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HomeMy WebLinkAbout2011-07-18 City Council Agenda PacketCITY OF PALO ALTO Special Meeting CITY COUNCIL Council Chambers July 18, 2011 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Friday preceding the meeting. 1 July 18, 2011 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Call to Order Study Session 1.Joint Meeting with the Infrastructure Blue Ribbon Commission Closed Session Public Comments: Members of the public may speak to the Closed Session item(s); three minutes per speaker. 2. CONFERENCE WITH LABOR NEGOTIATORS City Designated Representatives: City Manager and his designees pursuant to Merit System Rules and Regulations (James Keene,Pamela Antil, Dennis Burns, Lalo Perez, Joe Saccio, Sandra Blanch, Marcie Scott, Darrell Murray) Employee Organization: Palo Alto Police Manager’s Association (PAPMA) Authority: Government Code Section 54957.6(a) Special Orders of the Day 3.Appointments for Two Positions on the Utilities Advisory Commission for Three Year Terms Ending June 30, 2014 City Manager Comments Oral Communications Members of the public may speak to any item not on the agenda; three minutes per speaker. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. Consent Calendar Items will be voted on in one motion unless removed from the calendar by two Council Members. 4.Finance Committee Recommendation to Approve Policies and Guidelines for a Renewable Energy Feed-in Tariff 2 July 18, 2011 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. 5.Approval of the 2011 Utilities Strategic Plan Recommended by the Finance Committee and the Utilities Advisory Commission 6.Parks And Recreation Commission Recommendation that Council Direct Staff To Consider Improvement of Recreational Opportunities For Dog Owners Among Other Community Recreational Interests During the Planning and Design Phase of Park Renovation Projects and the Design Of Any New, Or Renovation Of Existing, Neighborhood Or Regional Parks 7.Approval of an On-Call Contract to Cal-West Signal & Lighting in an Amount Not to Exceed $150,000 for Traffic Signal Support Services 8.Approval of a Letter Of Intent with the Friends Of The Magical Bridge LLC for the Design, Construction and Installation of Playground Equipment, Pathways, Park Amenities and Other Improvements for a Universally Accessible Children's Play Area at Mitchell Park -Capital Improvement Project (PE-12000) 9.Approval of an Agreement with SolFocus, Inc. for a Solar-Electric Research Project at the Regional Water Quality Control Plant 10.Approval of a Contract with Clean Harbors Environmental Services, Inc. in the Amount of $418,000 Per Year for Household Hazardous Waste Management and Emergency Response Services 11.Adoption of a Resolution Authorizing City Participation in the Beacon Award Recognition Program: Local Leadership toward Solving Climate Change 12.Adoption of Resolution Establishing Fiscal Year 2011-12 Secured and Unsecured Property Tax Levy for the City of Palo Alto’s General Obligation Bond Indebtedness (Measure N) Agenda Changes, Additions and Deletions HEARINGS REQUIRED BY LAW: Applications and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and put up to three minutes for concluding remarks after other members of the public have spoken. Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 3 July 18, 2011 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. 13.Resolution of the Council of the City of Palo Alto Authorizing the Issuance and Sale of Utility Revenue Refunding Bonds, Approving Indenture of Trust, Official Notice of Sale, Notice of Intention to Sell and Official Statement, and Authorizing Official Actions Related There to 14.Resolution Approving, Authorizing and Directing the Refinancing of the outstanding 1998 Golf Course Lease and Certificates of Participation in the Amount of $3,690,000 and Approval of Related Documents 15.PUBLIC HEARING: Approval of a Request and Record of Land Use Action for On-site Use of 4,940 Square Feet of a 5,000 Square-Foot “Double Bonus” From a Proposed Historic Rehabilitation and Seismic Retrofit, to Increase the Floor Area Ratio (FAR) of 668 Ramona Street (Palo Alto Art League), Listed as a Category II Structure on the Palo Alto Historic and Seismic Inventories 16.Update of SB 375/Initial Vision Scenario (IVS) for a Sustainable Communities Strategy (SCS) and Direction on City’s Preliminary Response to Regional Agencies, and Update of Regional Housing Needs Assessment (RHNA) Process (Continued from July 11, 2011) 17.Recommendation from Policy & Services Committee Regarding Adoption of Two Resolutions Calling a Special Election for November 8, 2011 Submitting to the Electorate (1) A Measure To Eliminate Binding Interest Arbitration Requirements for Disputes with Public Safety Employees by Repealing Article V of the City Charter, and (2) A Measure To Substantially Modify Binding Interest Arbitration Requirements for Disputes with Public Safety Employees by Amending Article V of the City Charter; and Adoption of an Ordinance Adding Section 2.36.040 to the Palo Alto Municipal Code to Require Impartial Mediation for Impasses in Labor Contract Negotiations 18.Colleagues’ Memo from Council Members Burt and Klein to Request for the City Council to Direct the City Clerk to Reopen the Recruitment for the Planning & Transportation Commission and Contact the Remaining Two Applicants to be Interviewed at the Conclusion of the Recruitment Council Member Questions, Comments and Announcements Members of the public may not speak to the item(s) 4 July 18, 2011 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Adjournment AMERICANS WITH DISABILITY ACT (ADA) Persons with disabiltities who require auxilliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. PUBLIC COMMENT Members of the Public are entitled to directly address the City Council/Committee concerning any item that is described in the notice of this meeting, before or during consideration of that item. If you wish to address the Council/Committee on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers, and deliver it to the City Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Council/Committee, but it is very helpful. 5 July 18, 2011 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Additional Information Council and Standing Committee Meetings Standing Committee Packets from the Administrative Services Standing Committee Packets from the City Clerk Standing Committee Packets from the City Clerk Action Minutes Action Agenda from the City Clerk Schedule of Meetings Schedule of Meetings from the City Clerk Tentative Agenda Tentative Agenda from the City Clerk Informational Report Notice of Vacancy on the Library Advisory Commission for One Unexpired Three Year Term, Ending January 31, 2014 (Term of Mark Hoose) Public Letters to Council Public Letters to Council from the City Clerk Supplemental Information City of Palo Alto (ID # 1926) City Council Staff Report Report Type: Study SessionMeeting Date: 7/18/2011 July 18, 2011 Page 1 of 1 (ID # 1926) Summary Title: Study Session with the IBRC Title: Joint Meeting with the Infrastructure Blue Ribbon Commission From:City Manager Lead Department: City Manager Background The Infrastructure Blue Ribbon Commission (IBRC) will be holding a retreat on Thursday, July 14 from 2:00-8:30pm at Foothills Interpretative Center.Since much of what will be reported to Council during the study session turns on what is discussed at the retreat no materials are being distributed to Council in the packet. A PowerPoint and other summary materials will be developed at the IBRC retreat and will be provided to Council at places. Prepared By:Richard Hackmann, Department Head:James Keene, City Manager City Manager Approval: ____________________________________ James Keene, City Manager 1 Packet Pg. 6 CITY OF PALO ALTO OFFICE OF THE CITY CLERK July 18, 2011 The Honorable City Council Palo Alto, California Appointments for Two Positions on the Utilities Advisory Commission for Three Year Terms Ending June 30, 2014 On Monday, July 18, 2011 the City Council should vote to appoint two Candidates to serve on the Utilities Advisory Commission in terms ending on June 30, 2014. The Candidates are as follows: Stuart Bernstein Garth Hall