News

Rising costs create high anxiety over Palo Alto's infrastructure plans

City faces $56 million funding gap for its top nine construction projects

A construction worker carries lumber inside Avenidas, the senior-services nonprofit at 450 Bryant St., which is undergoing renovation. With construction booming throughout the Bay Area, labor is scarce. Photo by Veronica Weber.

Watch Weekly journalists will discuss this issue in an episode of "Behind the Headlines."

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Groundbreaking ceremonies typically precede construction, but by the time Palo Alto City Council members and staff lined up in front of the Rinconada Fire Station on Tuesday morning, half the building had already been reduced to rubble.

Not that anyone was complaining. Though demolition of the 1948 fire station was scheduled for the following day, the sunny weather was too good to pass up, and city officials were eager to get the project started. Everyone understood that when it comes to construction, time is literally money.

Moments before the ceremonial shovels pierced the soil, City Manager James Keene acknowledged that the city's production had been scooped by actual work.

"This is nothing more than a false Hollywood-set façade right now because the whole back of the building has already been demolished," Keene told the assembled crowd. "Let's keep the schedule and get it on time and under budget."

For Palo Alto's council, which has named "infrastructure" one of its official priorities for the past five years (and may do so again at its retreat on Saturday), the Rinconada groundbreaking was a critical milestone. Reconstruction of the station is the first project of nine in the city's infrastructure plan to make the leap from conception to construction.

Others are expected to follow in quick succession. According to a Public Works Department schedule, eight projects — including the new bike bridge over U.S. Highway 101 and new parking garages near California Avenue and on Hamilton Avenue — will head into construction either this year or in 2019. (Ironically, the only item that is not eyed for construction until 2020 is the one deemed most urgent: the public-safety building.)

In the spring, Palo Alto will begin fresh upgrades to the Charleston/Arastradero Corridor; in the summer it will launch the next phase of the bike-boulevard plan; and in the fall, the city plans to break ground on the 636-space California Avenue area garage, which will replace a city-owned parking lot at 350 Sherman Ave.

In January 2019, construction is set to begin on the U.S. Highway 101 bridge, a project that city leaders hope to see completed by the middle of 2020. That spring, construction of the new downtown garage on a parking lot at Hamilton Avenue and Waverley Street is scheduled to start. Later in the year, crews will launch the next phase of improvements at the Baylands' Byxbee Park, which include a "network of white oyster shell-lined trails with wooden viewing platforms" and also break ground on replacing the Mitchell Park fire station.

Yet for all the big plans, the path forward isn't exactly clear. The construction climate around Silicon Valley continues to sizzle, driving up costs and straining the supply of available labor, two factors that have forced Palo Alto to scale back its dreams. The 101 bike bridge, initially envisioned as "iconic," is now just a bridge. Even after it was stripped of most bells and whistles, the project's $16-million price tag is well above the roughly $10 million the council was eying in 2015, when it held a design competition for the project.

A 7.7-acre piece of land next to Foothills Park that the city ceremoniously dedicated as "parkland" in 2012 will likely be opened to the public this year. Two years ago, council members debated ways to improve the site, whether by adding picnic amenities or restoring the riparian habitat in Buckeye Creek, which flows through the parcel. Now, given a lack of funding, staff is recommending opening the undeveloped site as is, with no amenities.

Even a major Palo Alto Junior Museum and Zoo renovation — perhaps the city's most popular infrastructure project to break ground this year — is facing budgetary uncertainty. Despite a successful $25 million fundraising drive by the nonprofit Friends of the Junior Museum, the zoo project hinges in part on a $4 million contribution from the city, which is responsible for redesigning the parking lot and creating a new bike path for the Rinconada Park attraction. And while the project has enough funding to get started, more money will be needed further down the line to furnish the zoo with a variety of interactive features, including an insectarium, a butterfly exhibit, a touch tide pool tank and — most notably — a "Tree House" feature, which is intended to offer visitors a two-story zoo experience and allow them to "explore the tree canopy and have up-close encounters with the birds and animals that live there," according to a Community Services Department report. These features were removed from the renovation design in 2016, when the project was scaled back because of rising costs.

