Building an auto mall on city-owned land near U.S. Highway 101 is "expensive and logistically difficult," Palo Alto City Manager Frank Benest reported this week.

Although an official recommendation from city staff on the much-studied project is not finalized — a report with financial details will be presented to the City Council on June 19 — initial indications are not encouraging for the project's supporters.

Benest made the announcement at last week's Finance Committee meeting, during a discussion about the budget.

Under the proposal, floated by three council members last year, the city would move the Municipal Services Center on East Bayshore Road — which houses public works, utilities and vehicle maintenance personnel — to another site. Then two or three auto dealers could locate their businesses on the 17 acres.

"Seventeen acres is tough," Susan Arpan, the city's manager of economic development and redevelopment, said Wednesday morning.

The reconstructed city facilities would need to withstand a strong earthquake.

"That drives the cost of new building to an unaffordable level," said Councilman Bern Beecham, one of the three council members who recommended the study.

There is not likely another city-owned site for an auto mall if the Municipal Services Center falls through, he added.

"If it's not there, I don't know where else it might be," he said.

Auto dealers are a vital source of sales tax for the city, contributing nearly $2 million in good years. Two auto dealers have left the city in recent years, and others have threatened to leave, citing a lack of space for storing vehicles.

In another effort to retain car sales in Palo Alto, the city rezoned private plots around East Bayshore Road earlier this year to allow developers to build auto dealerships there.

"We'll find out over a little bit of time whether those incentives really work," Beecham said. He said there's some talk landowners might be interested in using the new zoning.

"There's always talk," Beecham said. "I have heard some talk, but nothing that I can take to the bank."