by Peter Gauvin
First, Stanford University proposed to extend Sand Hill Road to El Camino Real and build 1,264 units of housing in the open space next to the Children's Health Council. As part of that package, university administrators submitted plans to expand Stanford Shopping Center another 140,000 square feet.
Now they are talking with Palo Alto officials about expanding the Stanford Medical Center.
In the past, Palo Alto has repeatedly rejected Sand Hill extension proposals by themselves. What's in the air this time that makes Stanford officials think they can get this smorgasbord of development projects through the city virtually all at once?
"If you asked me if they would have come to us with all these things on one plate at one time I would have said no," said Mayor Liz Kniss. "That's a much fuller plate than we've ever seen before."
Are Palo Alto's economic winds starting to blow warm and friendly? Is Palo Alto--a city that has a reputation in development circles for its tough zoning requirements and painfully slow bureaucracy--actually becoming "business-friendly?"
That, of course, depends on whom you talk to. But there is no denying that economics have grabbed increasingly prominent consideration in this city that 10 and 15 years paid little attention to sales tax revenue and rarely considered bending its strict development controls, let alone actively try to escort businesses into town.
"When I came to Palo Alto in 1974, there was a very, very clear message that the land-use planning function should not take into account economics, either city revenues or the functioning of the marketplace. That it should be a 'pure process,'" said Ken Schreiber, the city's director of planning and community environment.
The city didn't need to make concessions for business, not with a world-renowned university, an industrial park, a lucrative regional shopping center and utilities that brought in tens of millions of dollars in revenue. That's changed.
"We're entering into an age where Palo Alto can't rely on its reputation alone to attract new enterprises into the city or to ensure that businesses already here stay here," said Gene Endicott, Bay Area government affairs manager at Hewlett-Packard Co., which employs 6,000 people in Palo Alto alone.
In the early 1980s, Schreiber and others conducted economic studies of various regions of the city, followed by a citywide study. "They were motivated by concern about traffic and increased employment. All those studies had zero economic analysis," Schreiber recalled.
Fast-forward to the present.
Palo Alto is actively recruiting Genencor, a biotechnology firm based in Rochester, N.Y., to come to Stanford Research Park.
The Council recently threw its support behind amending a zoning ordinance so developer Charles "Chop" Keenan can renovate the historic Varsity Theater and turn it into a 23,000-square-foot bookstore and cafe.
Despite the city's 3-1 jobs-housing imbalance, the Council this week was to consider extending the amortization period for Fry's Electronics to allow the computer store--and the significant tax revenue it generates--to stay until the year 2024, even though the land had been zoned to return to residential use in 1999.
The city was concerned enough about its finances to create the Economic Resources Plan, a broad-brush 21-page document that identifies possible policy changes to foster business. It includes many revolutionary proposals, especially given Palo Alto's stormy history on growth and development.
For instance, it recommends a "business outreach program" that includes promotion of the city as a "business-friendly community," providing city staff representatives to business and retail groups, and assigning an "expeditor/facilitator" to all major projects within the city.
The idea of rolling out such a red carpet for business never would have been considered before, as the author of the Economic Resources Plan will tell you.
"Just the fact that I would be asked to do this sort of thing is a reflection of the Council's priorities," said Carol Jansen, whose position as manager of economic resources was created in 1991 by former City Manager Bill Zaner after she spent a year on sabbatical studying at Harvard University.
What happened? By the mid-80s, Schreiber said, city staff began to notice that it was getting tougher and tougher to balance the budget. "Around 1985 the sales tax rate of growth started to decrease" as it did throughout California, he said. "The very taxable growth of the early '80s began to slow and the high housing-cost gap between Palo Alto and the nation continued to widen."
"By 1987 the city's budget was running negatives" and with the 1988 budget the economics of the city hit home, Schreiber said. Concern grew about the decline of the research park and Zaner asked Schreiber and finance director Emily Harrison to do the Stanford Research Park Study, which was released in September 1991.
"Its No. 1 conclusion was the city is facing stiff competition," Schreiber said. "It became clear that the world was no longer going to beat a path to Palo Alto's doorstep."
