New developments inevitably breed frustrations in Palo Alto, where city leaders have spent much of the past year exploring new ways to limit the growth of office space and curtail its most visible side-effects: traffic congestion and a parking shortage.
But when it comes to the city budget, more residents and more workers would translate into higher revenues, according to a new fiscal analysis the city commissioned as part of the ongoing update of its Comprehensive Plan, a document that will guide the city's growth until 2030.
The analysis, which was performed by the Oakland-based firm Economic & Planning Systems, also suggests that a new resident is particularly lucrative when it comes to the city's bottom line, bringing in on average about $115 a year more than a new employee would.
The fiscal analysis takes a look at the four growth scenarios being considered in the environmental assessment for the Comprehensive Plan and concludes that the scenario with the most aggressive growth policies is also the one that would pump the most money into the city's General Fund.
Each scenario, the analysis found, would boost local finances, with revenue growth in the General Fund ranging from $5 million in the slowest-growth scenario to $7.4 million in the one with the highest growth. This represents an annual per-capital fiscal net benefit of $240 to $310 per person, with each new resident generating about $340 to $360 and each new employee bringing in between $190 and $280.
Even so, the study notes, the fiscal impact of even the most aggressive growth scenario represents relatively modest growth in the General Fund, which had an expenditure budget of $171 million in fiscal year 2015. The city's General Fund would see an increase in $5.2 million by 2030 under Scenario 1, known as the "business as usual" scenario, which proposes no major policy changes.
Scenario 2, known as "growth slowed," would make the smallest dent in the General Fund -- $5 million by 2030. It includes policies that limit new office space, and it identifies no major new sites for housing.
The third scenario, called "housing reconsidered," aggressively encourages housing in public-transit areas with policies that could, for example, relax height limits for downtown projects that include housing. That scenario would bring in $6.2 million.
But it's the scenario with the most experimentation that is projected to bring in the greatest financial rewards. Known as "sustainability tested," the fourth scenario focuses less on square footage and more on performance standards for factors like traffic, energy production and water use. It would encourage commercial areas to become more densely built; promote green-building practices and local solar-energy production; and consider new housing along El Camino Real near Stanford Research Park and Stanford Shopping Center. Under the existing projections, this scenario would also result in a population growth of 16 percent (compared to 10 percent in the first two scenarios and 13 percent in the third) and employee growth of 16 percent (same as in the first scenario, but above the 10 and 13 percent growths projected in Scenarios 2 and 3, respectively). Even when the increased costs of supporting a growing population are taken into account, the sustainability scenario projects a $7.4 million growth in the General Fund between now and 2030.
While strong hotel- and sales-tax revenues play a significant role in the projections, the main driver is property tax. Given the high value of Palo Alto's real estate, income from this tax source is projected to be strong in the years ahead, particularly in the residential sector. Because of Proposition 13, assessed values of properties are restricted to 2 percent annual appreciation. However, when a long-held property changes hands, the assessed value can "reset to a market level that is many multiples its prior assessed value," the fiscal analysis states.
"With residential properties being more numerous, more valuable in aggregate, and turning over more frequently in Palo Alto, it is probable that residential turnover in Palo Alto is adding assessed value to the city roll at a greater rate than commercial sector," the report states.
The new study also notes that property-tax revenue from residential uses is "two to three times that of employment uses on a per-capita basis (reflective of value, space efficiency, and turnover)."
"This residential property-related revenue outweighs the higher per-capita sales-tax revenue and transient-occupancy-tax revenue generated by local employment," the study states.
Overall, property-tax revenue accounts for between 50 percent and 56 percent of projected revenue growth, depending on the scenario, the new analysis shows.
In the slowest-growth scenario, property-taxes would increase by $5.7 million by 2030. In the largest-growth scenario, it would rise by $8.5 million, with more than $5.3 million coming from residential properties.
The report also looks at the cost implications of each scenario and concludes that, by and large, these pale in comparison to the revenues gains. The costs would range from $5 million in Scenario 2 to $8 million in Scenario 4. Revenues, meanwhile, are expected to rise by between $10 million and $15.4 million.
The study also assumes that the growth envisioned in the four scenarios would require "minimal capital investment in new facilities" and that what investment is needed would be covered without much difficulty by General Fund, development-impact fees and other available capital-investment sources.
Despite its conclusions, the study is unlikely to shift the City Council's generally skeptical philosophy on growth. In recent months, the council has instituted an annual cap on new office development in the city's three main commercial areas, hoping to moderate the pace of commercial development.
And despite a widely acknowledged housing shortage, so far the council's main attempt to deal with the issue has been a proposal to encourage construction of secondary (or "granny") units.
Significantly, none of the four scenarios propose any zone changes in single-family neighborhoods or assume any major new housing developments, with the lone exception of a possible multi-family housing project at the current Fry's Electronics site.
Council members Cory Wolbach and Marc Berman, however, have been lobbying for policies that add housing.
"What mechanisms do we use to evaluate the value of having some amount of socioeconomic diversity in your city?" Berman asked at the Feb. 22 meeting. "I don't know how to quantify it, but I know we're losing it."
Berman suggested that the council is becoming "too preventative of things and not taking advantage of this opportunity to evaluate a lot of different options and have a discussion about what those impacts might be."
Wolbach agreed and proposed including in a fifth growth scenario the same level of housing growth that is currently embedded in the fourth scenario (which is higher than in the other three), though his colleagues ultimately rejected the suggestion.
While the results of the new analysis make an economic case for growth, the study also acknowledges its own limitations. Most significantly, it does not estimate "quality of life impacts that result from growth, such as changes in traffic congestion, parking supply, or other positive or negative factors related to increased land use density."
And while it considers the operational costs and revenues in the General Fund, it does not take into account the major infrastructure projects -- including proposals to dig a trench for Caltrain and to reconstruct the busy intersection of Page Mill Road and Foothill Expressway -- that appear in some of the scenarios.
The study's key findings suggest that "the City will have the financial resources available to provide the high quality and diverse mix of municipal services for both residents and local workers in all growth scenarios considered in the Comprehensive Plan Update," a new report from the Department of Planning and Community Environment concludes.
But while the intention of the new analysis is to inform the council about the fiscal impacts of the four scenarios, city planners acknowledge that these impacts are just one of many factors that city leaders will have to consider in the months ahead, as the Comprehensive Plan update continues.