News

Study ponders impact of curbing office growth

New analysis suggests citizen initiative is unlikely to result in major near-term economic consequence

Barring a major change in Palo Alto's development climate, a proposed citizen initiative to curb commercial development citywide is unlikely to have a big impact on the city's finances or its growth patterns, a new analysis commissioned by the city indicates.

The new limit could, however, constrain development in the future, particularly if the City Council chooses to extend the cap on new commercial space past 2030.

The study, which was commissioned by a deeply divided City Council on June 25 and which was performed by the firm Economic & Planning Services, looked at the fiscal impacts of the initiative. Spearheaded by the citizens group Palo Altans for Sensible Zoning, the measure would revise the recently adopted Comprehensive Plan to reduce the citywide limit on office and research-and-development (R&D) growth from 1.7 million square feet to 850,000 square feet.

The council is scheduled to decide on Monday night whether to place the initiative measure on the November ballot or to adopt it outright.

The study concluded that given the relatively low levels of office development that the city has experienced in recent years, it would take 19 years or longer (starting in 2015) for Palo Alto to reach the 850,000-square-foot threshold. Between 2001 and 2017, Palo Alto added a total of about 240,000 square feet of new office/R&D development, or about 14,000 square feet per year. The annual average picked up between 2015 and 2017, when the city saw an average of about 45,000 square feet annually.

At the same time, the study warns that the annual averages from the past may not be the best guide to future growth. One reason why the net gain in office space has been so modest is because there have been several projects in which offices were converted to other uses, thus offsetting total office growth.

The report points to the conversion of Sun Microsystems to Oshman Family Jewish Community Center, which resulted in a loss of 390,000 square feet, and to the demolition of the former Facebook headquarters, which reduced office space by another 323,000 square feet.

When conversions and demolitions are taken out of the equation, the city has seen an average of 107,000 square feet of new office space per year citywide, according to the study.

The five council members who supported the study -- Mayor Liz Kniss and council members Adrian Fine, Greg Scharff, Greg Tanaka and Cory Wolbach -- requested that the analysis consider the initiative's impact on transportation, schools, open space, development at Stanford Research Park and the city's business climate.

The new study stops well short of that and explicitly states that it is not considering non-economic factors that may be important to the community, including traffic, community characteristics, the environment and other quality-of-life factors -- the very factors that proponents of the initiative cite in advocating for restrictions on office growth.

The study does consider the initiative's impact on Stanford Research Park, though it notes that current zoning at the research park allows addition of up to 850,000 square feet of development. The likelihood of new development hitting the cap in the near term "is remote, absent a major shift in the development pattern at Stanford Research Park," the study states.

That it not to say, however, that the citizen measure would be completely superfluous, according to the story. Because the city's historically low level of office growth depends so much on conversions and demolitions (which offset new construction), the level of development would be much higher if these projects were taken out of the equations, making the new cap more relevant and potentially impactful, according to the study.

"If demolitions and the conversion of office space to other uses were to slow and new deliveries maintain their historic pace (i.e., gross development of about 107,000 square feet per year), it is conceivable that the Initiative Measure cap of 850,000 square feet could become a binding constraint more quickly," the study says.

The reduction of new office/R&D development by 850,000 square feet would also reduce the city's employment growth by 4,250 jobs, when compared to the existing cap.

Though the study's authors, Benjamin Sigman, Jason Moody and Anisha Gade, did not make any conjectures about how the new cap would affect the local business climate, they did pose the question to officials from the Palo Alto Chamber of Commerce, Stanford Research Park and two major Research Park companies, VMWare and Lockheed Martin.

Responders told the study's authors that the Initiative Measure "sends the message that Palo Alto is closed for business; economic growth is unwanted," the study states. The interviewees also commented that the announcement of the initiative "likely already has had an effect on the business climate in the Palo Alto," according to the study.

"A regulatory restriction on office/R&D space is likely to have a dampening effect on the ability of Palo Alto to attract and retain business enterprises," the study states. "If this restriction makes office space in Palo Alto more expensive, it will disproportionately affect small enterprises and early-stage startups."

The study's authors had also interviewed the initiative's two main proponents: former Vice Mayor Greg Schmid and Joe Hirsch, a member of the Palo Altans for Sensible Zoning steering committee. According to the study, the initiative's sponsors pointed to the "limits to the economic benefit of urban density" and argued that Palo Alto is "strained by traffic to such an extent that it could negatively affect future growth."

Hirsch and Schmid also told the study authors that the initiative would still allow a level of growth that is in line with historical average and that if the development cap were to become a binding constraint before 2030, the city's voters could always choose to modify the limitation.

The study also concluded that the impact of the initiative on city finances would be relatively modest -- $1 million per year at most, assuming maximum buildout (even this worst-case scenario represents about 0.5 percent of the General Fund). Halving the square footage of new office space would result in a revenue reduction of $2.2 million and a decrease in expenses of about $1.2 million.