Two years ago, when Palo Alto and the nation were still in the depths of a recession, the Economic Resources Plan was commissioned. A draft of the plan was made public last fall, and the Council will be considering its assumptions and recommendations in upcoming months.
"The Economic Resources Plan is not a document that specifically relates to new development," Jansen makes clear. "It's about business retention and the nexus between the city and business."
One of the problems in the past has been simply a lack of communication lines, Jansen said. While there's been substantial improvement in the last few years, as the business sector will attest, Jansen said there is still room for improvement.
With Palo Alto's strong ethic as a residential community, Jansen recognizes that the inducements other municipalities use to attract high-revenue businesses would not fly here. "Mountain View's strategy would be totally inadequate here," she said.
Last year, Mountain View landed Costco, a huge discount warehouse store that sits just across the Palo Alto border--but the bait was generous. The city's concession to the retail giant: a 50 percent rebate of the city's sales tax revenue to Costco for five years.
Still, the Economic Resources Plan represents a fundamental change from Palo Alto's past, Jansen said. "We didn't look at economic impacts before. What I envision is we would look at economic impacts for everything."
One example is zoning issues along El Camino Real, where small, shallow parcels make it nearly impossible to put together a large commercial project and small businesses have had difficulty surviving.
With the current "neighborhood commercial" zoning, "if you have a one-acre property you're allowed 5,000 square feet of building, and if you have a 10-acre property you're allowed 5,000 square feet of building," Jansen said. "We should use zoning as a tool to make things happen there, rather than to keep things from happening."
The future development philosophy for El Camino, whether it will stay "neighborhood commercial" or become "destination retail," may well be determined in the revision of Palo Alto's Comprehensive Plan this spring.
The Economic Resources Plan might never have come to fruition without the perseverance of one former Council member. "Mike Cobb really does deserve the credit for keeping this issue alive," Jansen said. "He was a lone voice for economic issues for several years."
Cobb, who stepped down at the end of last year, is thankful that he is finally being heard.
"In 1990 as mayor I made it my mission to talk to business. I pushed awful hard to keep economic vitality as a priority," Cobb said. "There needs to be a better understanding in the community of the connection between business and city services," he said, as he did repeatedly during his 12 years on the Council.
"We're pretty close to having to cut services," Cobb said. "I think the moment of truth is about here."
If the city wants to keep its services, some trade-offs may be necessary, he said. For instance, it is estimated that the Stanford Shopping Center expansion would provide the city with an additional $350,000 to $500,000 in sales tax. "What's the price of that in terms of traffic congestion and maintaining services? That's the trade-off," Cobb said.
"There's an army of folks saying 'don't cut services' and 'don't (allow development).' I think many people would be very distressed if we lost some cherished service. Once you get rid of services it's pretty hard to get them back. That's why there are trade-offs. You don't encourage business for its own sake."
However, Council member Dick Rosenbaum, who was first on the Council from 1971 to 1975 and was elected again in 1991, disputes the importance of providing for new development to reap sales tax. It's merely a drop in the bucket, he said.
"We're chasing a will-o'-the-wisp if we think sales tax will make a significant difference," Rosenbaum said. "The amount of sales tax is so small that it shouldn't be a dominant factor in planning decisions."
Rosenbaum calls this thinking the "fiscalization of land use."
Even if the shopping center expansion nets a healthy $400 per square foot in annual sales, the city gets only 1 percent of sales revenue, or $4 per square foot. For 140,000 square feet, Rosenbaum points out, that's $560,000.
Sounds like more than spare change, but that's less than 1 percent of the city's budget and equal to a 1.5 percent raise in salaries of all city employees, he said. "You could build 140,000 square feet every year and it would be negated by a 1.5 percent salary raise."
What the city is really dependent upon is the incremental increase in its existing tax base due to general sales and inflation, Rosenbaum said. The normal increment is "far greater" than that provided by new businesses, he said.
But Rosenbaum is just as eager to encourage business as anyone else--if it means an improvement to the community. "There are a number of ugly strips on El Camino, but the reason to fix those up is not money. It's because they look like hell," he said.
