Palo Alto officials circumvented the public process and ignored the city's own policies about leasing of public land when they engaged in closed-door negotiations with billionaire developer John Arrillaga over a proposed office-and-theater complex at 27 University Ave. and a portion of parkland next to Foothills Park, the Santa Clara County Grand Jury found in a scathing new report.
The report, which the Grand Jury released Thursday, takes the city to task for its handling of the controversial proposal for 27 University Ave., a project which would have included four office towers and a performing-arts theater at the current site of the MacArthur Park Restaurant. While negotiating with Arrillaga in private meetings in 2012, the city simultaneously considered selling to him a 7.7-acre parcel next to Foothills Park that was given to the city as as gift specifically for conservation purposes.
Both proposals ultimately fizzled after a public outcry. The council elected in December 2012 not to hold a special election on Arrillaga's concept, as initially proposed, and the development proposal was shelved. At the same time, the council agreed last year to officially dedicate the 7.7-acre as parkland, making future sales highly unlikely.
Even so, the two proposals had galvanized the community, with residents protesting the nature of the city's negotiations and calling for more transparency. The Grand Jury report concurs with these concerns and slams Palo Alto for falling short of its standards for transparency in its dealings with Arrillaga.
The negotiations with Arrillaga on both subjects, the Grand Jury found, were "done in a manner that was permissible but undertaken in a way to avoid public scrutiny, unlike other similar large-scale projects."
The report, titled "The City of Palo Alto's Actions Reduced Transparency and Inhibited Public Input and Scrutiny on Important Land Issues," takes a close look at the 7.7-acre park site, which was gifted to the city by the Lee Family trust in 1981. Though the deed specifies that the land would be used for "conservation, including park and recreation purposes," the city in 2012 considered an offer from Arrillaga to buy it for $175,000. As part of the discussion, council members took trips to the site in groups of three to avoid violating the Brown Act, which requires public disclosure when a majority of the council meets. The Weekly learned about these meetings in late 2012 after filing a Public Records Act request and receiving emails between staff and council members arranging the meetings.
The Grand Jury found that the city did not follow its own procedures in discussing the sale of what is called "surplus public land." Palo Alto's policy requires the city to identify a surplus site, notify city departments and other public agencies about the land and declare the property as "surplus" through an "open and competitive bid process," the Grand Jury notes. The city would also have to give first priority to local agencies seeking to buy the land for public use.
In this case, neither other agencies nor the public at large were notified about the discussion of sale until September 2012, when the council hastily arranged a closed session to discuss Arrillaga's offer. The Grand Jury concludes that "it would have been more appropriate and transparent for the City Council to first discuss whether property could or should be declared surplus in a public meeting before convening a closed session to discuss price and terms."
"A closed session on price and terms should occur only after the City Council has properly declared the property to be surplus pursuant to the City's policy," the report reads.
The report also condemns the city's handling of 27 University Ave., which would have significantly exceeded the city's zoning restrictions and required changes to the Comprehensive Plan. All four proposed office buildings would have been well above the city's 50-foot height limit, with two of them slated to be more than 100 feet tall.
The Grand Jury learned that the city received in September 2011 renderings of Arrillaga's initial proposal for an office complex, which staff found to be unacceptable because of their design and height. Later, the city received the four-tower proposal, which also included an offer to build a performing-arts theater that would have been occupied by TheatreWorks. The plan also included various improvements to the downtown transit center next to the 27 University Ave. site.
These plans didn't come to light until March 12, when the council first discussed Arrillaga's proposal. At that time, the council agreed to spend $250,000 from funds in its development agreement with Stanford University for design work associated with the Arrillaga proposal. The Grand Jury noted in its report that the allocation was made despite the fact that no formal application had ever been filed by Arrillaga.
"Such a large expenditure of public funds and staff time for a design study linked to development of 27 University Avenue, for which no land use application had been filed, raises questions about the wisdom of spending the SUMC (Stanford University Medical Center) funds in this manner," the report states, referring to money the medical center gave to the city in a development agreement that permitted large expansion for Stanford hospitals. "Given that the money was allocated toward the design and study of 27 University Avenue and surrounding areas, it is unknown if the results are useful if the 27 University Avenue proposal never goes forward."
In addition, the report criticizes the city for failing to respond to several public-records request from residents. After reviewing several such requests, the Grand Jury found that some "remained unanswered for several months, or were not responded to at all."
"In one case, in a follow up request, a response to the PRR (public-record requests) was received only after the City was cited sections of the CPRA (California Public Records Act)," the Grand Jury wrote. "The City could not explain why it failed to respond to these multiple PRRs."
In its recommendations, the Grand Jury calls for the city to follow its own rules about leasing and selling city property, "seek public input about the disposition of surplus City-owned land before the City Council meets to discuss that property," and "consistently respond to requests for public records in a timely manner."
In his response to the report, City Manager James Keene acknowledged many of the shortcomings that the Grand Jury identified in its investigation, which was prompted by citizen complaints. The process, Keene said in a statement, "could have been better, and we have been clear about that."
"That said, the City's intention was always to try to guide the preliminary project in a better direction," Keene said. "While the project as initially proposed by Mr. Arrillaga was focused on new office buildings, the City saw the opportunity to begin the master plan and redesign the transit center and road network at this gateway entrance to the City."
He also noted that the proposal never came to pass and that the site will be evaluated during the city's public update of the Comprehensive Plan. He defended the city's responses to public-records requests, saying that the city receives "many requests for information every single day and we do a really good job of responding to the public." He said the city has recently added a webpage for people to formally file and track public-records requests. The city is also looking at software, he wrote, that can be deployed across the organization to manage requests.
On the concerns about the Foothills site, Keene noted that the issues involving the Lee gift go back 30 years and the the city is "accountable for contemporary decisions on this land today." To that end, he wrote, the council directed staff in March to dedicate the land as parkland.
"The City is in the process of preparing that dedication for formal Council action," Keene wrote.