The city and the Friends group are "seeking grants and looking for fundraising opportunities" in hopes of bringing the $1.2 million Tree House back in the next phase of the zoo's expansion. The council will consider on Feb. 5 a recommendation from staff to withdraw $2.3 million from the city's infrastructure reserve to help with near-term improvements, as well as to direct staff to come up with a strategy for finding the city's $3.9 million share of the project.

The degree to which costs have escalated is striking. The collective price tag has gone from $136.6 million in 2014 to $235.8 million today, according to Assistant Public Works Director Brad Eggleston. Even with the local economy humming along and tax revenues on the rise, Palo Alto is facing a $56 million funding gap for its top nine infrastructure projects. The California Avenue garage, which in 2014 came with a $9.6 million price tag — now stands at a gaping $40.4 million. The public-safety building, once viewed as a $57 million project, is now expected to cost $91 million.

The construction market isn't the only driver of these rising costs. The council's decision last year to increase the size of the California Avenue garage (and to include two underground basements) inflated the price tag by millions. So did the city's decision to build a public-safety building on a constrained Sherman Avenue parking lot, requiring two underground levels for operations. Yet the market is playing the biggest role, accounting for a 58 percent escalation in costs between 2012 and 2021 for the police building, Eggleston told the council last week. Every month of delay on the California Avenue garage and public-safety building is adding about $350,000 to the cost, Eggleston said.

The $56 million funding gap, if anything, greatly understates the problem. It does not take into account the many projects that the council wants to pursue but that were not included on the 2014 infrastructure list, including the renovation of Cubberley Community Center; an upgraded animal shelter; and the implementation of the newly approved parks master plan. All are currently unfunded and, with every passing month, the challenge to make them happen is growing.

Furthermore, projects in the infrastructure plan comprise just a small fraction of the city's $600 million capital-improvement program for the years 2018-2022 — a voluminous list that includes replacing water mains, burying electricity wires in underground trenches, installing traffic signals and dozens of other mostly thankless municipal tasks. Here, too, the city is seeing costs spike to unexpected heights.

Consider Upgrade Downtown, Palo Alto's effort to replace 50-year-old water and gas mains under University Avenue, install fiber conduits in an underground trench and implement an assortment of street improvements. The project is scheduled to kick off in April and cascade, block-by-block, down University and along Downtown North neighborhood streets over the following 12 months.

Last August, the city went out to bid on what engineers estimated to be a $12.4 million project. Seven firms attended the city's pre-bid meeting, according to a Utilities Department report; zero of them submitted bids.

With no takers, city officials reached out to all contractors who had participated in the pre-bid meeting to see if any of them could get the job done. Only one — Ranger Pipelines, Inc. — was deemed capable of meeting the city's schedule and project requirements, the report states. Even though the Ranger quote for the project was $16.4 million — well beyond the city engineer's estimate — city staff deemed it appropriate and recommended the contract. The high price, the report notes, can be "attributed to the booming construction industry in the San Francisco Bay Area where local contractors have been unable to keep up and are more selective on project bids."

Some members of the City Council took issue with this process and the result it netted. On Monday night, Greg Tanaka and Karen Holman both voted against the Ranger contract — a rare occurrence for a utility replacement project. Both argued that the city can do better.

"I think we should go out and rebid this thing and make sure we get more bidders, and get competitive bidders," Tanaka said, moments before the council voted 7-2 to approve the contract.

There's no guarantee that another round of bidding would draw more interest. Even some of the city's routine projects are struggling to attract bids these days. On Feb. 5, for example, the council is scheduled to approve a $2.3 million contract to upgrade the electrical and mechanical systems at the Children's Theatre in the Lucie Stern Community Center. As part of procurement process, it reached out to 375 bidders; only two submitted bids, according to a staff report. (Fortunately for the city, the $2.3 million bid is within the project's budget.)