Jason Matlof John Melton Asher Waldfogel Voting will be by paper ballot. Five votes are required to be appointed. The first two candidates that receive at least five votes will be appointed. REPORT PREPARED BY:Ronna Jojola Gonsalves, Deputy City Clerk ATTACHMENTS: ·Redacted Applications (PDF) Department Head:Donna Grider, City Clerk Updated: 7/12/2011 9:46 AM by Ronna Gonsalves Page 2 City of Palo Alto (ID # 1827) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 2 (ID # 1827) Summary Title: Renewable Feed-in Tariff Policies and Guidelines Title: Finance Committee Recommendation to Approve Policies and Guidelines for a Renewable Energy Feed-in Tariff From:City Manager Lead Department: Utilities Recommendation Staff, the Finance Committee, and the Utilities Advisory Commission (UAC) recommend that the City Council adopt the proposed Renewable Energy Feed-in-Tariff Policies and Guidelines (Attachment A). Executive Summary A Feed-in-Tariff (FIT) is a purchasing mechanism that enables owners of small local renewable generators (primarily rooftop solar panels) to sell power to the electric utility for a fixed price. The electric utility is in turn able to include the energy in its supply portfolio and count it towards its Renewable Portfolio Standard (RPS). Earlier this year staff completed an initial evaluation of renewable FITs as a method of purchasing renewable power. The attached policies and design guidelines reflect staff’s proposed approach to FIT program development. If the policies and design guidelines are approved, staff would return to City Council for approval of the detailed program later this year with the goal of launching the program in early 2012. Committee Review and Recommendations At the June 7, 2011 meeting of the Finance Committee staff presented the attached Policies and Guidelines. The Committee asked various questions but was generally supportive of the staff proposal. After discussion, the Finance Committee unanimously recommended approval of the Policies and Guidelines with clarifications of the language in Policy 1 and Program Design Guidelines 1a and 1b. Attachments: ·Attachment A: Proposed Renewable FIT Polices and Design Guidelines(PDF) ·Attachment B: Staff Report ID 1641, Renewable Feed-in Tariff Policies and Guidelines(PDF) ·Attachment C: Excerpt of Minutes of June 7, 2011 Finance Committee Meeting (PDF) July 18, 2011 Page 2 of 2 (ID # 1827) Prepared By:Jon Abendschein, Resource Planner Department Head:Valerie Fong, Director City Manager Approval: James Keene, City Manager City of Palo Alto Utilities (CPAU) Proposed Renewable Energy Feed-In- Tariff (Renewable FIT) Program Policies and Guidelines POLICIES 1. The Renewable FIT program’s objective is to fulfill the City of Palo Alto (City)’s Renewable Portfolio Standard (RPS) from local renewable sources. 2. Enrollment will be capped at the amount of energy projected to be required to fulfill the City’s RPS. 3. Eligible resources will include those that are deemed renewable by the California Energy Commission (CEC) and that can be included in meeting RPS goals including solar photovoltaic (PV) systems, wind, and biogas-fueled generators. 4. Eligible resources are to be located in the City and connected to the distribution system on CPAU’s side of customer meters. 5. The Renewable FIT rate, set as a fixed-price in cents per kilowatt-hour (kWh) for a twenty- year term, will be based on CPAU’s avoided energy and capacity cost (i.e., value-based) and may vary by load shape for each renewable resource type. 6. The agreement between CPAU and program participants will be a non-negotiable, twenty- year standard contract available to all eligible resources. 7. Program participants will be responsible for direct costs associated with the project (such as interconnection and metering). 8. Projects with a Renewable FIT will not be eligible for a net metering tariff or incentives under the PV Partners Program, the Power from Local Ultra-clean Generation Incentive (PLUG-In) Program, or any other CPAU-funded incentive program. 9. City Council must approve the Renewable FIT rates, standard contracts and updates. PROGRAM DESIGN GUIDELINES 1. The methodology for calculating avoided cost should include all of the following that apply to the technology in question: a. The market price of the renewable energy; b. The value associated with fulfilling or reducing California Independent System Operator (CAISO) requirements that the utility provide a minimum amount of capacity within the Greater Bay Area, otherwise known as “local capacity requirements;” c. Avoided transmission charges, transmission losses, and other CAISO charges; d. Avoided distribution losses; and e. Any other avoided costs attributable to local renewable generation 2. A standard contract will be established and published. The term will be 20 years. 3. A program cap will be established. 4. Maximum and minimum limits on individual project sizes may be used to limit the number of projects or the risk associated with the operation of any single project. These may be differentiated by technology type. 5. Updates to rates, contract terms, or program size should occur at regular scheduled intervals or should involve substantial advance notice to project developers. 6. Metering requirements will be designed to meet any applicable California Independent System Operator (CAISO), Northern California Power Agency (NCPA), and City operational requirements. 7. Interconnection rules will be established or modified to ensure FIT projects meet all City, NCPA, and CAISO operational requirements. Interconnection rules may be modified on a schedule independent of the FIT update schedule. 8. The FIT program will be designed similarly to FIT programs in other utility service areas where desirable, reasonable and feasible. City of Palo Alto (ID # 1641) Finance Committee Staff Report Report Type:Meeting Date: 6/7/2011 June 07, 2011 Page 1 of 4 (ID # 1641) Summary Title: Renewable Feed-in Tariff Policies and Guidelines Title: Approval of Policies and Guidelines for a Renewable Energy Feed-in Tariff From:City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee recommend that the City Council adopt the proposed Renewable Energy Feed-in-Tariff Policies and Guidelines (Attachment A). Executive Summary A Feed-in-Tariff (FIT) is a purchasing mechanism that enables owners of small local renewable generators (primarily rooftop solar panels) to sell power to the electric utility for a fixed price. The electric utility is in turn able to include the energy in its supply portfolio and count it towards its Renewable Portfolio Standard (RPS). Staff recently completed an initial evaluation of renewable FITs as a method of purchasing renewable power and is now proceeding to design a program. The attached policies and design guidelines reflect staff’s proposed approach to FIT program development. If the policies and design guidelines are approved, staff would return to City Council for approval of the detailed program later this year with the goal of launching the program in early 2012. Background On March 7, 2011, Council unanimously approved the Long-term Electric Acquisition Plan (LEAP) Objectives, Strategies and Implementation Plan (Staff Report 1317). LEAP Strategy #3 (RPS) and Strategy #4 (Local Generation) require the evaluation of the use of FITs to meet the City of Palo Alto (City)’s RPS goal of supplying 33% of its power from renewable sources by 2015 and to encourage the development of local ultra-clean generation. Earlier this year staff evaluated the use of FITs in Palo Alto and held study sessions with the UAC. Based on that evaluation staff proceeded with the development of the proposed FIT Policies and Guidelines (Attachment A), which were reviewed by the UAC on April 6, 2011. Discussion The City has an RPS goal to supply 33% of its power from renewable sources by 2015 while not exceeding a 0.5 ¢/kWh impact on rates. Power from currently committed renewable resources is expected to meet approximately 30.8% of the City’s annual electric energy needs in 2015 June 07, 2011 Page 2 of 4 (ID # 1641) leaving a gap of approximately 23,000 MWh/year, or 2.2% of load, to meet the 33% RPS goal by 2015. Part of this gap could be filled with power procured through