Development Cap: Size, what to count, and why | A Pragmatist's Take | Douglas Moran | Palo Alto Online |

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By Douglas Moran

Development Cap: Size, what to count, and why

Uploaded: Nov 1, 2015

On Monday, Council will be discussing the update of Land Use Element of the Comprehensive Plan to provide guidance to the Citizens Advisory Committee (Agenda). The development cap is expected to be a significant part of this discussion because it underlies many of the other issues. The size of the cap was determined in the mid-1990s and is part of the current Comprehensive Plan (CompPlan) that was officially adopted in 1998.

That cap was 3.25M sq. ft. of additional non-residential development, which has been exceeded. However, City Staff says that less than half that--1.5M--has been used. Why the difference? Staff has decided that 2.3M sq. ft. of development doesn't count toward the cap, although no one I have talked to knows how this exemption came about. Staff terms this development "non-monitored" and it includes the Stanford Medical Center (built and pending), Palo Alto Medical Foundation, VA Hospital...

Putting aside the issue of the legitimacy of this category, the question is whether it is desirable. Square footage was not what was intended to be allocated, but rather was intended as a proxy.(foot#1) Non-residential square footage was used as a proxy for jobs, which in turn are a measure/proxy for impacts on the community, such as housing and road needs, with housing being both a need and a proxy for other needs, such as schools, parks, and other community facilities. So do the jobs in these "non-monitored" developments have any less impact on the community than other types of jobs?

Once you recognize the cap as a proxy, the next questions that should be asked are whether it is still a good proxy, and whether the details need to be updated. The size of the cap was decided upon in the early 1990s--before the beginning of the DotCom Boom/Bubble--and its assumptions may be based on data from years before that.(foot#2) In the intervening decades, the space per employee has shrunk: For example, in the mid-1990s the assumption was for a software development company using cubicles to need 250 sq. ft. per employee. When Facebook moved from University Avenue to the Stanford Research Park in 2009, its initial employee density was one per 92 sq. ft.(foot#3) Part of the reduced space per employee is employers packing them in more tightly, but there have also been reductions in space requirements. For example, companies used to require large computer rooms for file servers, but these have largely disappeared: (1) More data is stored on individual computers (massive increase in disk capacity), (2) more data is stored in the Cloud, (3) the few on-site servers that are still needed are much smaller. Similarly for photocopiers and computer printers. And when was the last time you saw a large bank of FAX machines.

My saying that square footage was intended to be a proxy for jobs is an oversimplification. For example, hospitals and medical centers have far fewer jobs per sq. ft. than a software development company. However, with patients coming and going, and delivery of supplies, they may produce more vehicle trips than a software company in the same size space. Similarly for retail. I suspect that the champions for vehicle trips per square foot of building are gas stations, followed by fast food restaurants, especially ones with a drive-thru window. Because of shift in the mix of various categories, and shifts within a category, square footage is at best a rough approximation of what you are trying to use it for as a proxy. But choosing the appropriate values for this proxy involves finding comparable situations to provide relevant statistics. Caution: City Hall is infamous for using national averages in defiance of extensive local experience.

Consequently, even though we may be only somewhat exceeding the cap in terms of square footage, we may have greatly exceeded it in terms of what that metric was intended to control. Because hitting the cap has sneaked up on us, there hasn't been the data collection and discussion needed to discuss what should be in the updated CompPlan.

Even if we are only close to reaching the cap, there are a host of questions I don't think have been addressed. For example, when does a proposed project "vest" its rights to that amount of the cap? A controversial, one-time decision was made relative to annual caps for several areas(foot#4) but no principled, long-range discussion has happened. If a project gets to reserve rights too early in the process only to be delayed or cancelled by the developer, then other worthy projects are blocked from proceeding in the interim. But if vesting happens too late in the process, there can be other projects well along in the approval process that can be blocked for years before cap space becomes available.

TDRs (Transferable Development Rights) pose a related problem. A TDR allows a developer to build a specified amount beyond the allowable zoning, and can be transferred between properties and can be sold to other developers. Some TDRs are subsidies to building owners (for example, for seismic upgrades) and some are "Zoning for Sale"--City Hall getting off-budget funding for favored projects. When and where TDRs will be used is even more unpredictable than projects in the approval pipeline. While TDRs may sound good in theory, they are too easy to game in practice.(foot#5)

If Palo Alto is at the cap (now or future), how do we avoid developers gaming the system to get space for their projects. For example, we have seen developer create "blight" (Alma Village and 195 Page Mill) to successfully "encourage" Council to give them zoning changes. Could we see developers tearing down a building in the middle of a business district in order to open up space under the cap to be using in a project of theirs elsewhere?

Business districts and the caps
When you look carefully at the arguments that Palo Alto needs to provide more and more office space, it typically the intersection of large established companies wanting the prestige of a Palo Alto presence, and of elements of the Palo Alto elite wanting the prestige of more high profile companies locating here. Many people are just beginning to realize is how much this has distorted our business districts. Business districts, as opposed to industrial parks, are regarded as predominately a collection of small business that support the community and each other. For example, the retail stores use a local accountant and insurance firm. Employees in those service companies are customers for retail stores and other service companies. This concentration of different services and types of retail make the business district a destination and resource for nearby residents. A certain amount of other types of commercial companies, such as software development, provide additional customers for the primary businesses in the district.

During the DotCom Boom, City Hall resisted protecting the various business districts, with University Avenue being the hardest hit by conversion to offices. Even now, City Hall refuses to enforce existing rules for a building only one block away. I live in southern Palo Alto and like many of my neighbors, I rarely go to the University Ave district--the large number of office workers have transformed the business mix into one oriented toward them and away from the community.

A problem facing University Ave, and potentially California Ave, is domination by small numbers of large, elite companies. First, the economy of those districts becomes too closely tied to the fortunes of those companies, as demonstrated during the two recent recessions (the DotCom bust and 2008). Second, if those companies grow too large and move out, as Google and Facebook did, it can hit the remaining businesses very hard. Palantir is the next iteration of this problem. Third, elite companies drive up the rents because they can pay more for their offices. Palo Alto claims it wants to support small, innovative startups, but its policies focus on the prestige companies. Elite companies can also pay above-market wages (as several acknowledge doing) which then encourages higher-end restaurants and retail, pushing out stores that serve a broader community.

The first step to getting good answers is to figure out what are the important questions.


1. Proxy metric, historical example: During World War 2, the US rationed gasoline despite having abundant supplies--what needed to be rationed was tire wear because its material (rubber) was in short supply, but its consumption rate was largely invisible to the driver, whereas gasoline usage was both highly visible and tracked in small increments.

2. The CompPlan was in development for several years in the early 1990s, and its approval was delayed for several years by City Councils that didn't regard it as a priority.

3. "Residents nervous over Facebook move", Palo Alto Online, 2009-03-13.

4. "Palo Alto puts a cap on office development: Divisive law seeks to pace commercial growth downtown, around California Avenue and along El Camino Real", Palo Alto Online, 2015-09-22.

5. Yogi Berra: "In theory there is no difference between theory and practice. In practice there is."

An abbreviated index by topic and chronologically is available.

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