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HomeMy WebLinkAbout1982-09-13 City Council Summary MinutesAgenda Changes, Additions and Deletions item #2-A (Old Item #1), Ordinance Business Improvement Area (2nd Reading) Item #3, Cable Television - Finance and Marketing. Adjournment to September 14, 1982 Regular Meeting Monday, September 13, 1982 The Ci ty Council of the City of Palo Alto met on this date in the Council Chambers at City Hall, 250 Hamilton Avenue, at 7:30 p.m. PRESENT: Bechtel , Cobb, Eyerly, Fazzino, Fletcher, Klein (arrived at 7:40 p.m.), Levy, Renzel, Witherspoon MINUTES OF JULY 12, 1982 Councilmember Fletcher had the following correction: Page 2233, top line, word "letter" should be "litter." Councilmember Witherspoon had the following correction: Pase 2233, fourth paragraph, seventh line, sentence should begin, "The midtown area.. Councilmember Renzel had the following correction: Pa9 2235, fifth paragraph, second line, word "auspicious" should be suspicious." MOTION: Councilmember Witherspoon moved, seconded by Fletcher, approval of the Minutes of July 12, 1982 as corrected. MOTION PASSED unanimously, Klein absent. MINUTES OF JULY 19, 1982 Councilmember Witherspoon had the following correction: Page 2272, second paragraph, fifth line, delete the words "they agreed or disagreed with their urgency and that." MOTION: Councilmember Fletcher moved, seconded by Witherspoon, approval of the Minutes of July 19, 1982 as corrected. MOTION PASSED unanimously, Klein absent. ORAL COMMUNICATIONS 1. Dr. Harvey K. Roth, 342.2 Kenneth Drive, said many people would appreciate the Council passing the alcohol container meaarial ization . He submitted various materials which are on file in the City Cleric's office. CONSENT CALENDAR Mayor Eyerly removed Item #1, Ordinance re- Downtown Business Improvement Area from the Consent Calendar. Action MOTION: Coanclleeaber Fletcher moved, seconded by Levy, approval of the Consent Calendar as amended. ITEM f� ORDINANCE TO PROHIBIT INTERFERENCE WITH ' POLICE DOGS (2nd We'a ORDINANCE 3387eatltl ed-:"OR©IVANCE OF THE COUNCIL- `OF Tirr CITY OF PALO ALTO EATARLISHINN A. POLICE DOH ORDINANCE®. (1st:Readi g 8/30/82, Passed 6-0, Levy, Refute/ • Witherspoon absent) NOTION PASSED unanimously, Klein absent. AGENDA CHANGES, ADDITIONS AND DELETIONS City Manager Bill Zeiler said that Item #1, Ordinance re Downtown Business Improvement Area would become Item 2-A. Mayor Eyerly suggested that the Calaveras Project be addressed tomorrow, September 14, in an adjourned meeting of this date. He received no objections. 1 1 ITEM #2-A (OLD ITEM #1) ORDINANCE RE DOWNTOWN BUSINESS n ea ng Senior Assistant City Attorney Anthony Bennetti pointed out that on Page 2 of the ordinance, "banks". were added to the financial services at the request of Counci 1 member K1 ei n. "General Business Office" uses were divided into two groups --Class A and Class B. Class A would include Real Estate, Insurance, Credit Union and Travel . Cl ass 8 would include Property Management, Ti tl e Companies, Investment and Personnel Offices. The City Manager would have the authority under subsection (d) to classify other businesses which might be specified in the two groups. John J. Wallace, 261 Hamilton Avenue #420, submitted a petition signed by 73 downtown businesses who were opposed to the formation of the Downtown Business Improvement District as proposed. The problems outlined in the petition were as follows: 1. Proper allocation of cost benefits; 2. Establishment of controls on the use and management of funds; and 3. Precise definition of purpose. He said the petitioners were not against the formation of a Down- town Improvement District, but rather how the present ordinance was formulated based upon the problems stated. The petition was not circulated until September 7, and almost all signatures were gathered within a three-day period. All signatures represented businesses --not individual s --and over 90 percent of the businesses approached; were opposed to the formation of the District. A sample was taken at 261 Hamilton Avenue, a four-story building, with offices on three stories, and a retail on the bottom floor. Over ninety (90) percent of the businesses in that building were contacted, and 100 percent were opposedto the ordinance as pres- ently written. Based upon the results of the survey and the peti- tion, it could be reasonably concluded that about 75 percent of the downtown businesses were against the present ordinance. He requested a delay in the approval of the ordinance pending further research and modification. The petition drive also concluded that 10 percent of the firms contacted knew nothing about the proposal. Regarding •the law of AB 1693, •Notice of hearing held under Section 36521, 36.561, or 36580 shall be given by both of the fol- lowing: a) one publication of the resolution of intention in a newspaper of general circulation in the city; and b) -mailing of a complete copy of the resolution of intention to each business in the proposed or established area." He said the following fi rms did not, receive any notification: Carl Bledsoe, Attorney, .,261 Hamilton. Avenue Suite 320-C;- Stratton Agency, 261 Hamilton Avenue, Suite 409; Home Inspection Services 261 Hamilton Avenue, Suite 320-8, The William Nagel Design Group, 524-A Ramona; Steven Osborn S Associates, Inc., 535 Ramona; Additional firms`, did not receive notification, but asked that their names not be published: 2 4 5.5 9/13/82 Mr. Wai ace said that the level of opposition was not only from office users --some petition signees were ground floor tenants and retailers; including Berliner and Kidder, 151 Lytton Avenue; Max Smoke Shop, 534 Emerson Street; Peninsula Feed and Fuel , 234 Hamilton Avenue; Moody Business Machines, 530 Bryant Street; Opticians, 634 Ramona Street. Mayor Eyerly asked how many businesses were in the Improvement Di strict. Mr. Zaner said about 600, and that notices were sent fn accordance with .the statute . Everett Steichen, 261 Hamilton Avenue, Suite 420, said he was still opposed to the ordinance as written. Since the program was designed primarily to improve the retailing climate in downtown Palo Alto, he was astounded to learn that only 11 of the 27 mem- bers of the Board of Directors of Downtown Palo Alto, Inc. were retailers, and the rest were affiliated with other types of busi- ness activities. The way the program was currently set up, if adopted, it would become an administrative nightmare since it appeared to be impossible to track down all of the businesses in the district. He submitted a prepared statement which is on file in the City Clerk's Office. He noted that the City of Palo Alto prepared a report on retail i ng in downtown Pal o Al to , and he believed it was was an excellent narrative on the situation and how it evolved from what Palo Al to was many years ago. The report pointed out that retailing in downtown Palo Alto had increased from 40.8 percent of all ground level space in the area to 45.5 percent between the years 1970 and 1981. That was an increase not only in percentage, but also in the total square footage. Cur- rently, there were 558,000 square feet of retailing in downtown Palo Al to --a 100,000 square foot gain over 1971. He pointed out that retailing in downtown Palo Alto was a changing phenomenon. The dominant type of retailing in downtown Palo Alto was not in direct competition with Stanford Shopping Center --it was primarily business and service oriented. He did not believe adequate research was done into the composition of retailing in downtown Palo Alto to understand what was needed and what could take pl ace in the establishment of the di strict, or the assessment formula as proposed. Councilmember Cobb asked why the opposition had surfaced so late. Mr. Steichen said he may have received the circulars, but it was not until his office received the official ncti fication from the City that he became aware of the scone and nature of the proposal Wallace a Steichen, Inc. was alarmed at the proposal and, there- fore, initiated their opposition. They met with Mr. Gallagher and found that nothing could be accompli shed in that area, and thus, their appearance at the City Council meeting. - Councilmember Levy asked Mr. Steichen if he opposed the concept or the way it was to be implemented. Mr. Stei c hen said he did not know where concept ended - and reality began. He was not opposed to the formation of a Downtown Business Improvement District as such, but rather was opposed because the purpose - was not clearly stated, and where there was no clear statement of purpose, there was no way to monitor the program, no way to assess actions, and no way to determine whether the program was doing what it was supposed to do. Since anh y 1 i—a-f_.27 members of the : Board of , Directors of Downtown Palo Al to, Inc. were retailers, he did not think: DTPA represented the retailing com- muni ty as such. He was opposed to how .benefits were to be derived and the distribution of costs. There should be some correlation between costs and benefits . If it was a retailing program, he did not feel that he or other people like him who were in multi -story office buildings, one block removed from University Avenue, would benefit to the same degree . as would a retail merchant fronting on University Avenue. They were opposed to how the program was, structured and did not think that adequate consideration had been given to the distribution of costs against- the benefits to be derived. 2 4 5 6 9/13/82 Timothy A. Connelly, Attorney at Law, 261 Hamilton Avenue, regis- tered his objection to the proposed business district. He was particularly opposed to 1) the mandatory inclusion of all busi- nesses, regardless of type, as part of the business improvement district; and 2) the fact that the specific purpose of the dis- trict was not made clear. He ' was not a member of DTPA, pointing out that membership therein was voluntary, and had no first-hand knowledge of the membership makeup or the specific purposes for which DTPA was organized. He understood that a majority of the members were downtown retailers and real property owners who had had one common interest --to get the purchasing public to the downtown area for shopping/investment purposes, and to try and compete with the clustered stores located in the suburban shopping centers. The benefits to the retailers would include increased sales, and the benefits to property owners would include increased property value and increased rents . and profits. He understood that members of DTPA paid dues, which were to be expended for the promotional activities and advertising to get the buying public downtown. He stressed that membership in the association was voluntary, and comprised of, people who would most likely benefit from its services and others who felt they would ultimately bene- fit by contributing dues to the association. Conversely, there were a number of businesses in downtown Palo Alto who were not members of DTPA--nonretailers and nonreal property owners --who decided not to join because they could see no benefit to their businesses as a result. As he understood the ordinance, as administrator, DTPA would have the same purposes and goals as agent of the City as it had when it operated independently. Any benefits of the ordinance would flow to the same types of busi- nesses as it flowed to before --the retailers and the property owners. No benefits would be derived by the nonretailer or non - real property owner even though the, majority of the revenue would be coming from that classification. The purposes of DTPA would be the same, and the businesses to be benefited would be the same. The only difference would be that the burden would be shifted to the entire business community regardless of benefit. He was also concerned about the uses to which the revenue raised would be put. According to the proposed budget, only 53 percent of the projected first year revenues was allocated to member benefits. The remaining 47 percent would be- allocated to payment of office expenses and operating expenses --presumably those of DTPA. Of the 53 percent allocated to the member benefits, one-half was allocated to something called "advertising and promotion" with the other half going to district and member services. The only examples he had been able to find that night come under "district and member services" were: street and sidewalk cleaning, flower plantings, and decorations. He felt that was not a separate func- tion, and the responsibility of City government, for which prop- erty taxes were paid, and the actual use of the proposed expendi- tures would be for advertising and promotion with the ultimate benefit of any advertising or promotion being dircted toward, and limited to, merchants and retail operations, and property owners, at the expense of the entire business community. Those questions must be looked at carefully before the Council can make a deci- sion. Mayon tyerly said he discussed the improvement district and how it would be set up with staff. DTPA did not have to be selected as the one to administer the program. Mr. Zaner had indicated that to handle that type of an improvement district, it would have to come under observation of the Council on a yearly basis, with a budget being presented to the Finance and Public Works Committe during the budget process for acceptance by the Council. That meant there would be control on that budget. He deferred to Mr. Zane for el aboration. 'Mr. Zaner said the district was formed as an, assesment district; consequently, the City Council was legally the Assessment District Board and could not abdicate that responsibll,ity. All funds 2 4 5:.7 9/13/82 received by the district would be collected by the City, accounted for by the City Controller, and set up in a separate - account for the Downtown Business District, and those funds could be used only for that purpose. Annually, staff anticipated a budget going to the Council, along with the City's regular budget, detailing activities the district would be engaged in for the ensuing fiscal year. The Council would have an opportunity to review that bud- get, approve or disapprove the district's activities and approve or disapprove the budget. Following approval of the budget, staff recommended that in order to execute that budget, Council contract for the service. Staff further recommended that the Council con- tract with DTPA, just as was currently done with other agencies for senior services or child care services. A contract would exist between the City Council and Downtown Palo Alto, Inc to provide certain services as set forth in the budget. At the con- clusion of the year, staff would analyze the budget, the services and contract, determine if those services were delivered as required by the contract, and report back to the City Council. Council would have the option at the end of any contract year to either renew the contract, or fired some other contractor. Jan Vallee, 261 Hamilton Avenue, operated a secretarial service. Her office was not air conditioned and she overlooked an alley. She did not receive any walk in traffic and did not see that she would be benefited at all. She did not understand why businesses who did not receive walk-in traffic, who were not retailers, should have to pay taxes to be levied by the district. Vice Mayor Bechtel . asked Ms. Valier if she would object to the assessment of $36 per year. Ms. Valley. responded that she objected because she did not get walk-in traffic. Her business was by appointment only. Eloise Montagnon, 261 Hamilton, was the co-owner of Ms. Valier's secretarial service, and also objected to the assessments. Shet felt it was taxation almost without representation. Len Snyder, 261 Hamilton, said he operated a small business in a closed shop. Nothing came through his doors, which was why he objected to the ordinance. William Nagel, 524-A Ramona, said he was a graphic designer. He objected to the ordinance because he resented not being informed. Hehad received no communications that the action was being pro- posed. The ordinance appeared to be arbitrary and vague, and he requested a - delay on any action in order to become more familiar with both sides of the issue, Stephen Osborn, 535 Ramona, said he was not informed of the action. He was unclear about Mass A and Class 8 classifications. He felt it was unfair that he should ; have to pay $110 per year. -John Mundorff, 533-A Ramona Street, said he did not object to beautifying the City or promoting business, but rather to., the matter of equality. He had a small business,_and objected to having to pay the same amount as Oshman's for instance His esti- mated income tax for the dtate of California was $101, and the City of Palo Alto wanted more than that, Howard Churcher, 415 University, said that opposition . to the, ordinance appeared to be minimal a couple of weeks ago because DTPA gave the impression that it had to have the approval of 50 percent of the local business 'd€str.