a renewable FIT program. The renewable FIT program that staff is designing will be “value-based”, meaning that it is based on the value of the energy to the City. The alternative is a “cost-based” FIT, which is based on the cost to build and operate the generator and is designed to guarantee a rate of return to the developer even if it means setting the rate higher than the value of the energy to the utility. Unlike a cost-based FIT, a value-based FIT will not increase the City’s cost of renewable power over other power purchasing methods because it is based on the market value of the power. Given current market prices, if the remainder of the City’s RPS goal were achieved using only local renewable sources purchased through the FIT program, staff believes the total cost of the City’s renewable power supply would have less than a 0.5 ¢/kWh impact on rates, the goal included in the LEAP. It is worth noting, though, that a FIT program will have higher contract and program administration costs than the City’s traditional purchasing methods because it involves many small contracts rather than fewer larger ones. Under a FIT program, the City will offer a fixed long-term rate and standard power purchase agreement (PPA) to any developer of an eligible generator in Palo Alto. Eligible technologies will initially include solar, wind, and biogas fueled generators. If developers’ projects fit the program guidelines, they would be able to sign up for the standard contract and rate unless the program is already fully subscribed. For example, if the City offered a program with the following terms: a fixed rate of 15 cents per kilowatt-hour (¢/kWh) for 20 years, any solar developer willing to build a project in Palo Alto by the deadline, follow the program rules, and agree to the standard contract terms could apply for the program and sign a 20-year PPA to sell power at 15 ¢/kWh so long as there was still capacity remaining in the program. The proposed Renewable FIT Policies and Guidelines (Attachment A) will be the basis for the program. Below are some of the key features of the Polices and Guidelines: 1.The FIT will be value based. 2.A standard non-negotiable contract will be used. 3.Fixed rates will be available for solar, wind, and biogas-fueled generators. 4.Rates will take into account the value of the project to the utility, including the renewable attributes, avoided transmission and distribution costs, local capacity value, and the time of day the technology typically generates electricity. 5.The contracts will require the transfer of all energy, green attributes, and capacity attributes (if applicable) to the utility. The FIT program differs from the Request for Proposal (RFP) process, the method the City has used to-date to purchase renewable power. In an RFP process several developers offer projects, then the utility chooses the developers with the lowest priced feasible projects, and negotiates PPAs with each one. An RFP process has worked well for obtaining contracts from larger projects, but the costs and uncertainty associated with preparing a bid are too high for June 07, 2011 Page 3 of 4 (ID # 1641) small local developers. A FIT program will reduce costs and provide local renewable project developers certainty because of the fixed long-term rate, the standard contract, and the fact that it is open to any developer rather than only those who are selected through an RFP process. In addition to enabling smaller developers to supply power to the City, a FIT program can deliver benefits to other stakeholders as well, including: ·Benefits to the utility, such as the fact that renewable energy is generated locally, meaning lower transmission costs than for remote renewable resources. Also, local generation can help maintain regional (Bay Area) electric grid stability, which can result in financial benefits to the utility ·Benefits to the site owner, including additional revenue from power sales or roof rental. A FIT can also provide a way for owners of multi-unit commercial rental properties to take advantage of distributed generation. Under traditional incentive programs like the City’s Photovoltaic (PV) Partners program, the solar projects are typically built behind the customer meter, offsetting their consumption. This benefits the utility customer rather than the building owner, meaning there is less incentive for the building owner to install solar panels. ·Benefits to the community, such as the potential for money spent on renewable power to return to the community. The community can also take pride in generating renewable power locally. Timeline Upon Council approval of the renewable FIT Policies and Guidelines, staff will proceed with program design and bring a proposal to Council in December 2011. The program will include fixed rates, the standard contract, program rules (such as minimum system size and deadlines for project progress), the amount of capacity to be procured, and any other necessary changes to the City of Palo Alto Utilities (CPAU) rules and regulations, such as interconnection agreements or metering requirements. Staff’s objective is to obtain Council approval in time to launch the program in early 2012. Commission Review and Recommendation Staff held two study sessions related to FITs with the UAC, one on February 2, 2011 and the second on March 2, 2011. At these meetings the UAC supported the adoption of a FIT for local renewable generators as long as it was based on the value of the energy to the utility and not on the cost of generation. The proposed Renewable FIT Policies and Guidelines are aligned with the UAC’s preference. On April 6, 2011 the UAC reviewed the proposed policies and design guidelines for a value- based FIT and unanimously recommended that the Council approve them. The minutes of that meeting are provided as Attachment B. Resource Impact Aside from the staff time associated with designing and launching the program, there wil be June 07, 2011 Page 4 of 4 (ID # 1641) some additional ongoing cost associated with program administration and interconnection and permitting of new solar projects. The costs will depend significantly on the number of projects that participate in the program, and may range from a negligible staff impact to 2/3 of an Full- Time Equivalent or more. Most of these costs are related to permitting and interconnection, meaning the costs would be recovered by the City’s existing permit fees. At this time staff does not anticipate a need for additional permanent staffing, but will return with a more in-depth projection of costs and staff time associated with the program when returning with the detailed program design this fall. Any necessary additional resources would be requested via a Budget Amendment Ordinance or through the Budget Process. Policy Implications The proposed Renewable FIT Policies and Guidelines help meet the Council-approved objectives under LEAP Strategy #3 (Renewable Portfolio Standard, or RPS) and LEAP Strategy #4 (Local Generation) and support the Council-approved Energy Risk Management Policies, and Comprehensive Plan Goal N-9 (a clean, efficient, competitively-priced energy supply that makes use of cost-effective renewable resources). Enviromental Review Approval of the proposed Renewable FIT Policies and Guidelines does not meet the definition of a project pursuant to Public Resources Code Section 21065, thus no California Environmental Quality Act review is required. Attachments: ·Attachment A: Proposed Renewable FIT Policies and Design Guidelines (PDF) ·Attachment B: Excerpted Draft UAC Minutes of April 6, 2011 (PDF) Prepared By:Jon Abendschein, Resource Planner Department Head:Valerie Fong, Director City Manager Approval: James Keene, City Manager City of Palo Alto Utilities (CPAU) Proposed Renewable Energy Feed-In-Tariff (Renewable FIT) Program Policies and Guidelines POLICIES 1. The Renewable FIT program’s objective is to maximize fulfillment of the City of Palo Alto (City)’s Renewable Portfolio Standard (RPS) from local renewable sources. 2. Enrollment will be capped at the amount of energy projected to be required to fulfill the City’s RPS. 3. Eligible resources will include those that are deemed renewable by the California Energy Commission (CEC) and that can be included in meeting RPS goals including solar photovoltaic (PV) systems, wind, and biogas-fueled generators. 