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.