-ict $n order for the ordinance: to obtain approval by . the City; Council. Therefore, most ' people did not realize they had to register opposition. It .was felt that DTPA would have to appear before the Council with at least 300-400 signatures, which apparently was not done. He encouraged the Council • not to support the ordinance, `,wri thout further 1 1 1 consideration. He felt the ordinance needed modification, and suggested that local talent be utilized apart from DTPA. The budget needed to be reviewed properly, and the basis for payment should be done fairly. It was outrageous that a store the size of the tennis shop should pay exactly the same as Rapp' s --an approximately $2-$2.5 million business. He pointed out that as a member of a retail business in. Palo Alto, he had the opportunity many times to join DTPA. He did not like its management or the way it was run, and objected to being forced to join the organiza- tion and subsidize it. He was not against AB 1693 or Resolution 6058, but felt the Council should be drawing on some people in the area --apart from DTPA—in order to obtain other input . Mayor Eyerly clarified that Mr. Churcher would favor some type of an improvement district if he was happy with the management. Mr. Churcher said yes as long as predetermined goals were not set that did not necessarily benefit everyone within the buss ness dis- trict. Mayor Eyerly asked Mr. Churcher if he had any suggestions as to whom the City might contract with if the district were to go for: - ward. Mr. Churcher said he did not believe the City had to contract with any specific body. He recommended the same procedure as was used to recruit the Architectural Review Board (ARB) . There were a lot of talented people in the City of Palo Alto who would volunteer their time for the benefit of the City, including himsel f. Bob Moss, 4010 Orme, pointed out a defect in the proposed ordi- nance in terms of nonprofit organizations. He realized it was everyone's intent to exempt nonprofit, tax exempt organizations from the assessment. The way the ordinance was drafted, "any business which was established for gain or for profit was exempt. On the other hand, the ordinance read that, "...the businesses to be assessed will be established by the assessor's tax rolls." Someone might not real i ze, unl ess that person operated as a non- profit organization, that it could be a fully tax exempt, non- profit corporation, under both federal and state law and still be on the assessor's tax rolls. A state law was passed recently which said that in order to be exempt from both real estate and personal property tax, a nonprofit, tax exempt organization must include, in its articles of incorporation, specific language regarding disposition of assets in the event the corporation was dissolved. He said the articles of incorporation of the Council for the Arts in Palo Al to and Mid -Peninsula Area , for which he was a past officer, and La Comida de California, and of which he was currently Presi dent, were drawn up before the State law was passed. Although the intent of both articles of incorporation were identical to the State law, the language was not precisely the same. Therefore, the .organizations were on the assessor's tax rolls. He said the ordinance provided that "it was permissible for, at the discretion of the City Manager, organizations to be excluded." He pointed out that the mere presence of an organiza- tion's name on the assessor's tax rolls was not evidence that it was in fact in business for profit or gain. Regarding the manner in which : the assessment district would be managed, he suggested that everyone in the assessment district who ,was taxed should have a vote on the management of the board. DTPA would no longer be in operation as a tax -collecting, or dues collecting, organization. A new organs zation would be formed to manage the assessment ._di s- trict.: Everyone"paying into it ought to have the opportunity to vote on the = management of the organization. As a (.private citizen with ne - ties = to downtown Palo . Alto, he endorsed the basic concept of the assessment <district and the improvements.::' He felt it would be useful and,: beneficial to improve the vitality of downtown ° Palo Al to David Midlo, 320 University Avenue, was a downtown merchant, a Vice President of Downtown Palo Alto, Inc. (DTPA), and a member of the executive committee. Since he was a Vice President, there were other merchants on the executive committee, not on the Board of Directors. Most of the 800 businesses were notified by mail , and as many as possible were notified in person. He said the unsecured property tax roils were used for the notification: and there were some people, new businesses, or graphic artists that were not on the list. The major reason for the assessment dis- trict was a. promotion of downtown Palo Al to-- i t was ` not a merchant's promotion district, the ` taxes would not be spent on merchant advertising. It was hoped to advertise downtown Palo Alto as a place that people like to have their offices, to have people come and visit, and maybe eat lunch and shop. He did not see how anyone, no matter where their office was, could not see that a promotion district would make downtown Palo Alto a nicer place to have their office and their business, particularly at a $35 a year assessment. The City of Palo Al to would supervise the district, and he assumed that after the second year, every member of the district would vote on what . was proposed as a 29 -member board of directors. It had been suggested that it should be more for merchants than other people. The merchants were not the majority of downtown people, there were more offices and lawyers; and consequently, he did not feel that the merchants should neces- sarily be the majority of the board of directors. Vice Mayor Bechtel asked staff for an explanation of tine notifica- tion process. Assistant to the City Manager Charles McNeely responded that staff used the unsecured tax roll from the County. Iii addition, notice was published in the Peninsula Times Tribune. Vice Mayor Bechtel asked how often the unsecured tax roll was updated. Mr. McNeely said yearly.. Vice Mayor Bechtel commented that the ordinance made no mention that the Ci ty would be contracting with Downtown Pal v Al to, Inc. Senior Assistant City Attorney Anthony Bennetti said that the ordinance was not required to mention who the City would be con- tracting with. That was entirely up to the. Council Vice Mayor Bechtel asked about nonprofit busi nesses, Mr. Bennetti said that when the ordinance was referred to the Policy and Procedures -Committee, it was clear that the City did not want to include nonprofit businesses, ' therefore, wbusi mess° was defined to mean a person, firm or entity conducting activities with the object of gain, benefit, or ,advantage. He said it was true that the City created a _presumption that a person or entity listed on the unsecured property tax roll , and occupying property zoned for use which fits within the ordinance, was presumed to be conducting a business. However, that presumption may be rebutted by, showing the City that they were a nonprofit organs nation» Vice ' Mayor Bechtel asked if there would be a problem as indicated by Mr. Moss. Mr. Bennetti said no. He did not think the ordinance 'would be interpreted that someone would have _too pay the fee '-if, - in fact, they were a nonprofit corporation. and: could produce either articles of incorporation or some other' document attesting to the fact that they were not organized for profit. The di ffi c ul ty with the ordinance was that, Palo Alto had no ready-made source to identify its businesses. Many communities imposed a business license .:tax or some other registration wherein businesses were required to keep the, city advised of the . current name of the 2 4 6 0 9'/13/82 entity doing busi ness as well as its current address. The City of Palo Alto must rely on the unsecured property tax roll as the most reasonable way of finding out who was conducting a business use in the City. Even then, there were .a lot of people that showed up on the unsecured roll who were not conducting businesses Likewise, as the district was set., up and the City was able to gain some experience with its administration, hopefully it could identify additional businesses, As pointed out by Councilmember Cobb, it might be alright to estabish the district on the rather .crude basis of $110 for one class and $36 for the other and consider dividing up the benefits on some .Other basis at some other time. There were a number of ways to go and someone had to come forward with a more fair proposal. Vice Mayor Bechtel asked if a graphic artist who was renting a space would be on the unsecured property tax rolls. Mr. Bennetti said not unless that person had taxable assets -- equipment or something that was taxed by the County. Vice. Mayor Bechtel clarified that the graphic artist would note be part: of _the; district.: Councilmember Klein said that personal property tax applied to . any business owning equipment which was used in the furtherance of that business. Mr. Bennetti said that was true i f personal property . were used, but there were businesses that may be. undetected, Councilmember Klein submitted that the only businesses that were not on the personal property tax rolls somehow evaded the law, Mr. Bennetti said that would be a correct observation. Another problem was that there was a possibility that an owner/occupier may not have wound up on the unsecured property tax roll. Vice Mayor Bechtel said that the actual dollar amounts of fees to be collected were in the ordinance so that if five years hence it appeared to be too much, or too little money, the appropriate procedure would be for the Council to change the ordinance. If a member of the Downtown Business Improvement . District wanted to request a change, it would have to be done through the City Council. Mr. Bennetti said that was correct. The law required that the amount of revenue necessary be raised to confer the benefits. Since the district was on a one year budget, presumably it would have to be determined every year what activities would be con- ducted in the district to confer those benefits. The amount might be changer} every year because the benefits would be distributed among the classes and the amount necessary to raise that dollar amount of revenue would have to be determined. Don Surath, 1930 ivy Lane, agreed with Bob Moss that there should be some facility by which every.. person in the district would have some sort of a vote on how the money was spent. Retailers would - pay $11O versus $36 for office buildings and professional people, and it appeared that ` retailers would receive three times the bene- fits. He estimated that there were about 25 percent more Class A type businesses, and it appeared that they would receive about 50 percent of the ..moneys contributed to the dlsteict. He supported the concept of the ordinance, but was concerned that the moneys would not be spent In .& way to benefit the people contraib uti ng° the most amount of money. It appeared that property owners who would not be contributing anything unless they were ow ner-operators` would receive the most benefit. If the proposed _ district , did createa better downtown`'atmesphere, a larger demand for property would be created, and larger _ rents would be commanded 'de felt that was a double-edged sword for.. the retailers because :.i f all those things happened, and things improved, the merchants rents would be increased. He felt that Class A businesses should have a voice commensurate :with the fees assessed to them Mayor Eyerly said that the petition received by the Council and the people who. spoke against the ordinance amounted to about ten percent of the 800 people who would be in the district. Legally, the City did not have to forego setting up the district with that minimal amount of resistance. It did not appear that those who spoke in opposition were opposed to the phi l osphy or the general thrust of the ordinance, but rather it appeared to be more of a debate as to who might be contracted by the . City to administer the district, and there was some disagreement on the size of the assessment and whether offices should be included. The Council had several options which included approving the ordinance for second reading, setting up the . district, and asking staff to. return to the Council with some agreement as to who should be con- tracted; or the Council could delay second reading and ask staff to authenticate the names on the petition. MOTION: Mayor Eyerly moved, seconded by Witherspoon, approval of the ordinance for second reading, and that staff report back on contracting and handling of funds and decision -making for the proposal. ORDINANCE 3388 entitled °ORDI+NANCE OF THE COUNCIL OF trr: teLrt us PALO ALTO ESTABLISHING THE DOWNTOWN BUSINESS IMPROVEMENT AREA (1st Reading 8/30/82, PASSED C-0, Levy, Renzel , Witherspoon absent) Councilmember Fletcher said she did not want to go through a pro- cess every year whereby the proposal was brought to the Council and at the last moment various arguments would be heard about why, the particular proposal was unjust or should be amended. She sug- gested that it would be better for those being assessed to organize and have representation, and to have their agreements made before presentson of the proposal to the City Council. That activity should be pursued during the coming year before the time the proposal was before the City Council in order to have more harmony and agreement about what should be done in the district. She asked if cleaning the sidewalks was a City function or a prop- erty owner function. Mr. Zaner said it was a City function; however, it could be per- formed by the assessment district if the City chose to do so. - Councilmember Fletcher said she would support the motion, but was concerned that another plan be devised for next year. She was concerned not only about contracting, but al so the decision making process for the proposal. Councilmember .Cobb .said everyone appeared to be in agreement that the general idea of the assessment.: district was a good one. The first set of issues had to do with ° who would administer the dis- trict and the level of democracy that could be achieved in creating that adrainisteation Vice Mayor Bechtel's comments indi- cated that no particular entity was ,yet spelled out, and as pointed out by Mayor Eyerly, there was a staff assignment to sort out the question and try and fine tune the question of administra- tion and how_ participation would be: .= involved. The second. set of issues hard to ; do with the equity of the assessment itself. He asked` if there:. was some fine tuning the Council could do ; to try and make sure that some equity was :_created. He perceived .:that there could be a ,subset of businesses which would not benefit and perhaps sheuld\be given some special _ consideration. Further, he was concerned about the comparison of the little.