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As Menlo Park voters weigh a measure that would restrict affordable housing development on city-owned parking lots, city officials face an unresolved question about the proposed project: how to close a multi-million dollar funding gap.
At the same time, the Menlo Park City Council also needs to convince voters not to take away its authority over the parking lots. Measure P, which will be on the Nov. 3 ballot, would require voter approval for any plan to redevelop the downtown parking lots.
Menlo Park officials expected that the city could get replacement parking and affordable housing on three downtown parking lots in exchange for a long-term, $1-a-year ground lease, without direct financial contribution. That hope has seemingly been quashed by an independent financial analysis by Strategic Economics. The findings were “disappointing,” Mayor Betsy Nash said at the Sept. 29 City Council meeting.
The three proposals on the table would require subsidies ranging from $19 million to $45 million, Strategic Economics found. In order for Menlo Park to meet its state-mandated affordable housing goals, city officials hoped that it could provide land on three downtown parking lots through a 55-year ground lease in exchange for a developer covering the cost of building 345 affordable housing units for households earning between 15% and 80% of the area median income along with 556 public parking spaces, in addition to parking for residents.
“We need to start to begin the conversation with residents that they will have to pay for this, which is not what we’ve said,” Councilmember Drew Combs said. “We can move forward, but we are moving forward into a brick wall because at some point, the piper has to be paid. And if people don’t feel that the council had a true and transparent discussion with them about that, then they’re gonna be really upset.”
Councilmember Jennifer Wise was the only member of the council to say she had always expected the city would need to contribute funds.
The hourslong council discussion centered on how to close the funding gap. Strategic Economics presented four main options: reduce the parking requirement, reduce the number or level of affordability of the housing units, establish a special tax district or increase the city’s sales tax.
Councilmembers largely agreed that the city should not consider reducing the affordability levels or number of housing units. Nash said she was interested in exploring reduced parking requirements, but Councilmember Cecilia Taylor, who was largely silent during the meeting, joined Wise and Councilmember Jeff Schmidt in opposing that option.
Councilmembers also discussed two types of special districts: a parking benefit district that would issue bonds tied to paid parking revenue and an enhanced infrastructure financing district to help fund the project.
Schmidt said he would be open to a sales tax measure, which could also fund other city projects, or a general obligation bond. Wise suggested exploring a vacancy tax on downtown storefronts.
The viability of the funding measures and the public’s willingness to support them were hotly contested. One of the most controversial options was charging for parking.
Nash and Schmidt advocated for paid parking. Nash went further, saying the city should start charging regardless of the downtown development.
“Why are we saying parking has to be free?” Schmidt said. “We’ve got big things to pay for, and I personally don’t believe that paying for parking downtown discourages customers from coming to a business.”
“I don’t go: ‘Oh well it cost me $1.50 to go park or $3 to go park, so I’m not gonna go shop at Ace Hardware.’ That feels like a very false argument to me,” Schmidt added.
Combs argued that charging for parking would undermine the business community’s trust in the council.
“For downtown businesses, (that) would represent an enormous loss of faith in the council,” Combs said. “We went from a promise that we’re going to replace all the parking to, probably now we’re not going to replace all the parking and then your customers have to pay for parking.”
Combs also said he did not believe some of the proposed measures could realistically raise enough money to cover the shortfalls, but he did not want to rule out any of them.
The developers offered their own suggestions on how to bridge at least part of the funding gap.
Alliant, which identified a nearly $20 million funding gap, proposed the city take out “soft debt,” meaning a loan that Alliant would be responsible for but that leverages the city’s ability to get more favorable terms. Alliant also wanted the city to provide a loan using the impact fees for the development, which are funds used to offset the impact of new development on local infrastructure.
Presidio Bay, which forecasts a $45 million gap, asked the city to waive all development fees, estimated to reach $20 million, and use $20 million in benefit payments from its other project in the city, the proposed multi-use redevelopment of the former USGS development at 345 Middlefield Road, to pay for its downtown parking lot development. Some of the fees Presidio Bay is asking the city to waive are intended to cover city staff time for reviewing the development.
Related California and Alta Housing, two developers that teamed up to craft a joint proposal, did not provide ideas on how the city could close the estimated more than $19 million funding gap.
In addition to potentially needing city subsidies, the proposals from Alliant and Related/Alta rely on state housing grants, which have an uncertain future. Alliant estimated it would need $10 million to $15 million from state sources, while Related/Alta’s joint proposal budgeted for $29 million. Presidio Bay does not plan to use state funding.
Strategic Economics said some state funding programs have recently exhausted their funding or been restructured. State funding availability could be significantly reduced if voters do not pass Proposition 1, an $11 billion statewide affordable housing bond on the Nov. 3 ballot, the firm said.
