June 10, 2018 Newsletter

The city tackles a jam packed agenda and public engagement remains high as City Council races toward summer break (June 26 – August 10) and November elections loom.

In this issue:

  • Get up to speed: Citizen initiatives force Council action; hotel tax moves forward; reductions sought for FY2019 Budget; workforce housing “pilot” approved; and more.
  • Looking Ahead: In addition to finalizing November ballot measures, the crowded agenda includes city action on several utilities rate hikes and the public safety building environmental impact report along with a study session on bike boulevard projects, adoption of the FY2019 Budget, and Rail Committee discussion of further community engagement and narrowing of grade separation options. Other items potentially on deck: analysis of a new Stanford GUP scenario, Downtown RPP modifications, and the Animal Shelter.

To stay current with the city’s agenda, bookmark our Calendar of Notable Upcoming Action and check back often for updated times and topics.

Get Up To Speed

Citizen initiatives meet signature threshold to force Council action. City soda tax put off, but hotel tax likely for November Ballot and staff tasked with expanding tax collections from short-term Airbnb-type rentals.

Palo Alto Reduced Office/R&D Development Cap Initiative

Tapping into widespread frustration over the traffic, parking and housing affordability impacts of Palo Alto’s jobs/housing imbalance (currently estimated at a ratio of three to one), in just a few short weeks volunteers collected sufficient signatures to qualify a public initiative that would reduce the allowable rate of office and research and development construction citywide. Led by former vice-mayor, Greg Schmid and supported by the citizens group Palo Altans for Sensible Zoning, the initiative’s backers object to a 15- year, 1.7 million square foot cap on new office/R&D construction (recently approved in the city’s Comprehensive Plan) that would allow double the long term average rate of office growth, adding significantly to the city’s growing pains. If passed, the initiative would limit such growth to the historical average of 57,000 square feet per year. (Click here for the initiative language.)

Now that sufficient signatures have been certified, the Council must either adopt the changes proposed in the initiative or submit the initiative, without alteration, to the voters on November’s ballot. If the Council votes to put the initiative on the ballot, it may also write an alternative or competing measure for the November ballot. City Council will discuss those options on Monday, June 11 (scheduled for 9:30 pm) and must take final action by June 25 (unless it cuts short its summer break to allow additional votes before August 10).

Of the three council members up for re-election this fall, Councilmembers DuBois and Filseth support the initiative, while Councilmember Wolbach is less enthusiastic. Wolbach has been more favorable to new development, having voted with a 5-4 majority (including Scharff, Kniss, Fine, and Tanaka) to eliminate a cumulative cap on non-residential development Downtown and subsequently to loosen the annual limit designed to manage the pace of office growth Downtown and in the California Avenue and El Camino Real corridor areas. The city’s fiscal analysis prepared during the Comprehensive Plan debate indicated a net positive impact on the General Fund from an office growth rate similar to that proposed in the initiative (according to staff, scenario 5 contemplated about 810,000 sf of new office space over life of the Plan), however Wolbach recently implied the opposite: “We need clarity about what city services would be cut to compensate for potential shortfalls this new proposal might create.” 

Palo Alto Accountable and Affordable Health Care Initiative

Another citizen initiative, sponsored by the Service Employees International Union United Healthcare Workers West, would modify the municipal code to prohibit hospitals, children’s hospitals and medical clinics operating in the city, including Stanford, from charging patients more than 15 percent above what it costs the facility for patient care. Overcharges would have to be refunded with interest and facilities would be charged a penalty of five to ten percent of total refunds depending on the number of overcharges in a fiscal year. Penalties would be paid to the city’s Administrative Services Department, which would be responsible for oversight and enforcement of the overcharge limits. (Click here for the initiative language.)

Stanford intends to challenge the legality of the price limits proposed in the initiative and has asked the City of Palo Alto to join Stanford in keeping the measure off the ballot. For its part, the City also has concerns. According to a staff report, the city does not currently have the systems, expertise or experience to regulate health care costs or health care generally and “would need to establish and identify funding for an administrative structure to implement and enforce the new law.”  Staff further contends that the ordinance required by the initiative may be preempted by state law, that it may lead to relocation of local medical providers, and that there “would likely be a number of direct impacts on Palo Alto residents, which staff cannot fully quantify at this time.”