` tennis shop to Oshman's. There was merit in that ccaparison, and he asked if that Was the kind of fine tuning the:. Council could buildon to the basic ordinance. Mr. Bennetti said the fees could not be adjusted without noticing another public hearing. If the Council wanted to make amendments,' they could go through the process again; otherwise, they could wait until the district came up for review after the first year of operation, Counci1member Cobb clarified that even if the Council waited for the first year of operation , they woul d still have to go through the public hearing process again. That was the normal process of amending any ordinance, Waiting until after the first year of operation would give the Council a chance to assess what was created so far and to modify it in accordance with whatever prob- lems emerged. Mr. Bennetti commented that State law gave the Council wide dis- cretion in setting up ei ther zones of benefit or distinguishing among businesses on any reasonable basis as perceived by the Council . Counci 1 member Klein continued to support the Downtown Improvement District. In response to the various criticisms, he disagreed that the proposal was retail -oriented and that only _retail merchants would benefit. Any profit -making activity in the downtown area woul d benefit from a better environment, and he saw the money of the Downtown Improvement District being spent in that regard. Don Surath commented that if the downtown improved, rents would go up and perhaps the proposal was a double-edged sword. He said that point was well taken, but pointed out that even those who did not rely on retail trade for their incomes would benefit by participating in a better environment. He submitted that was one reason people were already in the downtown area--i t was a fun place to be. He hoped the Downtown Improvement District would make the downtown that much better a place to work. Regarding the purposes of the district not being clearly defined, the general policy throughout all governmental agencies was that when some- thing was set up, the purposes should be kept fairly general in order that the activities could shift around. Regarding the flat rate tax, he felt the trade-off was interesting. They were not talking about huge amounts of money, and\ it may well be that the fairest of all universes would be an assessment based on square footages or gross revenues . The difficulty with that would be a lot more administration and a lot more cost . They were talking about raising $70 ,000 with a top assessment of $110 per business and $36 for the smaller businesses, and the. gain right not be worth the candle -- the expense of producing additional fairness might be more than eaten up by the extra admini strati ve costs. He suggested that the Council see how the district went for a year. Any ordinance could be improved upon and maybe a year's experience would. lead the Council to some amendments, but right now, he felt the ordinance was in satisfactory form to get started. Counci 1 member Renxel asked if the time came to contract with some- one to administer. the district, could the Council specify a demo- cratic process to be required as part of the contract. Mr. Bennetti said yes. 1n terms of the scope of services, the Council could outline whatever they wanted the contractor to per- form. If it was important during the first year for the adminis- trator to contact all the businesses and set up a mechanism for hearing next year's budget,' that could be included in the scope of services. Councilmember Renzel clarified ,that the, Council' coui d also specify the basis on whichrepresentation would take 'pl"ace, with the Con- tracting agency. Questions were railsed about whether the ..people;: being taxed would be, appropriately., represented because many of them were not now members of Downtown Palo Alto, Inc. If they wished to' have some_` other agency or' different .structure of the agency, she asked if the Council could specify that the voting process would be based on the assessments. Mr. Bennetti responded that the Council could probably request that the contractor set up a particular form. He did not know that the City Would want to dictate the . corporate structure of Downtown Palo Alto, Inc., although he understood that their inten- tion was to make the membership equal. He did not know whether the City would want to necessarily require them to do that through CST PA. The City could require that they set up a nonprofit member organization consisting o.f all the businesses in the district. Councilmember Renzel did not intend to specify how DTPA would operate, but rather that any agency the. City contracted would be democratic based on the peopl e being assessed. She woul d support the formation of the district with the understanding that the City would take further action at some point to designate a contractor. Then, the City could address some of the questions which were raised. - Mayor Eyerl y clarified that the staff report requested.. in the motion would give the Council a recommendation as to who should be the contractor and the parameters of the contract. Councilmember Fazzino said he was concerned about the issues which were raised at the last minute. He was unclear, given the need for a public hearing for those kinds of issues, whether it would be possible for the Council to take the report and send it to the Policy and Procedures Committee, for example, in order to have some discussion of the issues prior to the public hearing at the end of the year. He was concerned that the Council not bury all the issues for one year because legitimate issues were raised and he wanted to see them handled in some manner. He would support the formation of the district. MOTION PASSED unanimously. ITEM #3, CABLE TELEVISION - FINANCE AND MARKETING (CMR:481:2) Mayor Eyerly reported that staff's assignment was to bring back .a financing and marketing plan. The.. financing plan was not com- pete, and additional .time had been requested by staff in order to complete substantiation of the plan. He cl ari fi ed that tonight's meeting was not intended to be a work session, and in accordance with the City's administrative code, speakers were held to five minutes on an agenda item. He clarified that if private companies had more than one person present, everyone would have an oppor- tunity to address the Council. He asked that lengthy_ discussions be curtailed. City Manager Bill Zaner said staff was given a _ -.three-part assignment of which two parts were completed. The -third was still under analysis by Merrill Lynch, and staff would return with that portion when completed. The two parts submitted included a fi ve- year projection for revenues and expenditures. The City's :finan- cial consultant was asked to do . that in various penetration bevel s. Staff was also asked to address the marketing, question, and that material was included in the Council's packet, and addi- tional backup data which would be provided upon request.' Council member Cobb said the marketing report :was called: an , Execu- tive Summary, and he asked if a document existed to go along with that. Mr. Zaner said yes. 1 1 Tracy Westin, 2520 Ruhl and Ave.nue, Redondo Beach, California 90278, a communications consultant and attorney, representing California Cable Television Association, said he spent the last four years as the Deputy Director of the Bureau of Consumer Protection for the Federal Trade Commission in Washington, R.C. Before that, he was a Professor of Communications Law and First Amendment Law at the University of California at Los Angeles . Before that, he was a public interest attorney in - communications, and before that, an attorney _ for the Federal Communications Commission. He said that if the City were to build a municipal shoe store, there would be no anti trust probl ems If the City decided simul- taneously to excl ude all pri vate shoe stores from the City , anti - trust probl ems would cl early arise. By analogy, i f the City decided to start a newspaper, there would be no antitrust prob- lems; but if it simultaneously decided to a exclude all private newspapers from the City, there would not °MS, be antitrust compe-- ti ti ve problems, but serious Fl rst Amendment probi ems al so. Essentially, the cable proposal posed just that. If the City decided to build a munici pal cable system, and simultaneously all owed any private company to build a private system and compete with the City, there would be no antitrust problems. If, however, the City built a municipal system and excluded private systems simultaneously from bui i ding , cl ear anti trust probi ems woul d exist-- the City would be monopolizing the market and creating a restraint on trade. There had been some discussion about whether the State authorized the City to build a municipal system. That was unclear as he understood the statutes, but in a sense that was not the question. The issue was whether the City could engage in anti -competitive practices. In order to build a municipal system and excl ude private companies, the City would need specific legis- lation from the State stating that it could build an exclusive municipal system --or it could build one wi thout considering competing applications --and no such legislation existed. As far as he could see, there was no immunity from an anti trust challenge. Regarding the First Amendment question, there were four categories of problems. Themost serious probl em was that traditionally, the First Amendment was designed to separate the government from the press. In this country, the press was viewed as an institution that helped preserve the democratic form of government by being a "watch dog" or critic. The courts were Jealous to prevent govern- ment from reaching out and censoring individual decisions of news- papers. In essence, municipal ownershi p conflated the separation between government and press so that governmentbecame press and press became government. By making that decision, a fundamental. safeguard built into the Constitution to allow government tb be critiqued from the outside was eliminated. Second, in bui l ding a municipal system, there were unique prob t ems the City would con- front. For example , would the City cable system have robust, sharply ` worded editorials; would the City cable channel have an investigative news documentary team that would critique among other things the City. Council, and what would the City cable system do about rel i gi ouis programming He interpreted the case law to mean that a municipal cable system would probably be deemed a public,forum and turned into a common carrier. Councilmember Cobb said California had :municipally owned systems. He He asked i 1_ any of those systems had been chal tinged under the law stated by Mr. ,Westin Mr.. Westin said no. One: resaow was because the Supreme Court had recently:: held :that ,,cl'ties titre open. to antitrust challenge. Also, cost of the systems he was ; aware of were small , relatively rural Systems where there probably was no competitive alternative. 2...4 6 5 9/13/82 Counci1member Cobb clarified that the Boulder decision had changed the game. Councilmember Levy asked what the California Cable Television Association was. Mr. Westin said it was a trade association which represented cable operators throughout the State. Counci1member Levy said that in the analogies painted by Mr. Westin, it'appeared that if the City offered awards, but a single franchise, it would also be guilty of monopolistic practices. Mr. Westin said potentially yes. There were two separate issues. Awarding an exclusive franchise to a private company raised a potential antitrust problem that might be overcome by some strong showing that it was essentially a national monopoly, and that more than one system would destroy the market for everyone. The showi ng coul d be made, but it would be difficult. If the City got past that hurdle, and justified one system, the question would become who had access to compete for that system. To exclude private applications and just say it would be a municipal system w.oul d raise a separate anti competitive problem. Counci1member Levy asked what would happen if everyone were allowed to compete-- including the municipality. Mr. Westin responded that there would be no antitrust problems as far as he could see. Counci1member Cobb asked if the California Cable Television Association planned any specific cI al 1 enges to specific municipal operators under the antitrust provision. Mr. Westin said he was.. retained by the organization to address antitrust and First Amendment issues. Jerry Yanowi tz, 1061 Wal ker, Assistant to the Presi dent of California Cable Television. Association, said the issue of deregu- lation seemed to be one which had caused great concern for certain members of the City Council. The situation on a nationwide level was very fluid and constantly in . a state of flux . A telecommuni- cations 1 aw existed which had essentially not been updated since 1934. Since then, a lot of new technologies had emerged --cable, subscription tel evi slon , direct broadcast satellite, and ABC's recent announcement of subscription television over the air in the 2:00 a.m to 5:00 a.m. timeframe{ There were legislators attempting to deal with the situation on a state and national level, and the Goldwater Bi 11., which had brought about a lot of concern, was one of those measures, Other measures were intro- duced in ` Congress which attempted to deal with the problem, but none of them became law. ..A lot of. attention was focused on the impact the federal government could have on a city's ability to regulate a private cable company. It was suggested that cities should : build municipal systems in order to protect . their inter- ests. The other side of . that coin was what sort of legislation could the federal government enact that would impact the muni- cipally owned system. For example; the - federal. government =could decl are legislatively that raun1cipal ownership of cable was Illegal and that all ' cities would have to divest within a. certain period of time.' The :federal; government -could say, for example, that all municipal systems were required to lease out or make their channel capacity available to 10, 2.0 or 50 Percent to pri- vate _entrepreneurs - who, wanted to;. provide, Services over .that cable system thereby effec ti vel y coapeti ng with the ci ty and-'_posslb1 y` depriving the City Of a lot of revenues which they anticipated as a result of _building a municipal cable television;. system.. The. federal government could' also say that only three percent of any excess above the cost' of running the system --the same way that there was a three to five percent;, ceiling on franchi se fees --could go to the General Fund. 1 The rest had to go toward community programming or be rebated to the subscribers or any number of possibilities . He pointed those out as examples of what could happen if the federal or state government came in and decided to snake findings vis-a-vis municipal ownership of cable. It was not necessarily safer, in terms of regulatory climate, to take the municipal route over the private route. As a matter of fact, the stateor federal govern- ment could find it much easier to change the rel ati ohshi p of a municipally owned cable company rather than the impact that would be had on a privately -owned company. Mr. Yanowi tz said the Goldwater Bil 1 was typified as a bill which would effectively strip cities of their regulatory authority over cable. He did not believe the bill really did that. It allowed ci ties to franchise, to set channel capacity, to set service stan- dards, to set standards of all sorts, and all owed them to require institutional networks, or any number of services. It in no way suggested that a cable company could get out from the guarantees it made.. It specifically authorized cities to have the ability to franchise cable television systems and required the systems to have a