4. Eligible resources are to be located in the City and connected to the distribution system on CPAU’s side of customer meters. 5. The Renewable FIT rate, set as a fixed-price in cents per kilowatt-hour (kWh) for a twenty-year term, will be based on CPAU’s avoided energy and capacity cost (i.e., value- based) and may vary by load shape for each renewable resource type. 6. The agreement between CPAU and program participants will be a non-negotiable, twenty-year standard contract available to all eligible resources. 7. Program participants will be responsible for direct costs associated with the project (such as interconnection and metering). 8. Projects with a Renewable FIT will not be eligible for a net metering tariff or incentives under the PV Partners Program, the Power from Local Ultra-clean Generation Incentive (PLUG-In) Program, or any other CPAU-funded incentive program. 9. City Council must approve the Renewable FIT rates, standard contracts and updates. PROGRAM DESIGN GUIDELINES 1. The methodology for calculating avoided cost should include all of the following that apply to the technology in question: a. The value of renewable energy (including the value of avoided carbon); b. Local capacity value related to the applicable characteristics of the technology; c. Avoided transmission charges, transmission losses, and ISO charges; d. Avoided distribution losses; and e. Any other avoided costs attributable to local renewable generation 2. A standard contract will be established and published. The term will be 20 years. 3. A program cap will be established. 4. Maximum and minimum limits on individual project sizes may be used to limit the number of projects or the risk associated with the operation of any single project. These may be differentiated by technology type. 5. Updates to rates, contract terms, or program size should occur at regular scheduled intervals or should involve substantial advance notice to project developers. 6. Metering requirements will be designed to meet any applicable California Independent System Operator (CAISO), Northern California Power Agency (NCPA), and City operational requirements. 7. Interconnection rules will be established or modified to ensure FIT projects meet all City, NCPA, and CAISO operational requirements. Interconnection rules may be modified on a schedule independent of the FIT update schedule. 8. The FIT program will be designed similarly to FIT programs in other utility service areas where desirable, reasonable and feasible. ATTACHMENT B EXCERPTED MINUTES OF UTILITIES ADVISORY COMMISSION MEETING – APRIL 6, 2011 ITEM 1: ACTION: Proposed Policies and Guidelines for Renewable Energy Feed-In-Tariffs Utilities Resource Planner Jon Abendschein provided a presentation summarizing the key points in the development and approval process of a Renewable Feed-in-Tariff (FIT) program in Palo Alto to meet the Long-term Electric Acquisition Plan (LEAP) Objectives for Renewable Portfolio Standard (RPS) and Local Generation and requested that the UAC recommend Council approve the Proposed Policies and Guidelines for Renewable Energy Feed-In-Tariffs. During his presentation, Abendschein identified key policy and guidelines which would be used to guide the development of the Renewable FIT program, including:  Objective of the Renewable FIT program is to meet the City’s RPS of 33% by 2015.  Initial eligible technologies would be solar photovoltaic (PV), wind, and biogas-fueled generators.  A FIT rate based on the City’s avoided (value-based) cost and fixed for 20-years.  A standard, non-negotiable, Power Purchase Agreement (PPA). Abendschein also touched on several program design elements and details that staff is currently working on with other City departments and Utilities divisions related to program size and limits, development of power purchase agreements, fees and FIT rates, and program administration. Abendschein laid out the next steps including seeking Finance Committee and Council approval of the proposed policies and guidelines in June 2011 and July 2011, respectively. Upon Council approval of the policies and guidelines and development of the program details, staff will return to the UAC, Finance Committee and Council in the fall of 2011 for approval of the Renewable FIT Program including the PPA and FIT rate along with a request for delegation of authority to the City Manager to execute FIT contracts. Commissioner Melton asked why staff was pursuing a FIT for biogas-fuel generation and what opportunities exist. Abendschein explained that biogas-fueled generation is a CEC approved RPS technology and that it is essentially a fuel-cell that burns natural gas that has been injected into the gas system at a different location and nominated to the specific fuel-cell generator. Abendschein mentioned that there has been some interest in this technology in Palo Alto, but that it was not clear whether it would be economic in the near term. Commissioner Foster asked staff not to limit the program to the RPS of 33% by 2015, but rather use the ½ cent premium as the cap. He asked for clarification on the list of avoided costs in the proposed FIT policies. Abendschein clarified that the items listed were the ones staff expected to use in developing the feed-in tariff, but that future policy changes could result in additional items being added to the list. Additionally, Commissioner Foster asked if staff believed 4 MW of FITs could be achieved per year and why staff was limiting the FIT technologies to PV, biogas-fueled generators and wind. Abendschein explained that 4 MW is an optimistic projection for Palo Alto. With regards to technology to include within the program, Abendschein explained that staff is trying to keep the program simple in the first year of the program. Commissioner Keller asked why staff was recommending that program be limited to a 20-year PPA. Abendschein responded that staff will look at what other utilities are doing during the design phase and may recommend alternative durations when staff returns for approval of the program. Utilities Director Fong emphasized that staff is trying to keep the program simple in the beginning and can expand features as we gain experience. Commissioner Cook clarified that he works in the solar industry for a manufacturer of larger- scale PV systems with the smallest size being 20 MW and therefore did not feel that there was any conflict of interest. He also asked why staff was considering a 25% phase-in per year of the program cap and why staff would develop different FIT rates by technology. Abendschein explained that staff has not developed a recommendation yet for the total program cap or the amount of capacity released each year, but merely cited 25% as an example. Abendschein mentioned that different technologies might have different FIT rates because of the different value each technology provides as a result of varying generation profiles. For example, PV generation generally coincides with higher market price conditions, whereas biogas-fueled generation is a base-load resource generating in all market price conditions. Commissioner Cook asked whether staff was talking to other municipalities about their FITs. Abendschein said that they were. Chair Waldfogel suggested staff work closely with the Building Department to ensure they understand the Renewable FIT program including how it differs from the City’s current PV Partners program. Abendschein mentioned that staff has reached out to key staff within the Building Department to develop a program design team. Commissioner Waldfogel asked whether system upgrades would be necessary and who would bear the cost. Abendschein said staff would be working with the Utilities Engineering Division to assess the need for upgrades and define who would bear the costs. ACTION: Commissioner Melton motioned to recommend Council approve the proposed Renewable FIT policies and guidelines. Commissioner Cook seconded the motion. The motion carried unanimously (6-0) with Commissioner Eglash absent. FINANCE COMMITTEE DRAFT EXCERPT Regular Meeting June 7, 2011 Approval of Policies and Guidelines for a Renewable Energy