Jay Thorwaldson is well versed on the cycles of Palo Altans' attitudes toward growth, development and business. In 1966, Thorwaldson began covering the volatile political moods of the city as a reporter for the Palo Alto Times. "I was sort of bewildered because I'd never seen a town that was so divided," he remembered. The 1950s were a period of tremendous growth. Orchards were mowed and subdivisions sprang up with abandon. It is sometimes called the "Great Engineer Migration" for the stampede of engineers that came west to work at the pioneering companies in what was then known as Stanford Industrial Park. The industrial park was created in 1951, a fortuitous idea cooked up by Mayor Noel Porter, City Manager Jerry Keithley and Alf Brandin, Stanford's vice president of business affairs.
The growth continued unabated until 1962 and the battle over widening Oregon Avenue into an expressway, which involved tearing down 92 homes. The battle against the expressway was narrowly lost, but it unified neighborhood groups into an increasingly powerful faction. It was the beginning of the "residentialist movement."
"In the '60s you could fill the City Council any night of the week if there was a development issue on the agenda," recalls Ellen Wyman, a prominent residentialist. "Local political issues were the recreational activity of choice of a great many residents."
By 1966, the residentialists managed to elect six members to the 13-member City Council, which was undergoing a gradual downsizing from its clumsy 15-member size. The pro-development majority was known as the "establishment." The Council voted 7-6 on nearly everything, even on the minutes of previous meetings, said Thorwaldson.
Early in 1967, a group of establishment supporters launched a recall effort against every Council member not up for election, which resulted in an all-Council election. An acrimonious campaign ensued, and all but two of the residentialists, Kirke Comstock and Enid Pearson, were kicked off. The new Council, however, turned out to be more moderate than anyone thought.
In 1970 the Palo Alto Medical Foundation's proposal for an 18-story hospital at the medical clinic's current site caused nearby residents in the Professorville neighborhood to form the Association for a Balanced Community.
"The hospital debate congealed residentialists again," said Thorwaldson, who ironically is now director of public affairs for the medical foundation, which filed plans Monday to build an entirely new 300,000-square-foot campus on nine acres off El Camino Real north of Town & Country Village. (See story on page 7.)
In 1973, residentialists took over the majority of the Council, but controversy over radical social programs allowed the establishment to recapture the majority in 1975. "The other side had gotten a bit out of balance," said Fred Eyerly, who was one of the establishment candidates elected that year.
By this time, however, the dominant thinking on both sides included protecting the city's residential character.
"The establishment felt that business was an important and integral part of the community--not necessarily for continued growth, but to maintain a balanced, healthy community," said Eyerly, who served on the Council until 1983 and was mayor in 1981.
In the mid-70s, the city tried everything it could to put the brakes on growth, Thorwaldson recalled, but amazingly it was still projected the city would grow by 23,000 jobs.
The city's finances were unbelievably robust. "In 1976 the city was hit with $7.4 million in settlement costs after a lawsuit on the Arastra property and they soaked it up without missing a stride," Thorwaldson said. "Then they took a $13.5 million hit from Proposition 13 and still they didn't have to close any libraries."
It was remarkable, he said. "The city took a $20 million hit in three years with few side affects. That was due to the tremendous growth of the '50s."
In the late '70s people burned out on the fierce hostility between the two local political factions, Thorwaldson said, and by 1981 the rival political slates had vanished from the election scene. There was now general agreement on planning and zoning issues and the residentialists had met many of their goals in protecting neighborhoods and open space.
The '80s, nationally and locally, were a period of unanticipated growth, of maxing out every credit card, said Kniss. "The national trend in the '90s is that this is a time to reassess and get back to a balanced position. We're looking at business as an ally instead of as an enemy."
"Sometime in the mid- to late '80s it became obvious that we could no longer take business for granted," said Council member Gary Fazzino. "Being pro-business no longer meant being anti-neighborhood.
"The 1988 budget process jolted a lot of folks. Attitudes changed dramatically. In the 1989 campaign Mike Cobb and myself talked about the need to revitalize our business environment and Mike and I finished one and two."