minimum --a floor not a ceiling --of ten percent access, and it specifically allowed cities to regulate basic rates. Regarding franchise renewal s and extensions, the bill would grant automatic renewals to cable companies after 15 years. The bill had three components: I. The company would only be granted renewal if it had been in substantial compliance with the on t;inal franchise; The company must have the technical and fiscal ability to con- tinue to operate the system and it must be willing to upgrade the system to the channel capacity at state of the art of similar systems in similar si zed communities; and 3. Cities were allowed to franchise competing cable companies or to build a system of their own even if the current system had been in compliance. David D. Kinley, Senior Vice -President of Viacom, 6683 Sierra Lane, Dublin, California, said his purpose was to highlight a few of the major points in the report submitted by Y; acorn. Shortly after the Council direction to staff on July 19, Viacom met with Michael H. McCann, a representative of a major underwriter of municipal bonds. Palo Al to' s desire to finance a City -owned system without obligating revenues, other than those received from the cable system itself, was reviewed wi th him. They also out- lined the conclusions in the City's staff report of April 15 and the Bartle Wells study of January 27. Mr. McCann was asked to put in writing his concl usions about the feasbility of City financing. Mr. McCann's letter was contained on page three of the report, and hi s conclusion was "Although there are numerous financing vehicles available, the key to obtaining financing will be the security that is pledged to the payment of the bond. There has been a great deal of discussion within many California cities about the use of revenue bonds which would be payable only from revenues derived from the project. It i s . extremely unlikely, hoWever, that e cable system could be financed on such a . basis." " - Mr. McCann also pointed out that there were certain expenses of the system which could not be financed Cty bonds, ''In addition,, the. municipality would have to provide a method to cover operating losses in the early years from its own funds or through an operator since these could , not generally be financed with bond proceeds." The Bartle Wells seven-year projection and : the City staff's most recent report estimated those start up : losses to be between $530„000 and $627,000 in the first year. Viacom estimated that the net operating losses would total ' about $1.300,000 by:. the end of year two. Whatever the amount was, the important point was that those losses could not be funded by bond proceeds. Those considerable financial hurdles must be compared to the financial benefits that the City would receive from a privately owned system. Those estimates were given on page 7 of the Viacom report. After the system was completed. the City woul d recei ve direct payments every year in the following estimated amounts Pole attachment fees would be about $40,000; property taxes would be about $200,000; franchise fees would be about $211,000. The franchise fees would increase as revenues increased since they were based upon a percentage of the gross. The total payments every year would be over $450,000. In addition, the City could reasonably assume that a private system would propose direct pay- ments i n support of programming efforts by people not affiliated with the cable company. A typical amountfor a community the size of Palo Al to who asked for proposal s from private companies would be about $250,000 per Year. Therefore, the City would receive financial benefits of over $700,000 every year without incurring any financial risk or obligation itself, Most of those fees would not be affected in any way by the proposed federal deregulatory legislation. The Viacom report also tried to give the City an idea of what to expect in proposals from private companies by out- lining the rates and services in the Mountain View system to be activated in October. The Viacom report provided comments on the issues of community control of access to local programming and the risk of future deregulation. Mr. leinley said that regarding the question of how the City could insure that the community had control over local programming deci- sions, Viacom outlined on page 20 the organization in Mountain View whereby the City would oversee the institutional network on the cable system and the access programming done by local groups on the system. For example, on the issue of deregulation, Viacom offered suggestions on ways in which the Ci ty could protect itsel f from losing control of key functions related to the system by retaining ownership of a block of channels . Municipal ownership was discussed and studied for .months without any investigation into what private companies could offer. The hest way to see and analyze what could be offered by private com- panies was to set up a -procedure for the submission of proposal s rather than having Viacom continuously respond to City staff pro- posals for a municipal system. He suggested that the Council con- sider establishing a procedure by which proposal could be soli- cited in order to compare. The City had no legal obligation to accept any of the proposals. There were numerous consul ti ng firms without any ties to private coipanies who could assist, and it could be accomplished in a matter of ,weeks while they were waiting to see the proposed plan for public financing. Robert E. Lewis, 3470 Kenneth Drive said he was a member of the Cable Communications Cooperative of. Palo Alto, Inc., the 'Society of Motion Picture and Television Engineers, and .,the Optical Society of America.: He pointed out that in Manhatten,a consider- able number of coaxial cables were , being -ripped out and replaced by fiber optics cables because the fiber optics cables handled considerably more, information morerapidly, and provided consider- ably less "bulk in the cable tunnels. In all that he had read, no one considered .the fact that the area' faced early obsolescence of coaxial cab `es , and in fact -he had seen a couple of, fiber optics cables being used between buildings now. Tom 0. Passel , member of_, the Board of ' Directors of the Cable Corarueications'Cooperative of PoiO._-Alto, . Inc., 3825 ,Louis Road, Al to,' said. he was the chairman 11 years ago of the Palo :Alt° ,City Council Advisory Coarit-tee:: on Cable Television,.. He': said the latest post than taken by staff, as reported in 'the- Peni_n'sula`=:Tames -Tribune was as follows 1 8 1. The City would own the cable and all the physical plant; and 2. A separate organization would operate the system under con- tract with the City. The Citizens. Committee report of 1971-1973 summarized as follows Qwnership and Or aniza.tion i 1 A. A cable television system should be established in Palo Alto; B. The system should. be owned by the City of Palo Alto; C. That the City be responsible for the construction, equipment and maintenance of the system, and for operation of the government channel; D. That the City contract the operation of the system to a non- profit corporation formed by the City for the sole purpose of operating a system and to encourage independence; F. The Board of Directors of the nonprofit corporation be appointed by the City Council; F. That the Directors appoint two managers with separate budgets and staff for day to day management. of the system. One would be responsible for management of public access education channels and facilities, and the other responsible for all other activities. Mr. Passell said that the report, which was done ten years ago, agreed completely with the position of the current City staff. He pointed out that the Cable Communications Cooperative Board of Directors agreed with both the City staff of 1982 and with the Citizens Committee of 1971-1973 with one proviso. They believed that the Consumers Co-op was an excellent, stable, time -tested organization to trust with the operational roll outlined in the earlier report of 1973. It was clear from the Peninsula Times Tribune .that no existing franchise seeker was desirous of being t e operator without owning the cable, which was all the more reason why the City should strongly consider the existing Cable Communications Cooperative as the possible operator: They were willing and eager to do the job. Bernice Di Gi ovanni , 632 Chi mal us Drive, said that the issue of cable television had been discussed for at least a _ year and a half. As a citizen, she felt deregulation was a can of worms, and pointed out that people from the cable industry had said that thingswere in a state of flux. First, the City had no guarantees that promises made by a cabie company would be followed through with when the time. came. Second, the feasibility of a municipally owned system was already established both by . the City , staff reports, the consultants, and by the Communications Co-op. She commented that one person was worried about the First Amendment problems. To build a cable system was like building a road --it served all the members of the cdmmuni ty and must be done by the community. Some people seemed to consider it ns a piece of real estate or personal private property which was owned by someone and the people' subscribed to it. She thought there was a big :differ- ence in the . way those things were viewed. As a member of the Cable Co-op, they, had 140 member/residents and had been studying the issue for quite a while. As part of a pilot project, they manned petition booths and had 555 signatures of people living in Palo Al to who felt that a municipally owned' system was the way to go. The . petition read as follows: "We, the undersigned, s ipport th4 idea of a joint City/Co-op _Cable :Television.. and Communications system for Palo Alto. A Cable T.Y. Co-op has been formed in Palo Alto based on these ideas. City ownership of :the - actual cable would. protect the long run interests of the community. To insure community control , the programming system should be owned and operated by a - local viewer/subscriber cooperative. A coopera- tively owned programming system was the best way of providing quality programs at economical rates on a conti nui ng basi s ." She urged the Council to adopt a municipally owned system. Hollis Russo, 1143 Stanford Avenue, urged the Council to support municipal ownership of Palo Al to Cable Communications System. One concern about municipal ownership was how the system should be governed and managed. That question must be resolved before City staff negotiated any contracts for cable system operation. Ideally, the governance structure should 1) insure that -the cable system operated efficiently, and that the City's financial invest- ment would be protected; 2) minimize the amount of time the City Council and City staff would have to spend overseeing the opera- tion of the system; 3) avoid any potential first amendment prob- lems by comp i etel y separating the City Counci 1 from all program- ming decisions; and 4) be responsive to changing subscriber inter- ests and adaptable to a system that serves subscribers ; in more than one political subdivision. To achieve those objectives, she recommended that a Cable Communications Board be established —not necessarily the Cable Co-op Board. The intention was that the - board be separate from the City Council and be predominantly. elected by sub scribers. The board should have the full authority to make policy decisions for the cable system so long as certain performance standards --to be established by the City Council --were met. While the majority of board members should be elected by subscribers, it could be . appropriate for the Council to appoint certain people to represent various sectors in the _ commuity such as education, business, arts or sports to insure that those areas were always represented. The performance standards could incl ude minimum revenue targets as well as quality standards. That way, after the system was establ i shed, the Council would only be involved in reviewing those performance standards and possibly modifying them. They would only step in if those Derformance standards were not met. That type of structure would protect the City's investment in the cable system while providing opportuni- ties for subscriber involvement. She submitted a more detailed description of the proposal which is on file in the City Clerk's office, Kay Schauer, 546 Jackson Drive, said she preferred municipal own- ership of the cable system and that local control of the program- ming be retained in some way. She felt that the City had done well to provide for education fn -;the community and she wanted to think the 'City could do the same wi th cable television. A company that provided for the viewing of millions and millions of custo- mers might tend to be leveling in i,ts selection of programs. She woul d support the most sophisticated system the City could afford. To get the system started, she preferred that other City moneys be used if necessary .;to support the system while it was young. She suggested that if the. Council had qualms about which way :to go, that the citizens be allowed to vote on it. Katharine McCann, 7.83 garland, urged the: Council not to fund the cable television . system .with the City's General Fund. That would be unfair to those who did not intend to subscribe to cable tele- vision. Financing and operating a cable television system was a speculative basis in a field with which Palo; Alto had no experi. ence. She understood the- staff's new position in which they _:woul d like to engage ,an experienced °'14 rm to undertake the hazards of installing and selling the system. She was surprised that the Council- had not recognized: the conflict of interest in asking the, City staff to criticize Its, own recommendations to run the cable tel evi si On : system by the staff i tsel f Betty Mceroskey, Legislative Chairman of the American Association of University: Women (AUW) of Palo Alto,` 4158 oak, Hill said that AAUW recogni zed that there may .