The city would, however, theoretically see a steep loss in development-impact fees, to the tune of $50 million between now and 2030. These fees are used to support parks, schools, traffic initiatives and community services. According to the study, these feet currently amount to about $63 per net new gross square foot of office development.

If the citizen initiative reduces new office and R&D development by 850,000 square feet, the loss in development-impact fees would be significant. However, the study points out, because these fees are earmarked specifically for mitigating the impacts of new developments, the reduction in new office projects would reduce the city's need for these revenues.

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Comments

52 people like this
Posted by I Support the Initiative
a resident of Crescent Park
on Jul 27, 2018 at 1:22 am

The study concluded the "cost" of curbing office growth is modest. And it didn't add up the full economic benefits of the initiative, such as the millions we won't need to spend to mitigate the additional traffic and greenhouse gases and on housing subsidies and public facilities caused by thousands of new workers.

I have an active business in Palo Alto and I don't think the initiative sends a negative message at all. It says instead that the residents of Palo Alto are smart enough to figure out how to improve the city while saving money.

Urge the Council to adopt the citizen initiative Monday night.


22 people like this
Posted by Development Impact Fees
a resident of Another Palo Alto neighborhood
on Jul 27, 2018 at 9:40 am

We know that the City Council is afraid to set the development impact fees at the true cost of the impacts. So while the initiative means the City won't receive the impact fees, it means the City won't incur the even larger cost of the impacts.

How much would my taxes have to go up to pay for the impact costs not covered by the fees? How much would my quality of life worsen because of the impacts not mitigated? Even mitigated impacts can make the quality of life worsen.


40 people like this
Posted by "non-economic factors"
a resident of Another Palo Alto neighborhood
on Jul 27, 2018 at 10:00 am

"non-economic factors" is a registered user.


"The new study stops well short of that and explicitly states that it is not considering non-economic factors that may be important to the community, including traffic, community characteristics, the environment and other quality-of-life factors -- the very factors that proponents of the initiative cite in advocating for restrictions on office growth."

The environment and quality of life are non-economic factors?

This should be the headline. Study does not consider traffic, or the environment as economic factors

Someone needs to ask an Economist, but this is my take

My family came here because of Palo Alto schools and without preserving the qualities that surround the schools we would not have broken our tails to buy a home here.

If we do not preserve the qualities that bring people here, we end up with an ugly office park (ever see downtown at 8 am on a weekend?).

And if we DO preserve the "non-economic factors" we will retain the value of this community which is yes, beyond the "fees" discussed.


5 people like this
Posted by Well done
a resident of Another Palo Alto neighborhood
on Jul 27, 2018 at 10:14 am

This is an excellent article summarizing the lengthy report the City requested.


6 people like this
Posted by Chris
a resident of University South
on Jul 27, 2018 at 11:01 am

What this study shows is that both sides should focus on converting outdated commercial space to residential use, while still allowing modern office space to be developed.

Take for example the former HQ of HP at 3000 Hanover. That is hundreds of thousand of square feet of offices that would be an excellent location for housing.


13 people like this
Posted by Resident
a resident of Downtown North
on Jul 27, 2018 at 12:24 pm

If you want to develop modern office space, why not just re-develop parcels like 3000 Hanover instead of converting to housing and adding other offices somewhere else?

Adding housing in places it hasn't been before creates issues of residential infrastructure - parks, schools, retail shops, etc. That's part of the reason zoning exists - to add some order to land use, so services and infrastructure can be aligned.


40 people like this
Posted by Abitarian
a resident of Downtown North
on Jul 27, 2018 at 1:49 pm

The article states the study did not consider "non-economic factors that may be important to the community, including traffic, community characteristics, the environment and other quality-of-life factors -- the very factors that proponents of the initiative cite in advocating for restrictions on office growth."

This strongly suggests that the uber-growth council majority did not conduct the study to gather an objective, comprehensive view of the growth impacts, but rather used our tax dollars in attempt to gather ammunition for shooting down an initiative proposed by the people.

Over 3000 Palo Alto voters supported the proposal to keep office growth at historic levels. 3000. This number dwarfs the 5 council members who voted to double the office development rate.

On Monday night, the council will decide either to adopt the citizen's initiative or to put it on the ballot. Please tell the council how you want them to vote by attending the meeting in-person or sending email to city.council@cityofpaloalto.org


19 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jul 27, 2018 at 4:00 pm

Jeepers, this thing sure didn't turn out like the Gang of Five planned. Got to bring on the big spin machine now.


16 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Jul 27, 2018 at 4:37 pm

Online Name is a registered user.

How much did this "study" cost? What a waste of OUR money since it ignored the issues we're all so concerned about -- namely traffic, congestion, parking, etc. -- while focusing on Stanford Research Park!


9 people like this
Posted by "non-economic factors"
a resident of Another Palo Alto neighborhood
on Jul 28, 2018 at 9:23 am

"non-economic factors" is a registered user.