Ed Shikada, the general manager of city of Palo Alto Utilities as well as assistant city manager, said the low number of bids is a recurring problem.

"We've tried to find ways of packaging contracts to maximize the number of bidders," Shikada said. "It's definitely an ongoing issue."

Best-laid plans

Palo Alto planted the seeds for today's infrastructure boom in 2010, when Silicon Valley was still shaking off the dust from a global economic downturn. That was the year the City Council appointed a 17-member citizens committee and directed it to identify the city's most pressing needs, as well as possible funding sources. Known as the Infrastructure Blue Ribbon Commission, the group met for about a year and in 2011 released a report identifying an infrastructure backlog of about $500 million. The group also highlighted high-priority items that need to be constructed as soon as possible — with the public-safety building on top of the list.

Echoing prior studies, the infrastructure report called the existing police headquarters at City Hall "unsafe and vulnerable" and recommended the city move expeditiously ahead with a new public-safety building — a structure that would house the Police Department, the city's Office of Emergency Services, the Emergency Operations Center (the city's "situation room" during disasters) and Fire Department administration.

"Public safety should be a top priority for any city but — in terms of proper facilities — that priority has for many years been dangerously deferred in Palo Alto," the 2011 report states.

The report also identified Fire Stations 3 and 4 as in urgent need of significant upgrades, the report found. Each is more than 50 years old, fails to meet earthquake codes and is "increasingly inadequate as engines have grown in size."

"Demands for hazardous-materials processing, equipment storage and safety conditions for the personnel housed there have also grown, and the role of these stations in emergency preparation and response has increased," the report states.

Some of the report's recommendations have fallen by the wayside. The council never formed a permanent Infrastructure Commission to monitor progress; nor did it commit $6 million in annual funding for infrastructure repairs or issue a bond to pay for the new public-safety facilities. The commission's recommendation that the city upgrade its Municipal Services Center — a sprawling complex of vital utility and public works functions on East Bayshore Road — also largely fell off the list.

The commission's report did, however, spur action: The council upped its annual spending on street repairs from $1.8 million in 2010 to more than $5 million in subsequent years (as a result, the city's street conditions are the best in the county). It also approved in 2014 the infrastructure-projects plan and proposed a hotel-tax increase to fund it — a measure that voters approved later that year. Some of the items in the plan were consistent with infrastructure commission's recommendations: the public-safety building and the two fire stations. Others were added to sweeten the deal for voters on the hotel-tax measure: hence the new garages, the Highway 101 overpass, improvements to Byxbee Park and new bike boulevards.

Eggleston told the council last week that at the time when the commission deliberated, the construction climate was coming off of a slowdown, which made today's situation impossible to foresee.

Faced with rising costs, city leaders have opted to scale back some projects, such as the bike bridge and the Junior Museum and Zoo. But for others, they've opted to stick with the plan, higher price tags notwithstanding.

Last week, the council considered a staff recommendation to reduce the scope of the California Avenue area garage, which had grown in order to satisfy demands from area residents and merchants. Originally envisioned as a structure that would create 158 new spaces, the garage was revised last year to also include two basement levels, more than doubling the new parking spaces. Last week, Eggleston made a case for eliminating one basement level — a move that would trim between $6 million and $8 million. But with business owners and residents framing the recommendation as a "betrayal," the council voted 8-1, with Councilman Adrian Fine dissenting, to stick with the larger structure.

In staying the course on the garage, the council figured it could offset some of the additional costs with revenues from parking permits. For other projects, including the police building and the bike bridge, such an option does not exist, which means the council will either have to "value engineer" these projects to reduce costs or draw funds from the General Fund, which pays for most basic city services aside from utilities. Occupancy taxes from two Marriott hotels on San Antonio Road, whose plans the city recently approved, should help. According to city staff, these and other hotels are expected to bring in about $4.9 million in additional annual revenue.