-be far reechi_ng; effects of cable. "tel evi si on on thel r lives because of recent technological 2 4 0 9/13/82 advances_ such as two-way communication and the coupling of computers with cable television. It was difficult to comprehend the full impact of those technogical advances at this point because they were so new. AAUW was studying the issue of cable, television and looked forward to working with interested citizens in determining the optimum cable television for Palo Alto. Alison Lee, 1241 Harker Avenue, said she supported a municipally owned cable system. She was concerned about the way the subject was being handled by the local press. She read the editorial in the Peninsula Times Tribune and went through the packet to read the staff report, and er-7—impression was that the discussion of marketing was rational. It commented that certain single system organizations did not even use marketing because they were closely in touch with their people, but that multi -system . operators often had marketing. It said that Palo Alto was a fairly unique com- munity and probably should have some short-term marketing organization. She did not see that discussion as an expression of inadequacy on the part of the staff to handle something because they were not in the business. In fact, she was impressed by the staff' s sample report from -the communi ty. The phrasing of the final recommendation of contracting with a third party to operate might be open to some confusi on since there was little preparation for' that in the study, but it appeared clear that it referred to a third party such as a nonprofit organization set up by the City. She hated to see the absence of any comment about deregulation in an edi torical urging the community to influence the. Council in one direction to completely omit the strong support which the com- munity had for its municipal services. She did not think anyone in town would opt for PG&E's utilities operation as opposed to Palo Alto' s own. Staff had done an excellent job. Jim Di nkey, member of the Board of Directors of the Palo Alto Cooperative, 3380 Cork Oak Way, said that if the Council opted for municipal ownership and things went badly, every subscriber was worth about $1,600. The answer was clear, if the City wanted out, it could sell the system. Cable had finally come of age, and with the kinds of profit margins being realized, there were companies with dollars who would have the free cash if the City of Palo Alto got in trouble. Eventually, Palo Al to, as well as the other cities because of different tax structures, would be looking for revenues, and cable television was a pl ace to get them. He urged the Council to go ahead with municipal ownership. COUNCIL RECESSED FROM 9:35 v.m. l"0 9:50 Dr . Michel Gui to , 1033 .Bryant Street, said he was proud of the way. the • Ci ty was -proceeding with cable and the way it was trying to find a slightly different path for cable television. He was presi dent of Palo Al to Cable TV, Menlo Park Cable : TV, and asso- ciated companies. Palo Alto Cable TV formed in 1980 with $4.5 million in equity commi tments and $9,000,000 in bank date commit- ments for a total of $13.5 mil lion in commitments for construction and operation of cable television systems in midpenninsuia communi- ties only. He was also a ` consultant to and vice: president of Cable America who formed some years ago in Canada and had since become one of the largest privately owned cable firms in the United States with 700,000 subscribers under administration He introduced the Cardillo/Shanks survey completed by two PhD studies at .Stanford university last year. In their` study, ,Cardillo ,: and Shanks _ contacted, every city councilmember and mayor in every city on San Francisco Bay. They asked those 92 ° respondents to evaluate their cable television companies = and how well those fi rais . had lived up to their comma talents. The . surprising finding . was- that both city counc ilmembers and mayors ranked their cab i e television companies: very- poorly. For .:example-, ..of the 92 respondents, only two said their companies had done , a good job. in meeting their com- mitments. The conelusion.: corroborated the Council's decision_ to proceed with a di fferent,,. model than the conventional one . seen around San Francisco Bay. He discussed a lawsuit filed by TCI, one of the largest cable firms in the United States , against the City of Tuscon on July 26, 1982 in the U.S. District Court for the District of Tuscon. He believed the City of Palo Alto would be liable for proceeding with their own cable television franchise or with a privately owned franc hi ser . In its lawsuit, TC I alleged that the City of Tuscon did not have the right to award a fran- chise to Cox Cable, and prohibit TCI from competing with them. The case was not Yet decided, but he believed the decision would have a substantial impact on everyone. He also discussed a study` done in 1980 which compared the operating results of the 15. largest cable television firms that were publicly traded on the New York Stock Exchange. The most important figure was the one which showed that for every dollar of revenue received by each of the major 15 firms, how much was spent on "day-to-day" operations. "Day-to-day operations" was defined to be everything except debt service, depreciation and income taxes. The study concluded that for all of those companies, the amount spent per dollar recei ved ranged from 55.8 cents .to 82 cents --or an average of 63 cents. Palo Alto's study concluded that in its fir<t year of profi t- abil ity, year three, Palo, Al to would be operating more efficiently than ` all but one of the largest cable television .firms in the United States. He did not believe that could be done, and it would be especially difficult when taking into account that Pal o Alto did not have the pay television discounts that were the' fun- damental basis of paying for the product sold by cable television. If Palo Alto paid $600,000 per year more than TCI would pay, it started $600,000 behind the starting line. To say that i t would finish the race every year ahead of every single major company in the United States was not. possible. He believed that study cor- roborated the importance of going to an independent cable televi- sion company to administer a Palo Alto owned system. Palo Alec) staff recently recommended that the City seek a cable firm to operate the system and for Palo Al to to own the system. He believed that could be done and the same type of model s were working elsewhere. In Canada, the telephone companies had bui l t cable firms and leased out their operation. Although most of them had not worked and in most cases the contracts were terminated after 15 years of bad blood, there werea couple that had worked. Palo Alto would have to overcome the $13 million risk on thout con- trol. To .sell the bonds to raise the $13 mil lion meant that the cable company would have to be already defined, an4 if it took six months to get the cable company, then six months tei get the bonds, and six months to start construction of a cable system, one and a half years would have already passed and the two year window .was almost shut. The second problem was that the operation and main- tenance of the system was not easily separated from the construc- tion of the system. A third problem was that Palo Alto would be paying a 25 percent premium on its needed $13 million, which meant that. $2.5 mill ion would be paid to raise the money over what i t would cost a cable system to- build the same plant. He proposed that instead of Palo Alto leasing out the plant to a cable operator, ., they should approach a cable first' wl th a 50.50 pertnershi p based on conventional debt equity. If the City did that en a two to one debt equity ratio, $10.5 mill ion for the total plant would make $3,5 ;million in equity. If $1.7 were spent in equity, the City could. own 50 percent of a cable ,system without $13 million in liability.. Counc i l member Witherspoon asked for clarification that it would cost the- City $600,000 more per year. $r. Gul to clarified that i f Palo Al so went to Home Box . Office with potentially 10,000 subscribers, it would be entltled to a two per- cent discount. If the City had enough subscribers, it would be entitled to Gout a 35 percent discount. - If those d1 Scounts were applied throughout the cable industry for programming, such as the Children's channel the Home Box Office channel} ar the Show Time channel , etc., and added then up, the total amount to be spent for programming in Palo Alto would come to an amount, when the system was in full operation, of something dike $600,000 per year. Palo 1 1 i 1 Alto would have to bear that burden by not going with a large firm that could win those discounts. Councilmember Witherspoon asked where the City would get the 25 percent premium on the money it was borrowing. Mr. Guite said that the Bartle Wells Study showed $8.1 or $8.2 million .in 1981 costs, inflated to $10.5 mill ion in total costs. On top of that, the ::study showed a 25_ percent cost for standby fees, extra interest fees, and payments to the bond dealers who could sell those bonds —equaling $2.5 million --to bring the total cost from $10.5 million to $13 million. Councilmember Levy clarified that it would cost Palo Alto more to borrow than it would cost his company. Mr. Guit& said no. If it cost his company two percent more, and if they were talking about $8 million, that equalled $160,000 per year. If it cost Palo Al to $2.5 million to earn $160,000 per year, it would be a wash after 15 years. Councilmember Levy clarified that it would cost Palo Alto less to borrow money than it would cost a private . company. Mr. Guite said he believed the answer was yes. He was surprised that the Bartle Wells study indicated the 25 percent extra charge fora. raising the money. " That 25 percent charge took the total from $10.5 million to $13 million. Councilmember Levy asked regarding nationwide figures, if Mr. Guite had a figure for penetration for percentage subscribers as a percentage of homes past. Mr. Guite responded that the national percentage was around 52 or 53 percent. However, that number was contaminated because between 80-85 percent of those systems were sealed in small rural systems where there was not good over -the -air reception. It was hard to get to 50 percent in major urban markets. In the Atlanta systems where they were building and trying to sell subscribers, it was easy to get the first 20 .percent of subscribers, the next 10 per- cent was possible, and every point after that was ,a fight. Councilmember Levy said he assumed that most of the subscribers were in urban or suburban communities. Mr. Guite responded that Redwood City was a good example. It was not a smal 1 isolated comment ty, but the broadcasting yearbook showed that it had 32 percent penetration'. on'. San Francisco was not an isolated community , but had something like 23 or 28 percent penetration. Numbers like 27, 28, 29, 30 percent -penetration were not unusual tround the Bay- Area. Places like Half Moon Bay were 95 and 96 percent penetration which brought the average up. It was not unrealistic for Palo ; Alto to _ expect, with : the right marketing, 40 percent penetration. That could be done, but to expect 50 percent in `:short of five years might be unr-eal'istic.: Don MacQuivey, 743 bail en Avenue, said he 'was aaost coecerned; as was Mr Westin about excl usiveness He was concerned that if action were not taken now .to --assure access, it mi=ght be pr ohib,I ted in. the -`future . He coMMented - that mint venture 51 101 ar to the pattern of Compsath, could - help" ,al I eviete anti trust " di fflculties;. He-- urged :that the Council not close the opportunity for -access t; the :_cabl a channels by near technology,, -such as = fiber _op-tl c s cab i es If -the Ci ty owned the conduits, it could bri-ng in fiber cpti s c abl es for addi ti oral channel s !whereas i f the Syst'Aii niwas f rent hi sed,_ the owner would resl`st tha t And • i t -would:. be >dI f ficu1 t for'.the .Ci t to upgrade the syeteal' ;in: the future. He _ fell the Ci ter needed to retain control ;oil. the: -cables in order to . be free for future expansion. Allan Little, 1441 Franks Lane, Menlo Park, said his experience in television went back to 1951, with the old Dumont Television Network subsequently the American Broadcasting Company (ABC) . In 1979, he was the programming manager of a cable television station in a small town in Ohio. At that time, he was interviewed by the local paper which happened to be owned by one family, which family also owned the local FM and AM radio stations. In the course of the interview, he was asked about his ideas with regard to . the local cable television stations. His ideas were .in terms of coop- erative ventures , municipalities, private enterprise, and so forth. He was asked what he would like to do if that town had cable television. He said he would like it to be possible that the local citizenry could have access. For example, the small town had a situation where the black community attempted for years to have two of its members become members of the Police Department and Fire Department, but to no avail. That night the newspaper headline came out and he was fired. The next day's headlines read that Allan Little was fired. He subsequently went to the City Council when rate increases were brought about by that cable firm, which owners did not live in the community, and ascertained that the questions he had raised were not only not reported in the paper, but were not put into any medium, and were not even put into the City Council minutes. His point was that whatever deci- sion the Council" made, they would be confronted with First Amend- ment rights, but it was not merely freedom of speech, but freedom of expression also. Unless the opportunity of expression was available, people would be talking to themselves. When the Co unc i lmembers' children and grandchildren grew up and asked where their parents were when the battle for their minds was fought, he suggested that tonight's decision be kept in mind. Bob Moss, 4010 Orme, said he had been following the cable televi- sion discussions with interest. With regard to the question of exclusive franchi ses, exclusive franchises were not unknown. People only dealt with one electric company, one gas company, and one telephone company. He knew of no one that had ever challenged that on an antitrust basis. With regard to the Boulder decision, the City of Boulder did some rather strange things. The City awarded a franchi se and started fiddling with the terms of the franchise after' the fact. In terms of the First Amendment cov- ering cable television companies, he felt that a careful search of case law ---especially at the Supreme Court level --would uncover the fact that the print media had a higher standard of freedom than the broadcast media. A number of cases held that a, newspaper could not be fiddled with because they were specifically men- tioned, but the broadcast media was not mentioned at the same level. A cable operation which primarily gathered andtransmitted signals generated by someone else would probably be set at an even l ower level. He was not sure that the First Amendment was that serious an issue If the Council decided to own and operate and municipal system, they might find themselves challenged, but any- one had the right to sue anyone and that should not be a deter- rent. In terms of the proposed laws to limit municipal options, the Coldwater Bill was a live bill and would be discussed on the floor of the. Senate this month or maybe next month. Waving poten- tial impediments to city or local governments, that were not even proposed, 4s a red flag distracted the Council The City revenues from the franchise fees mentioned by the Viacom representative of approximately $500,000 per year, was less than half what the City currently received- from the motel tax. It was not a big sum of money, and ' in -Pel o" Alto's budget it was not peanuts. In . terms of Palo Alto's ability to fund the system, the City had approximately $36 million in various funds earning interest A lot'of that was In the Utilities _ fund and could be used for cable In addition to the City's bonding capacity. He proposed that . the:. City prepare and circulate.' a . Request for Proposal , (RFP) with two options: 1 1 1. A municipally owned system with a contractor to operate it- -in essence a .consultant. The City bought consultant services for many things in the past and would do so in the future, The RFP would allow anyone to submit a proposal , and the City would maintain the facilities through the capital investment. 