"The study also concluded that the impact of the initiative on city finances would be relatively modest -- $1 million per year at most, assuming maximum buildout (even this worst-case scenario represents about 0.5 percent of the General Fund). Halving the square footage of new office space would result in a revenue reduction of $2.2 million and a decrease in expenses of about $1.2 million. "

"The city would, however, theoretically see a steep loss in development-impact fees, to the tune of $50 million between now and 2030. These fees are used to support parks, schools, traffic initiatives and community services. According to the study, these feet currently amount to about $63 per net new gross square foot of office development. "

If I read this correctly the flip side of revenue reduction of $1 million from reducing square footage by half means that the revenue gain from fighting the citizen's initiative is $1 million?

And doubling new office space would contributes about $5 million per year to support parks, schools, traffic initiatives, and community services.

This sounds crazy.

I disagree with the "officials from the Palo Alto Chamber of Commerce, Stanford Research Park and two major Research Park companies, VMWare and Lockheed Martin."

It's no skin off their back to say anything to support what appears to be almost derelict case of the majority Council not doing Math.

$5 million from offices per year to support ALL these things? parks, schools, traffic, and community services? Plus these folks also take up 200% of Council time on these development issues.

Where is the headline of how non-generous businesses are? Especially the big ones like Lockheed Martin. They put Palo Alto on their letterhead for nothing.

Out of curiosity, has Lockheed Martin donated (monetarily) in any other way to the community?

Instead of Council breathlessly defending this set-up, they should be having a chat with the businesses that are here. Like Palantir not even using the local food establishments, and instead feeding their employees like dorm students from a cafeteria.

I'm sorry if I am reading this incorrectly but these numbers look scary and I welcome knowing what I'm missing.




14 people like this
Posted by ballot
a resident of Barron Park
on Jul 28, 2018 at 11:57 am

It sounds like the pro-development CC majority can no longer justify delaying and should place this voter initiative on the ballot.


21 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jul 28, 2018 at 12:49 pm

"It sounds like the pro-development CC majoand rity can no longer justify delaying and should place this voter initiative on the ballot."

It's a dilemma.

They could simply adopt it as law as written. That avoids the direct election costs, but it means the Gang of Five turns turncoat on their developer sugar daddies and surrenders the generous office development allowances they had slipped into the comprehensive plan. Not terribly likely.

So they will put it on the ballot, along with the Scharff Plan in an attempt to confuse, obfuscate, and nullify the citizens' initiative. It's the most costly alternative for the city treasury, but a necessary gamble for the Liz Kids on behalf of the office development interests backing them.


8 people like this
Posted by Resident
a resident of Crescent Park
on Jul 28, 2018 at 3:16 pm

I figure they'll just adopt it. The bigger game is to try to get a council member elected in November, and having this on the ballot hands the residentialists a great issue to pound them over the head with. My guess is that Wolbach actually moves to do so, since he has to face to voters.


11 people like this
Posted by "non-economic factors"
a resident of Another Palo Alto neighborhood
on Jul 28, 2018 at 3:39 pm

"non-economic factors" is a registered user.


"They could simply adopt it as law as written. That avoids the direct election costs, but it means the Gang of Five turns turncoat on their developer sugar daddies and surrenders the generous office development allowances they had slipped into the comprehensive plan. Not terribly likely.

So they will put it on the ballot, along with the Scharff Plan in an attempt to confuse, obfuscate, and nullify the citizens' initiative. It's the most costly alternative for the city treasury, but a necessary gamble for the Liz Kids on behalf of the office development interests backing them."


What is the Scharff Plan? A competing ballot measure?

The "developer sugar daddies" whose sugar apparently never makes it into City coffers will probably look at how much money they need to pay to get the ballot defeated and to get their candidate (s) elected.

Disappointing to see all this and kudos to the people who put the citizen's ballot measure on the table.


12 people like this
Posted by Curmudgeon
a resident of Downtown North
on Jul 28, 2018 at 4:02 pm

"What is the Scharff Plan? A competing ballot measure?"

Yes. The "study" was its opening act. Scharff or Kniss [portion removed] will reveal the actual ballot measure language Monday night.


13 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Jul 30, 2018 at 9:26 am

Online Name is a registered user.

"Though the study's authors, Benjamin Sigman, Jason Moody and Anisha Gade, did not make any conjectures about how the new cap would affect the local business climate, they did pose the question to officials from the Palo Alto Chamber of Commerce, Stanford Research Park and two major Research Park companies, VMWare and Lockheed Martin.

Responders told the study's authors that the Initiative Measure "sends the message that Palo Alto is closed for business; economic growth is unwanted," the study states. The interviewees also commented that the announcement of the initiative "likely already has had an effect on the business climate in the Palo Alto," according to the study."

Well of course that what those businesses would say. If the "study" sponsored by the pro-development majority resembles their telephone push poll, the questions were designed to get that response.

Too bad the "study" never asked residents what we thought or reflected our concerns about traffic, parking and escalating housing costs. We've got the biggest jobs/housing imbalance in CA and the fastest rising housing costs anywhere in the US, up 25% last QUARTER and twice as high as San Francisco and the northern Peninsula.


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