City Council will meet in closed session on Monday, June 11 to consider litigation relating to the health care costs initiative and later that same night (scheduled for 9:30 pm) to determine whether to place the initiative on the ballot.

Infrastructure Taxes

On June 4, City Council voted 6-3 (Holman, Kou and Tanaka dissenting) to draft a ballot measure for this November seeking to increase the Transient Occupancy Tax (TOT) from 14 percent to 16 percent to support the city’s Infrastructure Plan (IP). The IP includes the Public Safety Building, Downtown and California Avenue parking structures, two fire stations, a bike/pedestrian bridge over Highway 101, and completion of the Charleston-Arastradero Corridor project. Largely due to increased construction costs, the IP currently faces a funding gap of $76 million.

The 2 percent increase would set Palo Alto’s hotel tax rate at the highest in the state and is expected to generate $3.4 million in annual revenues that would be used to leverage $34 million in bond funding over the next ten years. City polling suggests that 66 percent of Palo Alto residents would support the hotel tax increase, however it is strongly opposed by local hotels, the Chamber of Commerce and the Downtown Business and Professional Association. A sugar sweetened beverage tax (soda tax) did not fair as well in the polling, registering only 49 to 52 percent support. Because of that limited support and insufficient time to refine the details of the proposal, Council voted 8-1 (Kou dissenting) to refer the soda tax to the Policy and Services Committee for further analysis and possible placement on the 2020 ballot.

Public speakers and several council members bemoaned the city’s failure to even consider a broader business tax, such as an employee head count tax, that would spread the burden across multiple business types that benefit from infrastructure investments. Furthermore, they contended that while a single industry should not alone bear the burden of new infrastructure taxes, at the least such an approach should also tax short term vacation rentals that compete for hotel visitors. An amendment by Councilmember DuBois directing staff to audit short term rentals and expand collection of TOT from vacation rental platforms was incorporated into the TOT vote. In addition, several argued that in addition to seeking new revenues, the city should revisit the Infrastructure Plan to moderate ambitions and reduce costs.

Finance Committee asks for $4 million spending reduction in FY2019 Budget.

On May 23, the Council Finance Committee recommended approval of the City’s Fiscal Year 2019 Budget, but not without a few bumps along the way. Due to concerns about ballooning future pension costs, the Finance Committee directed staff to identify $4 million in spending reductions. In addition, the Committee itself advised outsourcing the city’s auditing functions and eliminating most of that department’s staff, only to reverse course the next week, after hearing more from City Manager Keene and the current City Auditor, Harriett Richardson, as well as a former top city auditor for both Palo Alto and San Jose.

Although pension liabilities continue to skyrocket, the city is concerned that required annual payments are, in fact, artificially low due to an unrealistic rate of investment return (the “discount rate”) projected by the California Public Employee’s Retirement System (CalPERS). The current CalPERS discount rate is set at 7 percent, but CalPERS’ own actuarial consultant deemed a 6.2 percent rate of return to be more realistic. If CalPERS adjusts its discount rate to 6.2 percent, the city’s short term pension costs would increase by $8 million. In anticipation of that potential change, the Finance Committee thought it prudent to cover half the cost from this year’s budget and account for the other half in future budgets. 

The FY2019 Budget will go to City Council on June 18 showing a General Fund reduction of $4 million. But rather than lock in specific cuts at the last minute, the Finance Committee will consider various proposals after the summer break. Possible ideas put forth by staff include: regionalizing police dispatch, “civilianizing” the medical-response positions in the Fire Department that are currently occupied by firefighters, and creating new cost-sharing arrangements with the Palo Alto Unified School District for Project Safety Net and the Cubberley Community Center.

City Council boosts resources for Avenidas and Junior Museum Projects.

Under the shadow of potential budget cuts and new taxes, and a persistent funding gap for the city’s Infrastructure Plan, on May 29 City Council voted 7-2 (Filseth, Kou dissenting) to sell over $3 million worth of city-owned, transferrable development rights (TDRs) to help fund the city’s promised $5 million contribution to the redevelopment of the Avenidas Senior Center downtown. Under the city’s TDR program, investments in rehabilitation and seismic upgrades for historic properties can be offset through the sale of development rights. Developers bid by the square foot on offered TDRs and can use them as a form of density bonus to allow other building projects to exceed certain zoning restrictions.