2. An outside organization to do the whol e ball of wax --capital investment, ownership, franchi se , etc . That would enable another organization, such as Viacom, to bid both ways if they desired. That would give the Council the opportunity to look at all the options and to make a rational decision. Mr. Moss suggested that that was the best way to go. Robert 8rinton, Channing House, said he was a retired electrical engineer, and had done some consulting work for tel evision. Before he moved into the Channing House three years ago, he was a member of the City Manager's Advisory Committee for Cable Televi- sion. He wanted to know how places like Channing House and other large apartments would be served. Mayor. Eyerly said the project was not that far along, but he was sure they would be served, Mr. Brinton said that resi dents of the Channing House, and other large apartment houses, urged that they be considered before Council made a final decision. Neil Janklow, 2328 Santa Catalina, was a resident of Palo Al to for 25 years. His background included performing arts and media pro- duction, and he was active in organizing cultural events with local performing artists. He could see an incredible potential for the cable system to be a community service in Palo Alto . That aspect had been breezed over, and thus control and decisions over the finances should be kept local . He felt that was the only way to insure that util ization of that resource would be in the best interest of the users in the community. The sol uti on was that the City should have a municipally owned system ope)eated by a cable company to be overseen by a cable board, partially elected by Council and by the citizens of Palo Alto . The Cable Cooperative group had done tremendous research about the local implications and. posi ti ve aspects of a cabl e system, and as a member of the Cooperati ve, he urged that discussi ons be opened wi th members of the cooperative. Councilmember: Fazzino. said a mementous occasion had occurred --he agreed totally with Bob. Moss' recommendations. He still believed it was prudent to step back and consider, the seriousness and the complexity of the issue. It was incredible to him that a Council who had -spent. four years dotting all the "`i's' and crossing all the, °t' s4 on the Comprehensive Plan , changing the most innocuous:_ language hour after hour, was willing to -ego forward with a $10 to $t_5 million cable system- with 1 -tile research and precious few hours of debate. ,. Two months ago, the Council erroneously backed off from a reasonable proposal to collect necessary data . from all conceivable cable systems, -and instead accepted .the staff's ,desire to go forward with an- effort to prove the economic viability of the municipal system alone. The Council hdd very little financial data fro* staff before. it tonight, -:'and in fact, the only financial information the "Council had, lacked any substantive data about the financial rewards of an institutional cable system. -The only evidence before the Council regarding the bonding issue was from a financial analyst who totally supported the view that the City would indeed have to pledge assets in order to obtain the, neces- sary funding_,: for the _system. He would hot go so far as ,to sopport:. one speaker s opinion that adoption of a municipal -system meant. a successful' antitrust challenge. He believed _ that the City' still had < the right .andiresponsibil ity to award a contract to one con tractor. However, the spectre of successful.- anti trust" suits against the City grew with each succeeding week unless -and until all potential cable operators , private franchi sers, cooperati ve members, and the City staff at least had a democratic opportunity to present; their cases to the -City. If the Council di.d not ignore the staff recommendation and move forward with a formal Request for Proposal process, the Boulder decision would begin to weigh heavily since no one, save 1We City staff, was given a fair chance to compete for the one franchise. If he were an anti trust attorney with a copy of the City -staff report before him, he would already be setting a court date. ° One Councilmeraber commented at the last meeting that private proposals woul d be worthless —it would also be a great grist for such attorneys. The Council was opening themselves up to a tremendous legal defeat _ that could make Arastra seem like a minor traffic accident settlement. The absurdity of the staff's position was further evidenced by the staff report before the Council tonight. The report began with an explanation for a delay in receiving the fi rtanci al informati on from Merrill Lynch. That was fine --it would take any financial analyst - many weeks to justify staff's belief that the City woul d be without any major financial risk . The report also went on to indicate that a private marketing plan should be empl oyed to handle the marketing function --brat was al so fine. Given the incredible importance of subscriber penetration numbers in reaping profits, an experienced private marketing firm must be hired. The report then made a major 1 eap of faith without any supporting material whatsoever to justi fy a new improved staff recommendation which represented a combined private/public cable system. Though in concept he had much less problem with the staff's new recommen- dation than with the old municipal only approach, he was amazed and annoyed that a fair, open and den;ocractic process was not being employed to arrive at a financially feasible, techno- logically sound, and publicly supported cable system. Instead, staff was allowed to move around the map with different ideas while ail others were being completely shut out of the picture. No wonder potentially important participants in the system, like the school •district and Stanford, were wary of the City. Counci1member Fazzino said the report went on to present figures regarding the viability of the basic cable system. As he stated earlier, no numbers were available to evaluate a more coinp1 ex system. The Council was given the data that a 40 percent sub- scriber penetration, .after year seven, would provide the City with about $230,000 to $25',000 —certainly no windfall for the City. Even i f one spi i t the difference between moderate, and best case situation as stated by one speaker, of 40 percent with the staff's best case of 55 percent situation, the revenue figure totaled about $1 million per year. Again, that was no tremendous windfall particularly given capital maintenance and reserve . fund needs. One good. management .slip up could eafii 1 y mean a net 1 oss to the City and an eventually worsened bond situation for the City as well . He felt that . Cone Imember Cobb had done an excellent anal ysi s of the figures and would .probably spend a couple of . minutes talking about it later-. He continued " by saying be was positive about, a combined municipal /private system. Deregulation concerned him as much as anyone else, but suggested that the proposal be left to stand the test of competition. The data before the Council ' regarding the viability of iaunici pal system did not cry out for elimination of the democratic process in pursuit of ,an as yet unclear and i11- defined City' staff idea. Everyone was so excited about cable tonight --the Cable Co-op had already proposed an, _organization chart, the staff : was ready to hire .a full Moe manager —that , the tl eetested objective analysis' needed to aryl ire' at the ' :primary decision of operation was practically ignored: 1 1 1 Councilmember Fazzino again encouraged the Council to step back, despite the desire to avoid a difficult, complex and timely pro- cess, and support the adoption of a Request for Proposal process which would allow for objective analysis .of a municipal co-op and private franchise proposals. He did not believe that anyone interested in responsible government could ask for anything less. MOTION: Councilmember Fazzino moved, seconded by Cobb, that it be Council policy that both municipal ownership, with various operation alternatives, and private franchising be evaluated for Palo Alto's cable television system. Councilmember Witherspoon asked who should do the eval uation. Counci1member Fazzino said that the proposal to hire a consultant for the evaluation was defeated. He felt that was the best approach, but if by having the City staff, who were in an unfortu- nate advocacy position regarding .the entire issue, do the evalua- tion would get five votes in support of consideration of private and other proposals, he would support it. Councilmember Witherspoon said she would not support going to a consultant any more than she did last time. She had no objection to theoretically saying that the City was keeping its options open and was prepared to consider all possibilities. She preferred that the Council proceed with its time, energy and money on working out .a design of the system.: How could an RFP be written until the City knew what it wanted in the design of the system. The design of the system should incl ude discussions with the sur- rounding communities who were interested in participating in some way in the venture. As one speaker pointed out, the larger the market the better the deal. Councilmember Levy said he supported the motion to open the evaluation to both municipal, in various forms, and private con- cerns. He was convinced that the City could do the job and could build and operate the system, either on its own or on contract wi th an;. outsi de operator, and that the City could fi nance it. He spoke of the financing as a person whose profession was finance. He had spoken with a number of people in the profession, including one of the companies who commented tonight that the City could not finance it, and those he had spoken to had asked to be advised when the City wanted the bonds issued because they would be glad to talk with the City. He did not think the question was how long the City soul d do it, but rather how could the ci ti zens of Pal o Al to be best served. Woul d the ci ti zens be best served by an operation owned and operated by the City, by an operation owned with outside operation, or by some other ownership and operation configuration. He did not think those questions could be answered in the abstract --concrete proposal s were needed from al.l interested parties. After the proposals were received from al l , and evaluated with all the knowledge •possessed by the City, then a decision could be made. Further, he felt that the Council must act as if all its actions were subject to referendum because they probably would be. The Council's actions must carefully evaluate all of the alternatives. Councilmember Fletcher asked for the City Attorney's opinion about whether the Council left themselves more open to antitrust litiga- tion if it did not seek RFP's from the industry. Senior Assistant City Attorney Anthony Bennetti did not think the question was by any means clear. He felt that the Council was less susceptible to antitrust . attack if it decided, upon .a munici- pal system and proceeded without entertaining competitive propo- sal s because in Cal ifoenia there was a constitutional provision which stated that "nlunici pal i ties may establish, purchase and operate public works to furnish its inhabitants wi th light, water, power, heat, transportation, or means of communication. An Attorney General's opinion interpreted "means of communication" to include cabl a systems. Palo Alto was a Charter City and had pre- sumed powers to do anything it was not prevented from doing. When talking about antitrust, people tended to forget that cable com- panies needed the right to use public rights of way which were purchased, paid for, maintained and operated with public taxpayer funds. They were not talking about the situation where taxpayers bought all the newspapers iri town, and then the City decided that it would operate one and no one else could operate. The City Council, as the representative of the people, was saying that the public right of way shall be operated as a cable system for the benefit of the people. Private cable companies had no right to come in and use the public right of way. The City Council had no power to grant a franchise in the City of Palo Alto. Therefore, to evaluate all of those proposals did not do the Council any good except . as a mechanism by which to go to the voters to approve a franchise. The Council could proceed with a municipal system regardless of whether it received proposals, but that was not to say that it would not give the Council, as the decision -makers, a better or different basis upon which to compare. From an anti- trust point of view, he did not think private proposals lessened the City' s 1 i ab i l i ty for susceptibility to attack. Councilmember Fletcher asked how staff's function would be inter- preted if the motion passed. City Manager Bill Zaner said that if the motion was adopted, staff understood that the Council would want them to develop some means by which it could receive and evaluate CATV proposals from private firms. He advised the Council that staff did not have that capability --it would have to be obtained. Staff obtained that expertise in order to prepare the documents on the municipal system and would have to do a similar ki nd of operation in order to solicit those proposals and to evaluate them. Councilmember Fletcher said it was pretty clear that the Council was back to where it was on its last discussion on the subject. She was not prepared to go to that 1 eng th and spend many months in that process especially if the legislation, which would take away all of the City's opportunities for control , passed. She wanted the City to retain control over a system, and the only way that could be done was to go municipal,. She would oppose the motion . Vice Mayor Bechtel asked if the procedure by which to prepare a Request for Proposal woul d requi re some gui del Ines from the Council on the type of system to be bid, and if staff proposed to go to someone on the outside to get help in preparing the RFP. How long would it take. Mr. Zaner said that there would have to be some standards estab- lished by the Council so that everyone was bidding on the same thing . Otherwi se, there woul d be no basi s for compari son. Staff suggested that Council make use of the standards put together by staff for a municipal system. The system designed was a system to which anyone could . respond i f flushed out. It was not now in shape to be used as an REP, but formed the basis of not only .a municipal system, but al so a private system. It was a good "engi- neering. system. Staff would then have to get someone who coul d transl ate the system into an RFP in order- that the cable companies themselves could respond to it in an appropriate manner . That person wound also be required to evaluate those responses when received. Because a major share_ of the work had already been done, which was useful whether it was a municipal or a private system, that Oocess . was probably much shorter than it would have been if they ,were at the very beginning. He projected , that the RFP could be prepared and distributed within eight or nine weeks-. Vice Mayor Bechtel asked how firm the responses would be con- sidered to be. She asked if the ` proposals could be . written in such a way that the respondents could be held_ to their responses. 