Feed-in Tariff Jon Abendschein, Resource Planner, gave a presentation that included an overview of Feed-in Tariffs (FITs), the objective of the proposed program, and the next steps in getting the program implemented. He said that such programs typically involve energy being “fed in” to the grid and sold to the utility rather than used on site, and that they had been implemented in various countries, U.S. states, and municipalities. Several utilities in California had adopted FIT programs. Evaluating and potentially implementing a renewable FIT program was a work item in the Long-term Electric Acquisition Plan (LEAP) approved earlier in 2011. The objective of the program was to fulfill part of the City’s Renewable Portfolio Standard (RPS) from local renewable sources. Some of the benefits of this strategy included avoiding transmission costs and the cost of complying with other state grid operator requirements, as well as keeping money spent on power within the community. The proposed program was a value-based FIT program, in contrast to a cost-based program. This meant that the program was based on the value of the power rather than the cost to build the generator. The Utilities Advisory Commission (UAC) had reviewed the FIT and recommended the City Council approve the program. If the Finance Committee and City Council approved the proposed Policies and Guidelines, Staff would return with a detailed program for review and approval in the fall. Vice Mayor Yeh stated this program would provide more options for the City to achieve its RPS goals. He asked whether the program size was governed by the RPS limit. Mr. Abendschein stated that the goal of the program was to fulfill the City’s RPS program, but that the specific RPS limit was not specified in the policy. ATTACHMENT C Vice Mayor Yeh asked whether the City’s market exposure would increase if the program were fulfilled entirely with solar. Mr. Abendschein said the amount of solar being discussed was small and unlikely to create significant risks to the City’s portfolio, but Staff would examine that over the following months. Vice Mayor Yeh asked whether the rate would be fixed over the term of the contract or if there were escalators planned. Mr. Abendschein stated the goal was to have a fixed rate for the full term. Vice Mayor Yeh asked whether the program would be reviewed annually. Mr. Abendschein stated that the goal was to have an annual review with the Council. Vice Mayor Yeh asked whether the value-based FIT rate was based on the Market Price Referent (MPR). Valerie Fong, Director of Utilities stated that the rate was based on the market price. Mr. Abendschein stated it was based on previously signed renewable contracts that were very close to the MPR. Council Member Schmid asked whether the most recent contracts were included in the graph of the renewable portfolio included in the presentation. Mr. Abendschein stated that all of the geothermal contracts and landfill gas contracts were included. Council Member Schmid stated that he was concerned that the method of valuation would include older contracts that no longer reflected the market price. Vice Mayor Yeh clarified that if the City based the price on previously signed contracts it could lock the rate into older contracts that involved escalators. Jane Ratchye, Assistant Director of Resource Management, clarified that the price would be based on an assessment of renewable market prices, and that the most recently signed renewables contracts were an indicator of current market prices. Ms. Fong stated that the rates were also reviewed annually as market prices changed. Signed contracts maintained the same rate for the entire term of the contract. Future contracts could have a different rate, but existing contract rates would not change. Vice Mayor Yeh asked whether the MPR was updated annually. Ms. Ratchye stated the MPR used to be a good benchmark for renewable prices but that changing regulations meant it would no longer be updated. Vice Mayor Yeh asked whether the City would generate its own renewable market price estimates. Ms. Ratchye stated it would. The Northern California Power Agency (NCPA) looked at the renewables market frequently and was a good source of information. Vice Mayor Yeh asked how the time-of-day benefits were calculated. Mr. Abendschein stated the time-of-day benefits were based on the hourly market price for power. Chair Scharff asked for a clarification on Guideline 1. He asked how the avoided cost related to the calculation of the value-based FIT rate. Ms. Ratchye stated the avoided cost was the entire basis for the FIT rate calculation. Chair Scharff stated the language in Guideline 1a regarding the value of renewable energy should be clarified. He asked whether the renewable energy value included a separate carbon price. Mr. Abendschein stated it was included in the renewable market price. Council Member Schmid asked whether the market price was technology-specific or based on the market for all renewables. Ms. Ratchye stated it was based on the market for all renewables. Chair Scharff recommended using the words “market price of renewable power” in Guideline 1a. Ms. Ratchye agreed, stating if the language was not clear it could be changed. Vice Mayor Yeh asked whether the local benefits associated with the FIT rate were calculated based on Staff’s estimates. Mr. Abendschein state yes, the local benefits were based on forecasts done for the City. Vice Mayor Yeh asked whether these represented transmission costs passed through to us by the California Independent System Operator (CAISO) Mr. Abendschein state they did. Vice Mayor Yeh asked how roof rental would work for residential installations. Ms. Ratchye stated the program would not apply to residences. If the building owner chose to rent out their roof to a developer the City would not be a part of the contract. Vice Mayor Yeh asked whether the Building Division would need to be involved in potential projects to issue permits. Ms. Fong stated that all projects would need permits. Vice Mayor Yeh asked whether the Building Division would be involved in the design process. Mr. Abendschein stated the Building Division was already involved in the process. Vice Mayor Yeh asked whether the program would involve any partnerships with public facilities. Ms. Fong stated that was a program implementation issue and that the Utilities Department was not at the stage of considering that yet. Vice Mayor Yeh recommended that there be discussions with schools to make sure they are aware of the program. Ms. Fong stated a strong school advocate was on the UAC. Ms. Ratchye stated there was discussion at the UAC regarding what role the City should play in marketing the program. The UAC recommended making the program streamlined, ensuring customer awareness, but not actively connecting developers with available roof space. Council Member Shepherd stated she was conflicted between the cost- based and the value-based FIT. She stated there seemed to be a large difference between the two. She asked who the developer would be in these projects. Mr. Abendschein stated there could be a 3rd party renting a roof and owning the solar panels or the facility owner could install the project themselves. Ms. Ratchye stated that if the value-based rate were $0.15 per kWh but the cost to the developer was $0.16 per kWh, the developer would not do the project. As costs came down over time, though, the project would become economic. There had been discussion at the UAC about paying more in order to get projects built earlier, but if the City overpaid the cost would be borne by the electric ratepayers. Staff and the UAC recommended the value-based approach. Council Member Shepherd asked whether the rate would be firm. Ms. Ratchye stated if the price was too low in the beginning no projects would be completed, but the solar industry was stating that costs were coming down. Council Member Shepherd asked whether it cost more to build in Palo Alto and whether there was any allowance for that in the rate. Ms. Fong stated there was not because the rate was based on the value of the energy rather than the cost to build. Vice Mayor Yeh asked whether Staff would help potential participants make the decision about