In addition to authorizing the TDR sale, Council voted 8-1 (Kou dissenting) to contribute an additional $1 million to the Junior Museum and Zoo (JMZ) redevelopment project. Prompted by JMZ benefactor Dick Peery, both the city and the Friends of the JMZ agreed to up their investment by $1 million to restore two key elements of the new JMZ (“loose in the zoo” and an interior “treehouse”) to Phase 1 of the project, breaking ground this year.

57-unit Workforce Housing (WH) project approved for former VTA parking lot, reserving 12 units for incomes between 140 percent and 150 percent of area median income.

On June 4, City Council voted 6-2 (Holman, Kou dissenting) to approve both a zoning overlay (the Workforce Housing (WH) Combining District) designed to accommodate a specific car-light, small unit, housing “pilot,” and the project itself. Located at the former Valley Transportation Authority parking lot on the corner of El Camino Real and Page Mill Road, the 57-unit project includes 12 deed-restricted rental units priced to serve tenants earning between 140 and 150 percent of the area median income ($115,800 – $124,000 per year for an individual). The average unit size is 526 square feet and the project includes a Traffic Demand Management (TDM) program to encourage residents not to drive. The project is located outside of the Evergreen-Mayfield Residential Preferred Parking (RPP) program, so tenants will be ineligible for parking permits. Nonetheless, they will be free to park on the street after hours and on weekends.

The project’s financial pro-forma projects rents for the deed restricted units in 2019-2020 at $3,070-$3,290 per month for a studio apartment, $3,290-$3,530 per month for a one bedroom. Market rate units for the same year are projected at $3,410 for a studio and $3,680 for a one bedroom. Parking is unbundled from rent, so the cost of renting a parking space is additional.

The WH overlay applies to parcels zoned for public facilities within 1/2 mile of fixed rail transit. It allows for reduced parking requirements, increased Floor Area Ratio (FAR, the allowable square feet of building relative to the size of the lot) and no density limits for housing projects that deed-restrict at least 20 percent of the units for households earning from 120 to 150 percent of area median income (AMI) and restrict unit size to 750 square feet.

For more information, click here for the staff report.

First Baptist Church granted permit to operate as a community center.

More than 100 people turned out at City Hall on May 14, with 50 offering impassioned public comment both in support of and opposed to First Baptist Church’s application for a Conditional Use Permit (CUP) that would allow it to operate as a community center. City Council rejected the Planning Commission’s recommendation that basically accommodated to all the Church’s requests and would have allowed the Church to operate as any other community center in the city despite its location in a single-family residential district and lack of parking.

Instead, Council favored the compromise proposal originally put forth by staff in April. On a 7-2 vote (Holman, Kou dissenting) Council granted the CUP including a detailed a list of conditions that must be met to retain the permit. Key areas where the Council strayed from staff’s recommended conditions: maximum occupancy for a community center event will be limited to 70 people (versus 50 in the staff recommendation); community center activities must end by 8:30 pm Monday through Thursday (versus 7:30 pm in the staff recommendation); and up to five individual therapists can rent space at the church (versus up to 3 in the staff recommendation).


  • Wireless Antenna Equipment Installations: On May 21, despite vehement public opposition, City Council voted 6-3 (Holman, Kou, Tanaka dissenting) to allow Verizon to install wireless antennas and equipment on 11 utility poles in residential neighborhoods, rejecting seven separate appeals of the Planning Director’s previous approval. United Neighbors, a citizens group that opposed the Verizon project, anticipates that this first approval will pave the way for over 150 similar installations in the city that are currently under review.
  • Charleston-Arastradero Road Corridor Project: On May 21, City Council  approved $9 million in construction contracts for Phase 1 and Phase 2 of the long-awaited, three phase complete-streets project.
  • Grade Separations: On May 29, more than two dozen residents spoke up and over 700 signed petitions urging City Council not to choose grade separation options that would take people’s homes. City Council was sympathetic, but declined to promise that no option would be selected that would require property purchase or eminent domain. Council supported the Rail Committee’s selection of ten grade separation ideas for further consideration and agreed to appoint a stakeholder group to help further narrow the options. On May 8, Menlo Park’s City Council reluctantly voted 3-1-1 to pursue only a single grade separated intersection, citywide: an road underpass at Ravenswood Avenue, but held open flexibility to expand the options and directed staff to reach out to Palo Alto and Atherton to gauge interest in a multi-jurisdictional tunnel or trench.
  • Council Election: Councilmember Tom DuBois announced his intention to seek re-election to City Council.