2 4 7 8 9/13/82 1 1 1 Mr. Bennett' said staff would attempt to have the proposals come back as a binding offer to provide services for the City subject to approval of the City's acceptance by the voters. That would satisfy the Charter provisions and bind the cable companies to honor their offer for a period of time in order for the City to have enough time to obtain voter approval. Vice Mayor Bechtel felt there was some value in the RFP because the Council had gone that far, and that way they could make a valid comparison between the various proposals. She liked the part of the motion which spoke to municipal with options, and hoped that the RFP woul d be desi gned to encourage those options to be offered as proposals. She would support the motion. Mayor Eyerly said if the City received responses to the RFP, the voters would have to decide which proposal to accept. He clari- fied that it could not be thinned out. Mr. Bennett' said staff would have to look at that in detail . The City might have to do some further economic studies to determine what the market in Palo Alto would be and whether it could pos- sibly support more than one cable system. Some data would be needed with the proposals to give the City the ab i 1 i ty to decide what kind of basis to go to the voters. If there was no choice but to go on a completely nonexclusive basis, all the proposals could be put on the ballot, and the voters could decide. Mayor Eyerly said he had received many telephone calls from people and the press wondering whether the Council would make the big decision tonight or tomorrow night about whether to go municipal , private co-op or some other way. He saw the process., as moving along because there were so many questions to be answered. It was not that simple for the Council to say whether it woul d . go one way or the other until it had all the answers. It was not possible to put out RFP's without sufficient information. The Council had focused on what had to be answered -- staff had been assigned considerations on financing if the City went municipal, a mar- keting plan was requested, programming was sent to the Policy and Procedures Committee for recommendations, and staff was requested to give a five year revenue projection. As he saw it, there were a couple of areas which had not yet been addressed, and one was the kind of system the Council wanted. He felt that the system could start by considering ,the engineering report that staff pro- vided initially, but as mentioned by Mr. limier, some discussions were necessary to decide whether to have connections, how many cables, whether there should be educational channel s, arid how much public access, etc. The motion before the Council was superfluous at thi s time. When the remainder of the information was received, the Council would be in -a position to address the motion. He felt that by voting that poi icy tonight, the Council was confusing the issue. He would not support the motion. He hoped that the Council would return to the staff recommendations and address seg- ments of that. Staff recommendation No. 3 was to organize some type of a committee to decide the design of the system, and he could see that that could be beneficial if the Council spelled out exactly what it wanted and said to start with the engineering report. With that type of committee, the Council would need to authorize staff to hire some - type of a technical advi sor or con- sultant, that would be available to answer technical questions for the Committee and to make recommendations to the staff. Councilmember Levy commented that the Council's decision - could possibly cost $10 million. Financially, - that was the.. biggest decision the Council had made outside of any utility votes within the City of Palo Alto. He felt the Council could afford to take time, and he did not understand why everyone was in such a big rush. There was no question that the way to get things done was to have a clear path laid out. As long as everything wa•s mushy, and as long as there were no clear - paths, it would take . forever He thought that to set out a policy was a start, and the next phase was to lay out a step by step implementation of, the pol icy. 2 4 7 9 9/13/82 If it took six months or nine months, as it probably would, to reach the end of the road, so be it. It was an important_ decision and it was important to spend the time to do it right. Councilmember Fazzino responded regarding Councilmember Fletcher's antitrust questions. As he understood the Communications Act of 1934, federal government superseded all local laws with respect to the communications area. One of the particular concerns or impacts of the Boulder decision was that it involved a federal antitrust decision 11T —the area of communications which gave the City some concern beyond the issues regarding public works and uti l ties with respect to California law. Mr. Bennetti said it was true that the Boulder case involved a cable communications company, but it specifically held that the presumption that state immunity from application of the antitrust laws did not necessarily flow to cities as political subdivisions ofof the state. Generally speaking, there was no antitrust liability even for a private corporation from proceeding to use its own property in a lawful manner. It had exclusive control over its corporate property. In that sense, a municipality was no different from a private corporation --it had excl uei ve control over the public rights -of -way. In fact, the City's interest was paramount to other public utilities that also had easements in the public rights of way when they were needed for City municipal pur- poses. Since the Constitution authorized a city to run a cable television network as a charter city as long as running a cable system was not prohibited by some law Jr another, then lawful use of the city's property to run that system was not an anti- competitive activity --it was not an antitrust activity. He clarified that the Council's options were open --they could proceed to consider private proposals or could proceed to go municipal, but antitrust laws should not necessarily be the deciding factor. That was not to say that the City would not end up being in a law- suit, but the City Attorney's office and its independent consul- tant, did not think that the antitrust issues should be a deter- rent to proceeding ;with a municipal system if that was the Council's desire. Councilmember Fazzino commented that the City Attorney's office might have the opportunity to use those arguments in court. Since Mayor Eyerly characterized the motion as superfluous, he was beginning to resign himself to another series of 4-4 votes which was unfortunate. He felt the staff recommendation was even more superfluous. He asked Mr. Zaner why there was absolutely no sup- porting material about the new staff recommendation with regard to a combined municipal and private ownership. He asked how that decision was arrived at. Mr. Zaner responded that what was characterized as a change in mind was an inappropriate characterization. Staff had said all along, and the Council had discussed on a number of occasions, joint ventures, alternative ways of financing and putting a muni- cipal system together. The staff reports had always separated the issue of ownership from operation. The ownership question was reasonably well settled, or had been for some time at the staff level --it should be a municipal ownership system. Staff was less precise about what form the operation ought to take and felt that after looking at operations, the most appropriate means was to take advantage of the expertise which, existed in the CATV field row and combine it wi th the City's ownershi p option. Councilmember Fazzino clarified that the Council was not provided with any supportive material. He • was concerned with respect to process, what issues were used by<'staff to arrive at the recom- mendation, and that the Council might see another recommendation _ a month from now if staff was allowed to continue moving on a muni- cipal system. • 2 4 8 0 9/13/82 Mr. Zaner did not anticipate the Council seeing a change in recom- mendation any more than he considered the recommendation in ques- tion to be a change. If the Councilmembers went back and looked carefully at the reports which had been provided, the issue of ownership and operation was al ways separated, and that operation questions were 1 eft open in order to continue di scussi ng them. Staff felt that loop had been closed now, and that the most appro- priate way was to do it with a combined system as was recom- mended. Councilmember Witherspoon said that in light of what was said by Mr. Bennetti about antitrust and since the Council was not the body to decide upon a franchise, she was concerned about the implications of Councilmember Fazzino's motion. She clarified that Councilmember Fazzino motion implied that staff should go, ahead and write an REP, but she was not clear about whether they should al so be doing the design phase as well . She thought they would have to in order to write the RFP. She had major concerns about the motion, and was not willing to go to the extra step of preparing an RFP when that burden should fall on the franchising companies who wi shed the franc hi se. They woul d go to the voters --not to the Council . In all fairness, she did not see, if the Council could not make a decision among the franchisers, how they could they decide which one would go on the ballot. That was not to say that she would not like to see the choice go, on the ballot, but right now she would rather see the Council proceed to decide what kind of a designed system it wanted. Councilmember Fazzino did not think anyone on the Council truly understood the RFP process. As it had been used historically in the City, it was an effort to acquiee as much data as possible from particular contractors about how to approach or provide a particular service for the City. He thought that was a primary decision --not a superfluous or secondary decision. That kind of data was necessary before deciding what the service should be. Councilmember Witherspoon pointed out that the Council was not the decision -makers in this case. If the Council was to award a contract for a hydroelectric plant, she would agree, but in this case, and as the City Attorney had reminded them, they were not the decision -makers. Councilmember Fazzino said that as he understood it, the Council was the defacto decision -makers. The public would vote, but the Council would provide them with a recommendation which how every other issue was approached in the City whether it went on the ballot or not. Mr. Zaner said that while he found Councilmember Fazzino on the opposite side of the issue, he defended him with regard to the RFP process. Het said it was important to clearly understand that pro- cess. If an 'RFP were done, it needed to be issued by the Council --not devised by anyone from any industry. The Council needed to set somme standards. The City did not now have such a document, it had the foundation, but if the Council decided to go RFP, it should come from the Council as a standard to which other people must bid in order to do some measuring. Otherwise, the Council would have six di fferent proposal s on six di fferent bases and no comparison would be possible. Councilmember Cobb said he agreed with Councilmembers Fazzino eand. Levy.. He went back to the beginning :and said that the reason some of the Counci lmembers were expressing caution and concern was because they were deciding a risk- versus return argument, and something over $1.0 million of the public's money, The responsi- bility was serious and .the Council should not Jump into a decision because it looked attractive without Anowing for sure that it was a reasonable -risk of the public's money, ar without knowing that the return would make that risk acceptable. He noted from the 2 4 8 1 9/13/82 earlier survey that Palo Alto's viewing habits were different from the norm. He asked what that meant in terms of the 40 percent market penetration they were looking at. He did not know the answer to that question, and, therefore, did not know just how big the risk was because he was having a difficult time measuring it against the investment of public moneys involved. The Council needed to understand that very clearly before charging off after that risk; otherwise, the Council could be held to be irrespon- sible at some later date. He felt that the "onerous" legislation, which would take the City out of the game, was what was driving the Council to move ahead with such speed. Given the fact that the Council needed voter approval for any decision, if legislation was passed within the next month or two, he did not see how it could be taken to the ballot anyway. If the City was to opt for municipal ownership now or later and, before it caul d be approved by the voters, Congress passed legislation of the type before it now, would that undo the City's action. Mr. Benne.tti clarified that there was no need for voter approval for a municipally owned system --that was not a franchise. On the other hand, the specific bill before Congress provided for the option of municipal ownership. If the bill passed, it would not have any effect on a municipal system. Councilmember Cobb said that was an important clarification because it said that the legislation was not hanging like a sword on the City's neck in terms of the decision. Mr. Bennetti said he felt people were concerned about the provi- sions with respect to franchisees. It would supersede the powers of cities in many respects to regulate the conduct of franchisees. If the City granted a franchise, either now or later, and it came under that legislation, would the Ci ty lose control of the fran- chise. Councilmember Cobb said that took some of the pressure he was feeling off of the issue. Another provision he kept reading in the material presented was that at least some forms of that legis- lation would be retroactive in any event. Therefore, the time schedule was not a factor in what the City was trying to do. Mr. Bennetti said that was correct. There was a question about whether a franchisee could waive the benefits of the legislation, and since it involved a matter of interstate commerce and Congress had exclusive control over interstate commerce, the City woul d probably be superseded whether the franchise was granted before the legislation or after. In that sense, there was no time pres- sure to get a franchise awarded. Councilmember Cobb said he thought that if Congress passed some- thing like the Goldwater bill, and if the City decided that it did not like what it did in terms of the franchising option, it would, have a municipal system and that would be the end of the argument. The Council did not need to make that decision until they were confident -i t could be made in such a way that it was a reasonable risk versus return argument. If the Council chose the franchise road, did RFP's and liked what the:., saw, and just about that time the legislation passed, it could reverse its path until the con- tract was signed and there was voter approval. He felt that the Council had the time to answer some of the questions that had not been answered to _ his satisfaction and deal with the issue cor- rectly. If the City went into the arena of Joint ownership, even though it would be involved in some kind of a potential fran- chising operation, would that exempt the City :.from the more, oner- ous aspects of the proposed legislation. Mr. Bennetti said he had not looked at that question ;, from that perspective. He did not think that a joint venture type of::opera- ti on between the City and a private company would qual i fy as a franchise. He did not recall that the Goldwater bill affected. 2 4 B 2 9/13/82 1 1 1 anything but franchises and completely private systems. Councilmember Cobb said the answer encouraged him that there was an intriguing alternative at least worth considering. Perhaps the City could minimize its risk, maximize its control , and at the same time exempt itself from legislation it was concerned would take away too many options in terms of delivering tai the community what it waited delivered. He wanted to know whether that was something ahe Council should look into before he made a decision regarding municipal or not. He seconded the motion because he felt it was a step in the right direction. The Council must be able to compare the alternatives. Based on the answers he had heard, the: City always had the fall back position of going muni- cipal. No matter what Congress did --if the City did not like it --those alternatives should be compared so as to make the best possible decision. If the City went into a design mode, he was concerned that the Council would be sitting there in a year still unable to make any kind of an RFP unless there was some way to carefully direct and compact the process to get it done quickly and to get some kind of answers to give those comparisons. He felt that some of the things could be done in parallel, although it should be done as much as possible, otherwise the job woul d never be finished. Councilmember Levy said it appeared that some of the opposition to the policy embodied in the motion lay with the cost and time of getting a consultant or a specialist and putting an RFP together. He felt that the process was not a costly one, was not particu- larly time consuming, and was the natural way to go. Mr. Zaner had indicated to him that the cost of preparing an RFP--of getting an outside specialist who could go through, firm up the system design and develop an RFP, and help the City evaluate the responses --would be about $20,000 to $25,000. Mr. Zaner said he provided a range and tried to give him numbers at the low and high end. He believed the City would be at the low end because it had done a lot of preliminary work already. Councilmember Levy said it was further indicated that if the City did not have an RFP, but simply went ahead with a municipal system, the City would still have to spend about $15,000 to $20,000 of that money for an outside specialist to get the design done tightly. Mr. Zaner said that was correct. Councilmember Levy clarified that the extra cost was $5,000 to $10,000. He asked for clarification that when the City asked for RFP's, it would ask the responding company for a fee of $1,000 to $2,000 in responding to the RFP. Mr. Zaner said that was not uncommon. Councilmember Levy said Mountain View had 13 responses at $2,000 each which totaled $26,000. At .