how much value the program would provide. Ms. Fong stated Staff provided the program but let the customers determine whether it was economically valuable to them. Ms. Ratchye stated a key benefit of the FIT was that it involved a standard contract with a fixed price, which reduced uncertainty for the developer because they did not have to wait for a Request for Proposals (RFP). Vice Mayor Yeh whether information would be provided to the building owners as well as solar developers in case a building owner wanted to develop a project and be paid for the energy. Ms. Fong stated that the choice of whether to develop or rent the roof needed to be made by the market. Vice Mayor Yeh asked how the City would notify developers of the program. Ms. Ratchye stated that solar developers were aware of the program. Ms. Fong stated that information on the program would be made available to the public. Council Member Schmid asked about Guideline 1b related to local capacity value. Mr. Abendschein stated that local capacity value was related to grid stability. It had to do with standards set by the CAISO. Ms. Fong stated that different technologies had different grid stability values. The CAISO set requirements for how much capacity was needed in each region. Ms. Ratchye stated that solar and wind might count differently toward those capacity requirements. Council Member Schmid asked what the value of local capacity was. Mr. Abendschein said the value was a few dollars per megawatt-hour. Council Member Schmid asked whether the resident had to pay for these charges. He asked whether the charge was in addition to the 14-16 cents / kWh rate discussed in the report. Mr. Abendschein stated no, it was part of that price. Council Member Schmid asked whether the calculation would be transparent in the final rate calculation. Mr. Abendschein stated it would be. Council Member Schmid asked whether some of the other renewable resources the City owned were able to provide local capacity value. Ms. Fong stated that some were, and others were not. Shepherd recommended clarifying the language in Guideline 1b. Ms. Ratchye stated that Staff would clarify the language. Council Member Schmid asked whether it made sense to offer a twenty-year term when technology was changing so quickly. Ms. Fong stated that FITs were a mechanism being used throughout Europe. Staff was aligning this program with the way FIT programs were done elsewhere. Council Member Schmid asked what would happen if the rooftop system broke down. Ms. Ratchye stated the City only paid if the energy was delivered. Council Member Shepherd asked whether the developer could get a new contract if the system broke down after fifteen years. Mr. Abendschein stated those types of contingencies would be dealt with in the standard contract and included in the detailed plan. Ms. Fong stated that with a flat rate the City paid more for power earlier in the contract term and less later on. There was some obligation by the developer to deliver in the later years. Council Member Schmid asked if the program would be more attractive if the City could offer shorter terms. Mr. Abendschein stated that the UAC had recommended that Staff give themselves the flexibility to examine shorter terms. Chair Scharff stated that the twenty year benefited the developer. If there were a shorter term there may be less interest. Council Member Schmid stated it was the opposite of a business investment encouraging people to replace the system. Chair Scharff stated the systems that went in today would receive higher payments, so if the system was repaired in fifteen years they would continue to receive that payment. Ms. Fong stated that the level of interest would not be clear until the program was launched. Vice Mayor Yeh said that the point was to protect the citizens’ interests. The price the City would have to pay would increase if the solar system did not deliver in the last five years. Ms. Ratchye stated the City paid a fixed price for the entire term of the contract. Ms. Fong stated this could be taken into account in liquidated damages clauses. Staff did not have the answer ready that night. Council Member Schmid stated that solar systems degenerated over time. Ms. Fong stated there would be performance requirements in the standard agreement. Council Member Shepherd stated it appeared similar to a ground lease, so if the developer walked away the building owner could sign a contract with the City. Council Member Schmid stated he did not want to see abandoned solar systems degrading on businesses’ rooftops. He asked if the program provided an incentive to cut down trees to allow the solar system to function, which would then increase the cooling costs of the building. Mr. Abendschein stated a side benefit to the program was that the solar panels on the building provide a cooling effect. Council Member Schmid asked if Canopy had been consulted. Pamela Antil, Assistant City Manager, stated the City would continue to follow the tree ordinance when implementing the program Council Member Shepherd asked what was meant in the guidelines by biogas-fueled generators. Mr. Abendschein stated the type of biogas being discussed would come from a dairy farm. Methane generated by digestion of the waste would be injected into a gas pipeline and directed to the generator. Council Member Shepherd asked if that was specified in the policies and guidelines. Mr. Abendschein stated that the City was able to take advantage of rules already set by the California Energy Commission (CEC) on this topic. Council Member Schmid asked what the rate impact of the program would be. Ms. Ratchye stated that this program would not cause the City to exceed the half-cent per kilowatt-hour rate impact guideline set forth in the LEAP for fulfilling the RPS. Council Member Schmid asked what percent of the system average rate that was. Ms. Fong stated it was roughly $5 million out of an $80 million supply portfolio. Chair Scharff asked whether the half-cent limit would be exceeded if the entire remaining RPS were fulfilled with through this program. Ms. Ratchye confirmed that it would not unless the value of renewable power goes up. Chair Scharff stated there was no policy to that effect. Ms. Fong stated that it was a requirement of the LEAP, meaning the limit could not be exceeded. Chair Scharff stated the Staff proposal was well thought out. He recommended changing the language in Policy 1 to remove the word “maximize.” Ms. Fong said Staff would take out that word. MOTION: Council Member Schmid moved, seconded by Vice Mayor Yeh to recommend that the City Council accept the Staff recommendation to approve the proposed policies and guidelines for a Renewable Energy FIT program with the following modifications:  In Guideline 1a use the term “market price of renewable energy.”  Clarify the wording in Guideline 1b.  In Policy 1 remove the work “maximize.” MOTION PASSED 4-0 City of Palo Alto (ID # 1880) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 3 (ID # 1880) Summary Title: Utilities Strategic Plan Title: Approval of the 2011 Utilities Strategic Plan Recommended by the Finance Committee and the Utilities Advisory Commission From:City Manager Lead Department: Utilities Recommendation Staff, the Utilities Advisory Commission and the Finance Committee recommend that the Council approve the proposed 2011 Utilities Strategic Plan. Executive Summary The City of Palo Alto Utilities (CPAU) has completed a process to update the Utilities Strategic Plan (Strategic Plan) last approved in 2005. Global climate change; macro, regional and local economic challenges; new legislative and regulatory requirements; and major technology changes in the water, wastewater collection, gas, and electric industries have all necessitated the need to evaluate and update the Strategic Plan to ensure CPAU’s vision and key objectives are in line with those of CPAU’s stakeholders, including CPAU ratepayers, Palo Alto citizens, the City Council and the Utilities Advisory Commission (UAC). The UAC reviewed the Strategic Plan many times during its development and established a subcommittee in April 2010 to assist staff in developing the plan. Following a recommendation from the UAC subcommittee, staff interviewed key