Looking Ahead

June 11, 2018

Utilities Rate Increases: City Council will vote on the following rate increases for Fiscal Year 2019: a 6 percent increase for electric; 4 percent increase for gas; 3 percent increase for water; 11 percent increase for wastewater collection; 2.9 percent increase for both storm drain and dark fiber rates. Beginning at 7:45 pm (City Hall). Click here for staff report.

Public Safety Building: City Council to approve Final Environmental Impact Report (FEIR), modified development standards and architectural review applications for the new Public Safety Building and Parking Lot. Beginning at 8:45 pm (City Hall). Click here for staff report.

Ballot Measures – Comp Plan and Health Care Costs: City Council will take action on two voter initiatives, one pertaining to the Comprehensive Plan office/R&D cap and the other to Health Care Costs. Now that sufficient signatures have been certified, the Council must either adopt the ordinance as proposed in the initiative (without alteration) or submit the initiative, without alteration, to the voters. If the Council votes to put the initiative on the ballot, it may also write an alternative or competing measure for the November ballot. Beginning at 9:45 pm (City Hall). Click here for staff report on Office Cap Initiative. Click here for staff report on Health Care Costs Initiative.

Downtown Business Improvement District: City Council will adopt a resolution levying assessments for Fiscal Year 2019 on businesses in the Downtown Business Improvement District. Beginning at 7:35 pm (City Hall). Click here for staff report.

June 12, 2018

Bike Boulevards: City Council will hold a study session on Phase 1 of the transportation safety and bike boulevard project (along Amarillo Avenue, Bryant Street, East Meadow Drive, Montrose Avenue, Moreno Avenue, Louis Road, Palo Alto Avenue, and Ross Road). Beginning at 6:00 pm (El Palo Alto Room, Mitchell Park Community Center). Click here for staff report.

June 13, 2018

Grade Separations: The Council Rail Committee will discuss community engagement and next steps for further narrowing grade separation options, recommend Council approval of the VTA Measure B Grade Separation Funding Plan, and consider recommending a formal city position on the Caltrain Business Plan. Beginning at 8:00 am (Community Meeting Room, City Hall).

Benchmark report on traffic projects: The Planning and Transportation Commission will hold a study session on current traffic safety projects, activities and initiatives undertaken in 2017. Meeting begins at 6:00 pm (City Hall)Click here for report.

Olive Garden Redevelopment: The PTC will hold a hearing on a Vesting Tentative Map for redevelopment of the former Olive Garden Restaurant site into a previously approved, mixed-use project with first floor commercial space and 13 residential condos. Meeting begins at 6:00 pm (City Hall). Click here for staff report.

June 18, 2018

Budget Adoption: City Council will vote to adopt the city’s Fiscal Year 2019 Budget. Beginning at 6:55 pm (City Hall). Click here for staff report.

June 25, 2018 (Tentative)

Potential Ballot Measures: City Council may consider specific language and vote on whether to put a city tax measure on the November ballot and may take final action on Comp Plan (Office Cap) and Health Care Cost Initiatives. Tentative, TBD.

Downtown RPP Modifications: City Council may consider amending the number of employee parking permits allotted and modifying or maintaining the prohibition on re-parking in the Downtown Residential Preferred Parking (RPP) program. Tentative, TBD.

Stanford GUP: City Council may consider a formal comment letter on an Environmental Impact Report for a revised scenario for the Stanford Expansion. Tentative, TBD.

Pets in Need: City Council may take action on a city contract with Pets in Need to operate the Animal Shelter.