$1,000 each, that totaled $13,000. That fee would pay for the cost of the consultant. He did not think the City was talking about anything extraordinary, and in fact the City would have to hire a person► and spend most of the money anyway for a municipal system. He urged his - colleagues to vote in favor of establishing a policy and then follow on to ask the staff, through their normal selection process, to approve the specialist they would" need anyway to help design the tight system everyone agreed had to be designed and approved by the Council before " an RFP could be issued. Vice Mayor Bechtel said Councilmember Levy made some good points. She followed up by saying shesupported the policy method of going to an RFP- because the City was going to , need to get the informa- tion_ to do a more detailed design, and would need to establish the policies of the system. She presumed that before: any RFP went 2 4 8 3 9/13/82 out, it would be back to the Caunc-il-- for approval The •Council would be making policy decisions that wou l d -need to be made any- way. She was al so encouraged that the proposals would be a binding offer. She felt that the Council did have the ultimate decision because even if the Council went franchise and sought voter approval, she envisioned that the Council would make one recommendation for the ballot, and if the Council opted for muni- cipal, no bal lot approval was necessary. She encouraged her colleagues to vote on the merits of the motion. Counc i l member Fletcher said the problem with any proposal sub- mitted as the result of an RFP, was that even if it culminated a contract, it would not be binding. If the federal legislation did not pass this year --and there was only a month left in the current session --it would be reintroduced next year and would be retroactive. The timing of the legislation was irrelevant. The RFP proposals would not be binding, and, therefore, it was an exercise in futility, The cable companies could be as sincere as they desi red because the whole franchise thing would be taken away, and the cable companies wculd go their own ways after the federal legislation passed. Cable companies would be able to restrict community access, have automatic franchise renewals, and set their own rates. She did not see any point in doing RFP's or drawing up contracts because they would soon be meaningless. Counciimember Fazzino said those kinds of arguments, while incredibly closed, opened the City to all kinds of antitrust actions. C:ouncilmember Rehzel said she was "on the fence" because she con- tinued to be concerned about whether the subscribers were out there. Philosophically. she favored a municipal system. She was criticized for having a conflicting viewpoint, but given the deci- sion to go ahead with cable, she felt strongly that municipal was the best way to go. She felt no rush to establish any system, and was not troubled about getting more information. While proposal s from cable companies might verify that a market existed, and that the City was running less risk, and even if the Council decided to put the companies to all tnat work and that confirmed that the market was there, she would still support a municipal system, and she suspected the rest of the Council. would to the same. That put the cable companies in a Catch 22 situation with respect to Counci lmember Fl etcher' s concerns about their commitments not being binding. If the proposals were too glorious, the City would probably end up going municipal , and if they were not glorious enough, the City would probably end up going for a municipal system anyway. She would support the motion. She wanted it to be clear that her philosophical bend was strongly toward a municipal system, and any data received would be viewed by her in that light. Councilmember Cobb commented that having spent a fair part of his professional career writing responses to RFP`s at various levels of government, he knew what it felt like to win and lose._ He was not particularly bothered about putting the companies through the drill. When the motion was first made, he heard nothing about the RFP. He understood that the point was to evaluate all the options and keep them open. Mr. Diner said that was correct, but Council had directed a ques- tion to him about how he would implement the sense of the motion. It was clear to him that if the Council wanted that information, that expertise was not avail able in the City, and the appropriate way to gowool d be the RFP process. Mayor " Eyerly clarified that the motion was strictly a policy statement by the Council ,that in the cable television considera- tions, both municipal ownership --complete or with options --and private franchises would be evaluated. He understood that to mean that somewhere along the lines, that would be done. He thought that was premature and thus his nonsupport tonight. 2 4 8 4 9/13/82 Mayor Eyerly was concerned that by all of the discussion, the motion was misunderstood. Councilmember Fazzino said that both public and private proposals would be evaluated as the next step. Mr. Zaner's interpretation was correct--RFP's= 1 1 1 MOTION PASSED by a vote of 5-3, Eyerly, Fletcher, Witherspoon voting "no," Klein absent. Councilmember Witherspoon said she would like to see the Council procedure set out step by step in a motion, and that staff be authorized to hire a consultant. She wanted to make certain that Council would see the design of the system before it went out as an RFP, but was not concerned about which committee it went to. MOTION: Councilmember Levy moved, seconded by. Witherspoon, that the Council procedure be as follows: 1.. Select a systems design specialist by City's normal selection process; 2. Approve a system design; 3. Issue a Request for Proposal to be approved by Council before it goes out; 4. Evaluate responses; and 5. City Attorney to provide a legal report re franchises/ balloting, etc. Councilmember Levy said that regarding money, the Council should wait and let staff come back with a specific budget item. Councilmember Cobb said that staff recommendation No. 3 in the staff report was to create a Systems Design Advisory Committee as a means to obtain community input regarding what the nature of the design should be. He asked if that kind of potential for com- munity input was implicit in the motion orb should it be made explicit. Councilmember Levy said he would welcome the opportunity to dis- cuss that issue separately because the Council needed to clarify what kind of community input it wanted. He did not see the com- munity designing the system, but rather staff responding to com- munity reactions. Councilmember Cobb said he agreed on that point. He wanted to understand how the community would be allowed to get in its two bits worth in order to be responsive to them. Further,- regarding the RFP process itself, there were specific things the RFP should be required to address including the aspect of joint ownership. Councilmember Levy clarified that an RFP must be approved by Council before it went out. Mr. Zaner said that was not necessarily the case, but could be done if the Council desired. Councilmember Levy and Councilmember Witherspoon incorporated that Council would approve the RFP before it went out in the motion. Councilmember Cobb said the process was being made more cumbersome by having staff prepare an RFP and then providing for Council com- ments. The final RFP should specifically address, among other things, the potential.;: revenues to the City, guarantees to the City regarding community services and access as they related to poten- tial deregulatory legislation, and the possibilities for, and approaches to, joint ownership and how that .would affect the 2 4 8 5 9/13/82 City financially in terms of control, return to the City, and minimizing the risks, etc. He felt those three areas were essen- tial to deal with. He might not necessarily believe the responses, in terms of the regulatory legislation, but wanted to see them anyway. Councilmember Fletcher asked at what stage staff would be directed to explore CATV activities with south San Mateo County and Stanford University. She felt that was a critical point before the RFP could be drawn. Councilmember Levy said that integrating Palo Alto's activities with Stanford University and southern San Mateo County was a good idea. He asked Mr. Zaner how he suggested that be done. Mr. Zaner did not see that as a problem. ' Once the Council selected the consultant, most of the concerns about the system designing, including interfacing with other communities, would be addressed by the consultant. Councilmember Cobb asked if the issue of an institutional network was something explicit. Mr. Zaner said yes. Vice Mayor Bechtel asked if they were talking about two consul- tants --one to be involved in designing the system, and one to be involved in evaluating the proposals. Mr. Zaner said it would be the same consultant. Mayor Eyerly asked where programming fit into the Council ' s dis- cussions. Councilmember Levy said that programming did not have to take system design specifically into consideration. He assumed that the system design would include local facilities. The Policy and Procedures Committee had the direction to discuss programming and organization for local access, etc. Mayor Eyerly asked if staff was expected to complete their finan- cing program within the motion. Councilmember Levy and Mr. Zaner said yes. Mayor Eyerly-felt that the Council needed a report from the City Attorney which addressed the balloting necessity of the issuance of any franchises in order for the Council to completely under- stand how that might happen. Further, he wanted comments regarding the tens that might be included in any franchise to protect the City monetarily, etc. The Council also needed infor- mation regarding qualifying for a franchise or joint ownership. Councilmembers Levy and Witherspoon incorporated Mayor Eyerly's request in the motion. Councilmember Cobb clarified that since they were talking about a process which permitted any interested outside party to bid on the process, the co-op would be open to a bid as well as any private contractor. Mr. Passel] said that the co-op was not in the same kind of posi- tion as a $5 billion per year company in its ability to give com- petitive bids. In his opinion, Councilmember Fazzino's idea that this was a_. beautiful democratic scheme was ridiculous because a coop (a group of 140 people trying to get something started) could not provide the kind of bid to compete in the private sector. He was concerned that the City, _with the municipal option, would not be able .to spend the kind of money on its pro- posal as the private sector. The Council's action would do nothing but give the system to the private sector. 2 4 8 6 9/13/82 Councilmember Renzel hoped that the Cable Cooperative would take the municipal option and show how the Cable Cooperative would interact with it. 1 i Mayor Eyerly clarified that the Council had no intention of pre- cluding municipal ownership on cable television. Along with the process of sending out the RFP's, which was wise, the staff had the assignment to move along and complete certain segments of municipal ownership. Councilmember Fletcher expressd her concern about the $1,000 or $2,000 fee for the RFP as it related to the co-op. Councilmember Fazzino took exception to Mr. Passell's comment, and clarified that the Council's motion which passed was the only way in which the co-op proposal was kept alive. If staff's pro- posal had passed, the co-op would have been excluded competely. MOTION PASSED unanimously, Klein absent. MOTION: Councilmewber Levy moved, seconded by Witherspoon, that staff be directed to pursue discussions with interested communi- ties in southern San Mateo County, and Stanford University on the feasibility of some form of joint participation in a cable system. MOTION PASSED unanimously, Klein absent. Councilmember Cobb was also concerned about the question of the market survey. The only market survey the City had was a 1980 document, and given the sensi tivity of the Council's decision to the 40 percent, he felt it was important that the Council refine that market survey fairly soon in order to know where the market was today. He realized it would involve another expenditure of money, but the survey would have to he redone soon because he did not feel it was wise for the Council tq make that kind of decision based on information that was two years old, and which may not relate to the system as designed. Councilmember Levy commented that the Board of System Design Advisors was not addressed. MOTION: Councilmember Levy moved, seconded by Eyerly, that the staff be authorized to organize a System Design Advisory Board composed of community members and technical experts to respond to system design recommendations prior to their submission for Council approval.. Councilmember Levy clarified to those who might serve on that board that it would not be ,the kind of committee with long meetings, and their own outside experts in order to come up with long and detailed recommendations, but rather the intent was that staff would, in open forum, submit their system design to the committee members with preliminary recommendations, and get their input. Staff would then have the responsibility of evaluating that input and making the final recommendations for Council approval . Mayor Eyerly understood that the motion would appoint a Systems Design Advisory Board to respond to the system design recommenda- tions before being returned to the Council. Councilmember Witherspoon preferred that the consultant come back with a preliminary suggestion, and then the City would have a well advertised public hearing. At that time the proposal could be. modified as suggested by the 'community experts. 2 4 8 7 9/13/82 Mr. Zaner said that over the last year or so, staff had received many communications from parties in the community who asked that when the system was designed, that it not leave out this feature or that feature. Staff `s recommendation was to build some kind of a committee in order to get that kind of information to the consultant. Staff felt that through the RFP route, it may have accomplished what it was looking for al ready. NOTION WITHDRAWN by raker with consent of second. REQUEST OF COUNCILMEMBER LEVY RE SURPLUS SCHOOL SITES Courrci1member Levy commented that he had read in today's newspaper that the School Board was thinking of selling nine school si tes. He asked if the. School Board had communicated at all with the City. Mr. Zaner said the City had received data from the School Board staff. The information that Council member Levy was referring to was from the subcommittee consisting of two members of the board. He did not know that the position was an official position of the School Board. Council member Levy said he would appreciate receiving information as soon as possibl e in ord?r to look. at the school sites wi th the idea of protecting some of them. Council member Cobb said he asked to have a report on that put on the agenda for the City/5c hool Liaison Committee which would take place Wednesday night. ADJOURNMENT Meeting of September 13 adjourned at 11:25 1982 at 7:30 p.m. ATTEST: p.m. APPROVED: to September 14, 2 4 8 "8 9/13/82