stakeholders to assist in the development of an overall vision for CPAU. Using information collected in the interviews, the UAC’s feedback and assistance from a consultant, staff provided the UAC a draft Strategic Plan for discussion at its January 2011 meeting. The UAC requested additional changes at that meeting, which staff supported and incorporated into a revised plan. At its February 2011 meeting, the UAC acknowledged that the changes it requested in January 2011 were incorporated and voted unanimously to recommend Council approve the 2011 Utilities Strategic Plan. After recommending two changes at its June 7, 2011 meeting, the Finance Committee also voted unanimously to recommend Council approve the 2011 Utilities Strategic Plan. Committee Review and Recommendation The Finance Committee reviewed the proposed Utilities Strategic Plan at its June 7, 2011 meeting. The staff report prepared for the Committee’s meeting is provided as Attachment B to this report. Committee members indicated that they liked the strategy map as it provides a July 18, 2011 Page 2 of 3 (ID # 1880) one-page view of the CPAU direction. However, Chair Scharff stated that it’s hard to tell if the goals established are too easy or realistic since there is no baseline of where CPAU currently stands. Staff responded that the semi-annual reviews will provide that information and, if the goals are unrealistically high or low, the goals can be adjusted. Chair Scharff expressed some concern about the cost and resources that may be needed to monitor and implement the Strategic Plan. Council Member Shepherd said she thought it was a good discipline to have such a plan. Staff indicated that it was using the plan to focus its many efforts more clearly and to gain efficiencies resulting from the organization presented by the plan. Staff also indicated it did not anticipate needing more resources to monitor the plan. If any initiatives in the Strategic Plan would require additional resources, Council would have the opportunity to approve or deny those requests at the time of the request. Council Member Shepherd stated that the vision statement should connect with the type of service provided and the practical outcome. She said that as written, the vision statement (“We deliver extraordinary value to our customers”) does not relate to utility services and may not be understandable to the public. Regarding the Strategic Objective for the People and Technology Perspective (PT1), the Finance Committee discussed whether it was appropriate for the Utilities Strategic Plan to contain language about employee compensation such as in the objective statement (“work with City management to establish sufficient compensation, benefits and incentives”). Chair Scharff stated that Council should not approve such language since compensation, benefits and incentives should be determined on a city-wide basis and not for CPAU employees alone. Staff agreed and recommended removal of that phrase. One of the Strategic Initiatives in the proposed plan is the redesign of the Utilities bill to provide more useful information to customers. However, the cost to make the changes in the SAP- based billing system could be substantial. The committee suggested changing the initiative so that bill redesign would be evaluated, but not necessarily completed. The Finance Committee voted unanimously (4-0) to recommend Council approve the proposed 2011 Utilities Strategic Plan with the following two changes: 1.Change the Strategic Initiative under the Strategic Objective for the Customer and Community Perspective (C3) from: “Redesign the Utilities bill to improve understandability and implement the changes by 2012.” to: "Reassess the design and delivery of the Utilities bill to improve understandability and implement the changes by 2012." 2.Change the Objective Statement for the Strategic Objective for the People and Technology Perspective (PT1), from: “We will create a positive values-based work environment which attracts and retains qualified staff. To achieve this objective we will try to better understand employees’ desires, work with City management to July 18, 2011 Page 3 of 3 (ID # 1880) establish sufficient compensation, benefits and incentives, and will articulate our values both internally and as we recruit.” to: “We will create a positive values-based work environment which attracts and retains qualified staff. To achieve this objective we will try to better understand employees’ desires and will articulate our values both internally and as we recruit.” The proposed 2011 Utilities Strategic Plan with the changes recommended by the Finance Committee is provided as Attachment A. The notes from the Finance Committee’s June 7, 2011 meeting are provided as Attachment C. Attachments: ·Attachment A: Balanced Scorecard Objectives and Strategy Map (PDF) ·Attachment B: Staff Report ID 1351 Utilities Strategic Plan to Finance Committee on June 7, 2011 (PDF) ·Attachment C: Excerpted Finance Committee Minutes of June 7, 2011 (PDF) Prepared By:Jane Ratchye, Assistant Director Department Head:Valerie Fong, Director City Manager Approval: James Keene, City Manager Utilities Strategic Plan – Strategic Objectives ATTACHMENT A Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative Customer and Community Perspective Average time to restore service per interrupted customer Less than 90 minutes C1. “I receive safe and reliable service.” Customers expect that Utilities services are provided on a continuous basis, without interruption. In addition, customers expect that the Utilities delivery systems are safe and will not harm them or put them in any danger. We will listen to our customers and seek to understand their reliability and safety concerns and implement programs and projects to address them. Number of electric system interruptions per year for average customer Ranks in the top quartile nationwide (less than three) C2. “Be responsive to all my utilities- related service needs.” We understand that the customer wants clear, accurate bills with easy methods of payment; access to usage history and enough understanding to efficiently manage usage; to feel quickly and completely “taken care of” when they have concerns, questions or requests and to be communicated with effectively both as individuals and as CPAU’s owners. One of the ways to achieve this is to elicit feedback from customers to help improve service. Customer satisfaction scores on annual surveys for overall value. Ranking in the top two utilities statewide By the end of 2011, establish mechanisms to elicit customer feedback on their satisfaction with all interactions with CPAU. C3. “I expect to pay a reasonable bill” We understand that customers expect their bills to be comparable to those in surrounding communities and do not expect to pay more than PG&E customers. Customers believe it is reasonable to pay slightly more in exchange for increased reliability, safety and protection of the environment. However, customers’ overall bills for Utilities services must remain reasonable and be reasonably stable and should not increase significantly in any one year. Customers also want their bills to provide useful information about their consumption of resources in addition to the rate so that they can understand how they The average combined residential customer bill for electricity, water, gas, and wastewater services Less than the average of bills for comparable services in nearby communities (MP, MV, SC, Hayward, RC, Roseville, and Alameda). Reassess the design and delivery of the Utilities bill to improve understandability and implement the changes by 2012. Reassess the gas 1 Utilities Strategic Plan – Strategic Objectives ATTACHMENT A Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative can influence their total cost for Utilities services. For natural gas service, Palo Alto’s supply cost has been relatively stable due to a laddered gas portfolio purchasing strategy; however, this strategy needs to be re-evaluated as gas prices are currently low and are projected to stay low for the foreseeable future. Although, the average bill for all services should be comparable to those in surrounding communities, staff will continue to monitor and report the bills for each service