City officials have been eyeing the Birge Clark-designed building since early 2012, when the postal service announced its plans to severely downsize its Palo Alto operation as part of a national effort to close and consolidate its facilities. Built in 1932, the building was the first in the country to be designed specifically to function as a post office. The post office has determined that the 20,000-square-foot building is twice as big as needed and declared its intention to find a smaller branch in Palo Alto.
Since Postal Service officials made their presentation to the council in February 2012, staff has been evaluating the building and considering possible functions it can serve for the city, should the council decide to buy it. Its early findings are promising. A report released this week by the Department of Planning and Community Environment concludes that the building "could be seismically retrofitted and upgraded to modern office space at a reasonable cost, while preserving the historic-defining characteristics of the structure."
The city has also commissioned an appraisal, which has been completed and which the council will consider in a closed session before its meeting Monday night (the results are confidential because of the upcoming negotiations). At the end of the meeting, the council is scheduled to hold an open discussion and possibly vote on whether the city should make a bid. The opening bid process is at least two months away, according to staff.
In the new report, staff outlines several reasons for why the city should consider purchasing the post office, including its status as a "historical treasure" and its location, which would make it ideal for housing city functions. While most of the city's operations are currently located at City Hall, the city also leases multiple properties throughout the city, including the office across from City Hall that houses its Development Center, which handles building plans and permits. The permitting operation is the leading candidate among possible uses for the post office, should the city opt to buy it.
The development operation could share post office space with the planning department, which is currently housed on the fifth floor of City Hall. With both operations moved to the post office, the fifth floor would be used to accommodate a different city operation that currently leases space elsewhere, the report states.
"The sale of the U.S. Post Office building provides a singular opportunity for the City to retain and enhance an iconic downtown community resource, while structuring a financing plan that should save the City lease costs adequate to pay for the building," the new staff report states. "Because of its location within a block of City Hall and its design for public access and service, the Post Office building is a very desirable location for the City's Development Center. Relocating this City function from leased space to city owned space would establish a stable rent for the Development Center and help to stabilize the cost of this service to the City over time."
Under this plan, the city would also have enough space to lease 3,200 square feet to the U.S. Postal Service so that its retail outlet could remain at its present location.
Planning Director Curtis Williams told the Weekly that placing the Department of Planning and Community Environment at the post office makes economic sense because it would allow the city to stop leasing space outside City Hall. At the same time, it would make the city's permitting operations more efficient, he said.
"There are issues from time to time involving integrating planning and building, and us being able to talk to each other and be around each other so that we can answer questions more expeditiously for customers," Williams said.
Palo Alto's purchase of the historic building is far from a sure thing. While Postal Service officials indicated last year that they will consider the city's offer, they made no indication that Palo Alto will get any discounts or any preference over private purchasers. The city, however, has some leverage. The site is zoned "Public Facility," which means that any developer looking to change the building's use would need to get permission from the city.
The post office is also listed on the National Register of Historic Places, which means that any developer looking to retrofit or expand it would have to do so while preserving the building's "historic-defining characteristics," as defined by the Secretary of Interior standards. These elements include the building's first-floor lobby, which includes high ceilings and heavy timber beams; its marble floor tiles and original mail boxes; the post master's office and porch and the facades of the building that face adjacent public streets.
In the new report, staff also identifies some financial options should the city decide to buy the building. The city can issue "certificates of participation" to purchase the post office and then use the money it saves in rental expenses to pay off the bond; it can use funds from the Stanford University Medical Center development agreement to buy the building; or it can draw money from various existing reserves, including the General Fund's Budget Stabilization Reserve, which would later be reimbursed by proceeds from a general-obligation bond.
At last year's discussion, council members agreed that the postal service's sale of the building presents a unique and exciting opportunity for the city to add a facility and consolidate operations. At that time, Councilwoman Gail Price called the building's sale a "great opportunity for us to be creative" and called the post office an "exquisite building."
The U.S. Postal Service's ongoing effort to sell off and downsize its properties was sparked by a steep reduction in mail volume and the resulting financial decline. James Wigdel, spokesman for the postal service, told the council that the agency ended 2011 with a $5.1 billion deficit and has seen its mail volume shrink from 213 billion items in 2006 to 168 billion in 2011. The agency expects the level of mail volume to drop to somewhere between 118 billion and 150 billion items in 2020.