of increasing urgency as Palo Alto’s allotment of Measure B grade separation funds may be reduced by a delayed decision, contrary to the expectations of many. 

The XCAP (comprised of neighborhood members, and representatives from the Chamber of Commerce, the Planning and Transportation Commission, PAUSD, and Friends of Caltrain), would continue its work to help staff “increase awareness and understanding of the options and complex trade offs that must be considered in the decisions ahead for the city” and ensure that “neighborhood perspectives are reflected in the development and evaluation of grade separation alternatives.

In contrast, the Rail Blue Ribbon Committee, or RBRC, would provide strategic recommendations directly to the council regarding “community-wide benefits and impacts, local and regional political considerations, and financing strategy for implementation.” Looking beyond neighborhood concerns, the RBRC will focus on how to build citywide voter support and compete for regional funding and project commitments. Staff hopes that former electeds will bring an understanding of both “the political environments locally and regionally” that will inform their recommendations regarding the viability of the various alternatives.

Beyond grade separation alternatives, staff recommends a range of RBRC involvement in funding strategy for the selected alternative:

  1. Limited to making recommendations on dollar amounts to be targeted via a tax ballot measure (regardless of the tax vehicle);
  2. Recommending a dollar target, timing, and the parameters of a specific tax vehicle; or
  3. All of option 2 plus design of polling and a community awareness campaign leading to decisions on a ballot measure.

This item is scheduled for council action on August 19, beginning at 9:15 pm. Click here for the staff report. 

City pushes for fair representation on VTA in response to Civil Grand Jury

August 15, 2019 – Palo Alto Matters

In June 2019, the Santa Clara County Civil Grand Jury released a highly critical report regarding the operations and governance of the Valley Transportation Authority and asked cities within the VTA service boundary to respond to specific recommendations regarding VTA Governance. City Council will discuss and approve a draft response on August 19.

The Civil Grand Jury report stated that “year after year, VTA operates one of the most expensive and least efficient transit systems in the country.” Despite a series of critical civil grand jury reports dating back to 2004, the VTA continues to veer from one financial crisis to another, while also perpetuating a structural deficit of $50 to $60 million per year. Regular users represent fewer than 5 percent of the county’s commuters despite continuous, significant increases in operating costs, 90 percent of which are subsidized by taxpayers. 

Overall, the jury concluded that radical changes in policy and strategic oversight are needed, but that the VTA Board as currently structured and operated, lacks the capability to accomplish that change. Key findings point to lack of experience, engagement, continuity and leadership on the board; insufficient time investment due to other duties as elected officials; domination of the board by representatives of San Jose and the Santa Clara County Board of Supervisors “in terms of numbers, seniority and influence;” and frequent tension between directors’ fiduciary duties to the VTA and the political demands (and interests) associated with their local elected positions.

Key jury recommendations include calls for the VTA and the county to commission separate studies of successful transportation agency governance structures, reports from each city on its views regarding VTA governance, and consideration of such things as duration of directors’ terms, appointing directors who are not actively serving elected officials, and extending the chairperson’s term to two years.

Palo Alto’s draft response requests that the studies of successful governance include, not just “large city” agencies, but specifically those in metropolitan areas where service boundaries span multiple municipalities. The city cautions that small cities, and especially those without representation on the VTA Board, will need time and resources to meaningfully weigh in on alternative governance structures for the VTA, including strategies to sustainably represent the interests of multiple municipalities. Specifically, the city proposes evaluating VTA governance (and representation) based not only on population distribution, but also such things as employment and sales tax generation (a primary source of VTA revenues) or communities with direct interest in shared permanent transportation issues, such as Caltrain and High Speed Rail. Palo Alto urges that VTA provide funding to an organization such as the Cities Association of Santa Clara County to facilitate that work. 

The city is open to participating in legislative reforms pertaining to governance structure, but cautions that they must address the root concerns that lead to underrepresentation of smaller cities, particularly those bordering other counties. In particular, it may be premature to commit to extending the Chairperson’s term prior to resolving issues of fair representation across constituent agencies. 
This item is scheduled for council action on August 19, beginning at 7:50 pm. Click here for the staff report.