Palo Alto's effort to limit office growth at three prominent commercial zones is showing signs of success -- though not in a way that anyone on the council had envisioned.
The City Council approved in September 2015 an interim ordinance that capped new office development in downtown, around California Avenue and along El Camino Real at 50,000 square feet annually. The ordinance envisioned a process in which the council would tally up all of its development applications on March 31, 2016, and then select the best projects through a process informally referred to as a "beauty contest."
Then something unexpected happened -- or, rather, didn't happen. Even though the three areas had more than 50,000 square feet of office growth in each of the two years prior to the ordinance's passage, new development slowed to a crawl after the law kicked in. By the end March 2016, the city had received applications for three projects, totaling 40,863 square feet between them -- well below the threshold that would trigger a competition.
When the March deadline arrived earlier this year, the number of projects was even more startling: zero.
And so far this year, the only project in the city's pipeline is a two-story research-and-development building at 3045 Park Blvd., which is looking to add about 11,164 square feet of office space to the California Avenue area.
The results will be dissected on Tuesday, when the City Council considers whether to extend the annual office cap (the interim law expires on Nov. 26). The council also will consider possible modifications to the existing cap. One possible change is allowing developers to "carry over" unused square footage into the next year. Another would eliminate existing exemptions for small projects. Yet another idea, which is favored by Mayor Greg Scharff and Vice Mayor Liz Kniss, would eliminate the "beauty contest" idea altogether and proceed on a first-come, first-served basis.
The council also will consider whether the ordinance should retain its existing boundaries or should also include Stanford Research Park.
If the council approves staff's recommendation, the existing ordinance would be extended until June 30, 2018. After that time, the city's modified ordinance would kick in.
While it's hard to precisely measure the extent to which the new ordinance contributed to the commercial slow down, it's impossible to deny that conditions have changed significantly since the law took effect. The 2015 ordinance cites to the city's recent growth surge and notes that Palo Alto has had six years since 2001 in which there were more than 50,000 square feet of new commercial development in the three districts (including 2014 and 2015). This contributes to parking shortages, traffic congestion and greenhouse gas emission, the ordinance states.
"Record-high monthly rental rates for office space and low-vacancy rates suggest that the rapid pace of development is likely to continue, putting pressure on sites that are not currently developed to their maximum potential, and contributing to a feeling in the community that the character(s) of the City's commercial districts are changing too fast," the ordinance states.
Now, that trend appears to have abated. A new report from the Department of Planning and Community Environment notes that "subsequent to the implementation of the AOL (Annual Office Limit) ordinance, there has not been any significant office development proposed in the ordinance-affected areas."
"Although the time period has been relatively short, it appears that the interim ordinance has reduced the amount of applications for net new office projects," the report states.
Just as in the past, the ordinance has plenty of critics. Though the Planning and Transportation Commission voted unanimously last month to support an extension of the annual office cap, two commissioners remain unabashed opponents of the cap.
Commissioner Eric Rosenblum argued at the March 29 meeting that the office cap has "never been the right mechanism." He noted that office development had not reached the 50,000-square-foot number in either of the cap's two years of existence.
Rosenblum took this as a sign that the new ordinance "hasn't actually done anything." The city's resources, he said, would have been better spent on improving alternatives to cars.
"A lot of the problems we're trying to address have to do with buildings that were constructed even before the 1990s, which were under-parked," Rosenblum said.
If the city does move forward with a new cap on office limit, the ordinance should include a mechanism for "banking unused credit" to future years, Rosenblum said. He also supported retaining the "beauty contest," with a focus on favoring those projects that provide the most urgently needed amenity -- namely, housing.
Chair Michael Alcheck has also expressed reservations about the office cap. In March, he said the ordinance "seems to reek of a response that is politically driven." Others, including Vice Chair Asher Waldfogel and Doria Summa, disagreed and said the ordinance is reasonable and should be extended, possibly with a lower threshold for triggering the competition between projects.
Critics of the cap point to the ambiguous and uncertain nature of the "beauty contest" as a deterrent to developers, most of whom simply opt not to participate (during a July hearing, Rosenblum said the cap is having a "chilling effect on development"). But for supporters of the cap, this weakness is a strength; by deterring office developers, they say, the law is doing exactly what the council wanted: reducing commercial growth.
City planner Clare Campbell noted at the March 29 commission meeting that it already takes a lot for developers to get through "even a normal application process."
"But when we have to add this additional contest for this evaluation I think it makes it much more unpredictable for applicants to project forward and to invest time and energy to do something here in Palo Alto," Campbell said.
The council, for its part, is unlikely to pull the plug on the new program. Earlier this year, the council voted not to include the annual cap in its updated Comprehensive Plan. But members also agreed at the Jan. 30 meeting to maintain the annual limit by extending -- and possibly modifying -- the existing ordinance.
Scharff expressed support for the annual limit, though he called the beauty contest idea "sort of a failure." He also favored a provision that would allow the city to "roll over" allowed square footage from one year to another.
"In my view, the whole purpose is to level it out," Scharff said at the Jan. 30 meeting. "So that we basically have growth at a certain rate, as opposed to huge amounts of growth."