In recent meetings, council members have repeatedly voiced discomfort at the rising costs but have largely endorsed staff's approach of trying to move as fast as possible, before the prices get even higher.

"In general, the experience shows that because you can't time it, the best strategy is to push out projects as quickly as possible," Shikada told the Weekly.

That strategy recognizes that, even should the construction market slow down and costs drop as a result of an economic downturn, so would the city's resources. As the experience of 2009 shows, Palo Alto leaders don't talk about "iconic" bridges or six-story parking structures when they're laying off 10 percent of City Hall's workforce or putting popular services like animal services on the chopping block.

"If the bottom comes out of the economy, there will be tremendous pressure to spend those (infrastructure) funds on operating expenses, on today's needs," Shikada said.

The need for speed

Palo Alto is a leader in many fields. Moving fast on public projects isn't one of them.

The term "Palo Alto process" has become synonymous over the decades with bureaucratic entanglements, endless revisions and escalating costs. In the past, it's been the bane of developers, architects and home renovators (in one notable 2010 case, a homeowner spent more than $500,000 on studies and permit fees before winning the city's approval to demolish and replace his one-story home in Professorville.). Now that the city increasingly finds itself in the applicant's chair, the process is starting to cause heartburn at City Hall.

The tension between Palo Alto's two competing imperatives — to move fast and review thoroughly — was palpable at the Jan. 18 meeting of the Architectural Review Board, which was reviewing the new California Avenue garage. The meeting got off to a good start. After panning the preliminary design at a prior review, board members on Jan. 18 agreed that the garage plan had come a long way. Early in the hearing, board members lauded the project and two members, Peter Baltay and Alex Lew, said they could support it.

City staff stressed the urgency of moving the project forward.

"We want to break ground on this in October," Matt Raschke, senior engineer at Public Works, told the board. "We want to fast-track construction. The escalation we're seeing in the market is extreme."

The board had some quibbles about the landscaping plan, the garage's potential noise problems and — most notably — the proposed stairway in the garage, which some members argued needed to be refined. Assistant Planning Director Jonathan Lait said these concerns could be addressed by approving the project and adding conditions that these items return at a later date for a subcommittee review.

"All things considered, from staff perspective, we are very mindful not only of the costs to other applicants who have to go through the process, but the city also has an expense that it's incurring that has potentially broader implications," Lait said. "As we spend more money for building the public-parking structure, there's fewer funds for other projects we want to advance."

The board, however, refused to be rushed. Board member Robert Gooyer said he felt like the board was "being bulldozed to make a decision today." He also argued that the city's engineers could move ahead with most of their construction documents while leaving some details "purposely vague." In the end, the board voted unanimously to continue the review on March 1.

"I know it's difficult," board Chair Wynne Furth told staff after the vote. "It's a great project. Sorry we couldn't give you everything you want."

David Bower, who attended the meeting, was not amused. A City Hall veteran, Bower chairs the city's Historic Resources Board and knows a thing or two about reviewing complex development proposals. He also served on the Infrastructure Blue Ribbon Commission, where he was part of a subcommittee that explored options for a new public-safety building. After hearing the Jan. 18 discussion, Bower told the Weekly he was struck by the lack of urgency from the board, which effectively ignored staff's budget concerns and Lait's recommendation to move ahead.

"How can a board ignore $200,000 to $700,000 in added costs for no benefit?" Bower said. "That's what I find very, very distressing — because we don't get that money back. I feel strongly this is not good stewardship of the responsibility the board has."

One way to improve the process would be to have the council provide better direction to the architecture board, Bower said. When a board fails to represent the best interests of the community, the council needs to step in. One way to do that would be to have a council member serve as a liaison to the architectural board (the Historic Resources Board is one of several local boards that has a council liaison).