Another factor, Fazzino said, was that "people who came here in the '80s did not view Stanford as the economic bogeyman. When you look at most economic development in the last 40 years Stanford has been the biggest factor."
Of course, the city has filled out now and the major battles over growth have been fought, Fazzino said. "The issue now is, within current commercial zones can we be more flexible and allow certain business uses?"
Compromise is the key word, Kniss said, and the Council's recent nod of approval for renovating the Varsity Theater into a bookstore is a perfect example. "Many of us would have liked it to remain a theater, but we realize that wouldn't be an economic feasibility. It's due to market-driven forces that we can't dictate."
Here, the Council has already taken a page from the Economic Resources Plan, which encourages the city to "work toward minimizing zoning hurdles associated with reuse of existing buildings."
Wyman, for one, fears the Economic Resources Plan goes too far. "Zoning isn't meant to be a hurdle, it's a guideline developed by the state," she said. "The developers around here are pretty sophisticated. If there's a way around something they'll find it pretty quick. Residents aren't down at City Hall every day. Zoning is their only protection." "The quality of life would deteriorate if they did everything mentioned in the ERP," Wyman said. "What we need is to make what we have work better, not to make substantive change in zoning, plans and goals."
"I don't see that we have a major economic problem and I can't see why you need 21 pages of suggestions to change the city when residents say they don't want it to change," Wyman said. "It's a well-done report if you accept their assumptions, but I don't."
And neither did Dick Rosenbaum when the Council first discussed the plan in November. "I have trouble with the premise of the report," he said, which basically makes three assumptions: The city is not keeping up with infrastructure improvements, expenditures will outstrip revenues, and residents will not be receptive to new taxes.
Palo Alto's Chamber of Commerce has grown increasingly powerful in the last five years. Just look at its membership, which has more than doubled from about 300 members in 1985 to 750 members today. More significantly though, said Executive Director Susan Frank, the chamber is consulted by the city and often works alongside city staff on issues such as downtown parking, restroom and graffiti issues.
"What's different now is that there's a Council that's more receptive," Frank said. "We find out in the up-front stages about issues in the city so we have time to formulate opinion and get in on the discussion."
"The relationship between the Council, staff and the Chamber is as good as I've ever seen it," adds Steve Player, president of the chamber board of directors.
Player, who's been in on the Genencor negotiations, recently organized the Chamber's Economic Vitality Task Force to attract new businesses to the city and meet the needs of existing business, such as development of higher-quality hotel services and a convention center. Endicott of HP and Thorwaldson of the Medical Foundation are both members of the task force.
Developers have experienced the headaches of dealing with the city in the past, and they've noticed a change in attitude.
"They used to say when we went to City Hall, 'Good morning, how can we not help you,'" remembers Warren Thoits, a downtown Palo Alto property owner and developer for more than 45 years.
"There is no question in my mind that the attitude of city government--the City Council, staff, the Planning Commission and, to a lesser extent the ARB (Architectural Review Board)--have become much more interested in promoting a strong downtown business community. It's reflected in their willingness to consider development proposals."
"I find from planning staff that there is a genuine desire to help me as long as I'm not pushing the development envelope," said Jim Baer, another downtown developer.
One-stop permitting and increased reliance on staff to make certain decisions has cut some of the red tape, Baer said. But the area where he sees the city dragging its feet is on infrastructure improvements, especially if the goal of city officials is to increase sales tax.
"(Downtown businesses) would increase annual revenue by $100 million if the city made a $5 million investment (in a parking lot)," he said.
More than sales tax or anything else, it is Palo Alto's utilities that must remain healthy, noted Eyerly, who's a member of the Utilities Advisory Commission. Twenty-five percent of the city's $198 million operating budget is provided by utilities transfers.
And 80 percent of that is generated by Stanford Research Park, noted developer Chop Keenan, who has built four projects there in the last four years.
The park has been a cash cow for the city. Property and sales taxes there account for approximately 15 percent of the city's general fund, second only to the shopping center as a revenue producer.
"I see a lot of renovation going on in the next decade," said Keenan. "I call it polishing the nuggets. And we've got plenty of nuggets."
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