Rising costs don’t deter Palo Alto from pursuing interim housing project

Despite a recent spike in the projected price tag, Palo Alto’s city leaders reaffirmed on Monday their commitment to build an 88-apartment shelter for unhoused residents on a San Antonio Road site near the Baylands.

The facility, which would be operated by the nonprofit LifeMoves, is now expected to cost about $26 million, a sharp increase from the $17.6 million estimate that the City Council was looking at on Sept. 27, when it gave the project its initial vote of support. But with most of the funding for construction and operation projected to come from state, county and private sources, the council agreed by a 6-1 vote, with council member Greg Tanaka dissenting, to advance the project.

Jo Price, vice president for real estate and operations at LifeMoves, told the council Monday that the main reason for the gap is the organization’s failure to factor in the higher cost of building larger apartments that can accommodate up to three people. Its initial tally relied on the cost model of a similar project in Mountain View, which was constructed last year at 2566 Leghorn St. and includes 100 apartments: 88 studios and 12 family units.

The housing project that Palo Alto wants to construct at 1237 San Antonio Road would feature 64 studios and 24 family apartments. Because the larger units are about twice the size of the studios, Palo Alto’s unit composition adds about $5 million to the projected cost. In addition, the new cost estimate includes $1 million for solar panels, another $1 million to relocate GreenWaste, the city’s trash hauler that currently uses the San Antonio site, and an additional $2.4 million for contingency costs, Price said.

“It in no way whatsoever means would we require money from the city of Palo Alto to meet any capital gap,” Price said.

State funding would cover most of the construction cost under the current plan. The city’s decision to pursue larger units will allow it to apply for additional funding from Project Homekey, the state program that helped fund the Leghorn Street development in Mountain View. If things go as planned, more than $22 million for construction costs would come from Project Homekey, while another $5 million has been pledged by a private donor, according to LifeMoves.

Given the availability of outside funding to pay for construction, the council had few reservations about reasserting its support for the project. The biggest question for most council members revolved around the facility’s operations. Project Homekey is expected to cover up to three years of operations and LifeMoves and Santa Clara County are also preparing chip in for building operations and services, which still leaves the city on the hook for about $7 million to run the complex over its first seven years of operations. Deputy City Manager Chantal Cotton Gaines said the city will likely have some flexibility on when to provide the funding and defer it to later years.

She also told the council that city staff as well as LifeMoves and the county are “committed at looking at ways to reduce costs where possible and leverage existing programs, as well as identify funding to solve the operating gap.”

The council agreed that despite the abrupt cost revision, the project remains well worth pursuing, even if it means finding money to pay for operations.

“Yes, it means we’ll have to make policy trade-offs and service trade-offs,” council member Greer Stone said. “But I can’t imagine a more important area to be spending our resources and time on than to be able to provide shelter for people who have none, or for those who are facing housing insecurity, as well as the services incorporated here to be able to give so many people in this community the opportunity to just have hope for a better future.”

Most of his colleagues agreed, with Vice Mayor Pat Burt calling the council’s decision on whether to fund the project a “value determination” and noting that the the city’s monetary contribution is highly leveraged by other sources.

“We as council members … and as a community need to take on responsibilities that do cost money,” Burt said. “That’s part of local government.”

Tanaka, who voted against the project in September, pressed his colleagues and staff Monday to identify the services that would be reduced in future years to support the operations of the San Antonio development. He alluded to the major budget cuts that the city has made since the onset of the COVID-19 pandemic.

“We have a limited amount of resources. When we use this resource for this, what are we taking away?” Tanaka said.

Others suggested that the city should take advantage of the opportunity offered by the state. Lisa Van Dusen, executive director of Palo Alto Community Fund, was among them. Her foundation recently voted to contribute $100,000 for operations at the San Antonio Road project, with the money split evenly over two years.

“We really feel this is an opportunity that does not come along even in many generations,” Van Dusen said. “We’re excited to be part of it and hope that it can serve as an amplifier for the community to be involved.”