The council, for its part, is also recognizing that fulfilling the city's infrastructure goals may require a more hands-on approach from members. Mayor Liz Kniss said during the Jan. 22 council meeting that she was concerned about the prospect of incurring more than $300,000 monthly in extra costs because of delays to the California Avenue area garage and the public-safety building (because the city plans to start constructing the public-safety building once the garage is built, to minimize parking loss, any delay to the former project necessarily delays the latter). For that reason, she and other council members rejected a proposal from Tanaka to revise the garage proposal to add mechanical lifts. Such a move, she said, would add months to the architectural review and potentially add between $1 million and $2 million to the project's cost.

"We do not move with great speed," Kniss said.

In approving the garage, council did agree to add one unusual provision. It explicitly authorized staff to return to the council for additional direction if the Architectural Review Board (ARB) makes recommendations that drive up project costs. Councilman Greg Scharff, who added the provision, said the move will allow the council to weigh the board's aesthetic considerations against economic realities.

"I think the ARB does a good job, and their mission is to make sure we have the most attractive buildings out there and use the most attractive materials," Scharff said. "On the other hand, their mission is not to look at cost savings. The council needs to look at that."

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Comments

37 people like this
Posted by Anon
a resident of Another Palo Alto neighborhood
on Feb 2, 2018 at 9:09 am

This article is driving me crazy.

Look folks. We are in a boom. Save the surplus, retire any high-interest debt, lock in low-interest credit and other funding, and, WAIT. Only do what -must- be done now for seismic or fire safety, and, WAIT. When the inevitable downturn results in a surplus of construction capacity, THEN, build all these projects at reduced cost, and, reduced (e.g. traffic) disruption.

It drives me crazy when people say "We have to hurry up! Costs are escalating rapidly!" Exactly backwards...


25 people like this
Posted by Resident
a resident of Another Palo Alto neighborhood
on Feb 2, 2018 at 9:36 am

And then we have Ross Road!

Enough said.


5 people like this
Posted by Bad Process. Bad decision.
a resident of Duveneck/St. Francis
on Feb 2, 2018 at 11:23 am

Bad Process. Bad decision. is a registered user.

It is interesting that the City Council agendized a decision to fund a very expensive second level of underground AUTO PARKING in the approved Cal. Ave. parking garage separately and ahead of a meeting that would consider this larger context. We can thank former Mayor Judy Kleinberg for that. Housing for cars. Judy, why should citizens pay for this parking that will be filled with workers from multi-story office spaces that developers will put on top of first-floor retail?

City Council, stand firm on first-floor retail requirements to safeguard retail rents and viability. Property owners can build up, but the developers, not citizen taxpayers, need to provide the parking to serve that new density.

Council, you have been badly misled by the Chamber of Commerce...again. It was interesting to hear Jack Morton whine about "betrayal of trust". Please remember the citizens who advocated thousands of hours for many of these other community serving projects (which, by the way, Judy and Jack voted for when they were on Council. These citizens have much greater reason to cry foul.).

I am VERY disappointed that the Cal Ave. garage decision was separated from this larger conversation about infrastructure. It was a clever political move by former Mayor Judy get it agendized separately.--But it was not a thoughtful move for the community. Council should have insisted on stepping back and looking at the big budget picture. They should have postponed making a decision. They can still opt to revisit this decision to pay for parking for future development.

Bad process. Bad decision.


6 people like this
Posted by I like the Ross Road project.
a resident of Duveneck/St. Francis
on Feb 2, 2018 at 11:27 am

I like the Ross Road project. is a registered user.

I'm a resident who likes the Ross Road project.


14 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Feb 2, 2018 at 11:34 am

Online Name is a registered user.

"Even a major Palo Alto Junior Museum and Zoo renovation — perhaps the city's most popular infrastructure project to break ground this year — is facing budgetary uncertainty. Despite a successful $25 million fundraising drive by the nonprofit Friends of the Junior Museum, the zoo project hinges in part on a $4 million contribution from the city, which is responsible for redesigning the parking lot and creating a new bike path for the Rinconada Park attraction."

The city's going to spend ANOTHER $4 million redesigning the Junior Museum parking lot at Middlefield and Embarcadero right after redesigning the Middlefield & Embarcadero intersection, eliminating traffic lanes right behind bus stops and adding more bulb-outs near Lucy Stern??

Oh, goody.


9 people like this
Posted by Gale Johnson
a resident of Adobe-Meadow
on Feb 2, 2018 at 12:08 pm

Gale Johnson is a registered user.

Sorry Gennady, I'll read the whole article later. You must have stayed up late writing that one, but what else is new if you go to all those CC meetings or stay up late watching them on TV and filing an early report on the results. I got the gist of it right away.

@Resident...ah yes, our wonderful new bike boulevard. And especially our new roundabout: I drove...kinda by it or partially around it last night, just to make a 90 degree right turn. It's just being put in. The forms are in place and ready for concrete to be poured. A new concept of roundabouts here, a lot different than in England. Here you have to stop at a stop sign before you enter the roundabout. "Velly inturethting". I made the invitation before, but I'll make it again. Come, all you north-enders, especially CC member bikers, and all other bikers, down to my part of town, and come on your bikes and experience the thrill of our new bike boulevard. You won! You sure put the clamps on all us car owners/drivers. But, you come at your own risk. We have the usual bunch of mixed drivers...most good...but some not so good...which includes us older folks with slow reflexes, maybe dementia, others who are prone to road rage, and others who doze off at the wheel or are driving under the influence. They might see two lanes, including one lane that they think is dedicated to them, when indeed it's just one lane to be shared with the cyclists. I understand the goal...get all of us car drivers off the roads and the problem will be solved.


10 people like this
Posted by Sally C
a resident of Duveneck/St. Francis
on Feb 2, 2018 at 1:36 pm

All this money for rebuilding , the Palo Alto Animal Shelter not even mentioned. How sad.


Like this comment
Posted by Donald
a resident of South of Midtown
on Feb 2, 2018 at 2:37 pm

Gale, it isn't finished yet. The stop signs will go away when it is done. Don't pass judgment until you have seen the final product.


6 people like this
Posted by Marie
a resident of Midtown
on Feb 2, 2018 at 7:32 pm

Marie is a registered user.

$59 million for bike paths and nothing for discounted spay/neuter services or a new animal shelter, which plans to discontinue accepting local surrenders (if there is not enough space???), but accept animals from other shelters far away. Clearly, the city administration just wants to get rid of any lower income city employees (Partners in Need does not, I'm sure have any retiree benefits) and hire only $100K+ managers.

Millions for a new Junior Museum, that will ensure that the museum will start charging $20 admission (1 adult two kids) instead of being free as it is today. Reducing parking near the museum and art center - where there is inadequate parking already. Well charging a high admission fee will probably reduce demand so perhaps they won't need as much parking.

For whatever reason, which I cannot understand, the city administration is prioritizing the 1% at the expense of the few remaining middle class people living in Palo Alto and nearby (the service area for the shelter).


10 people like this
Posted by Andy
a resident of Duveneck/St. Francis
on Feb 4, 2018 at 10:45 am

I have no beef with any of the projects -- they all make sense to me, for the benefit of different constituencies and neighborhoods.

That said, I think the process of "move fast before things get even more expensive" does not make sense. What makes sense is to bank the money, let it grow, and wait for a downturn, when ever RFQ will result in dozens of cheap bids. And THEN to do the construction.

The article notes the Council's concern that at that time we'll have less funds available and will be facing cuts in the city budget and that there will be pressure on using the saved up Infrastructure funds for other things. Well, just don't! Just have the brains and discipline to only use the saved up Infrastructure funds for Infrastructure. And save tens of millions of dollars!!! Crazy that the Council doesn't have enough respect for itself to believe that it can do this. Gee.


Sorry, but further commenting on this topic has been closed.

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