separately on a quarterly basis. Annual rate change Maximum of 10% per year for electric and wastewater services. Maximum of 20% per year for water service. portfolio laddering purchasing strategy (GULP initiative) and develop a rate change performance measure for gas service. C4. “Care for our environment” Our community wants its customer-owned utility to offer choices for them to manage their resource use in ways that reflect their environmental values. Utilities will improve existing programs and develop new programs to meet customer needs and allow customers to manage their own environmental footprint. Percentage of customers participating in the PaloAltoGreen program Top rank nationally Redesign the PaloAltoGreen program by June 2012 (LEAP task). Internal Business Process Perspective Safety and Reliability Duration of electric system interruption per year for average customer Ranks in the top quartile nationwide (less than 60 minutes per customer) BP1. Ensure a reliable supply of utility resources We will implement strategies that ensure the reliable supply of utility resources to meet present and future needs. To provide opportunities for economic development within Palo Alto, we must provide sufficient resources that meet the short and long-term needs of our customers. To achieve this we will maintain the utility system components, and provide for adequate utility resource supplies to our current and future customers. We will also develop new management practices and organizational structure to ensure compliance with regulatory requirements. Response time to water and wastewater leaks Under 30 minutes Develop a plan to complete a new electric transmission interconnection by the end of 2011. BP2. Operate the utility systems safely We will continue to ensure the safety of our customers, employees and the community by the ongoing implementation of a safety programs. Protecting customers and employees from injury and customer’s property from damage is essential for delivering quality utility services to our customers. The safety programs will be AGA (American Gas Association) Incidence Rate Less than industry (APPA, APGA, AWWA) average with a goal of 0 2 Utilities Strategic Plan – Strategic Objectives ATTACHMENT A Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative implemented by updating safety procedures, educating customers via outreach materials and workshops, correcting system deficiencies, operating in accordance with existing safety rules, and ensuring that products delivered to customers are safe. Customer awareness of gas safety issues 90% of customers responding to annual gas customer safety awareness survey BP3. Replace infrastructure before the end of its useful life We will continue to implement a long-term strategy for replacing infrastructure before the end of its useful life. Reliable delivery of electric service to our customers is critical for the success of business and the quality of life for our residents. To accomplish this, we will focus on reducing the backlog and replaces infrastructure systems in a manner that spreads the expense across multiple years resulting in program with even expenditures patterns in future years. Backlog of infrastructure elements whose age is beyond its useful life. Zero Customer Service Excellence Average phone wait time Less than 90 seconds BP4. Serve customers promptly and completely We will provide customers with the highly responsive service they desire. We will do this by reviewing and improving our processes for managing accounts, handling payments, resolving billing issues, responding to information and field service requests and notifying customers during service disruptions. We will identify ways to streamline these processes and implement changes. Specifically, we will review, document and improve business processes that have been identified as having long customer response times. Number of billing adjustments 10% reduction from number in 2009. BP5. Communic ate clearly and pro-actively with all our stakeholders We will proactively communicate with all our stakeholders, including all customer groups, civic leaders, community groups and the press. To achieve this objective we will provide the information needed for our stakeholders to effectively access, understand and utilize all utilities services and programs. In addition, we will design communication vehicles and dissemination processes that will enable our residents to be educated owners of their municipal utilities system. For example, Palo Alto’s gas rate stability is something customers should be educated about as it differentiates CPAU from PG&E. Time until informing the public and local media of a disruption affecting at least 500 customers or any sensitive major customers Less than 90 minutes after becoming aware of a disruption Prepare a Utilities Communications Plan by June 2011 that incorporates increased use of neighborhood and business organizations and schools to disseminate program and educational information. 3 Utilities Strategic Plan – Strategic Objectives ATTACHMENT A Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative BP6. Offer programs to meet the needs of customers and the community We will assist customers to lower their cost of utilities services and support the environment. We will assist customers facing economic hardship by offering bill payment assistance programs. We will educate customers on the reasons for and their means of compliance with our safety and regulatory requirements. We will also identify all customer groups, identify any gaps in service provision to those customers, and propose new programs or changes to existing programs to close those gaps. Participant* satisfaction with Utilities programs (*rebate recipients, workshop attendees, callers, etc.) At least 90% of program participants satisfied with their experience Reduce Costs BP7. Negotiate supply contracts to minimize financial risk We will continue to negotiate supply contracts to acquire supply resources while managing supply portfolio cost uncertainty to meet rate and reserve objectives and following sound risk management practices. To ensure that we are buying commodities at as competitive prices as possible, we will negotiate contracts with new counterparties to continue to have a sufficient set of credit-worthy trading partners. We will continue to develop long-term acquisition policies and plans (LEAP and GULP) and update those plans at least every three years. We will also determine all that is necessary to execute a gas prepay transaction as that is one clear way to lower the cost of gas supply resources. Number of competitive bids received for each fixed-price transaction. Minimum of three Pursue gas prepay transactions to leverage the City’s low cost of capital and tax-exempt status to acquire lower cost gas supply resources (GULP Strategy). BP8. Reduce cost of delivering service through best management practices We will reduce the cost of delivering service to customers. We will identify opportunities to better coordinate between Utilities and other City departments to improve efficient delivery of services. We will perform benchmarking studies to identify potential modifications to procedures, practices, materials, and plans and to ensure that we are following best practices. One best practice is to increase calibration and replacement schedules for gas and water meters since the meters slow over time so that the actual usage is under-recorded, resulting in lost revenue. “lost and unaccounted for” volumes of gas and water 80% of 2009 levels. Actively participate in Citywide efforts to improve the procurement process. 4 Utilities Strategic Plan – Strategic Objectives ATTACHMENT A Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative BP9. Maximize value of existing generation assets Palo Alto owns significant supply resource assets including a portion of the Calaveras Hydroelectric Project, a contract with the Western Area Power Administration, a permanent allocation of water from the regional water system managed by San Francisco, and allocated capacity on a gas transportation pipeline. We will seek out both daily and operational and long-term opportunities to optimize the value of these assets to enhance revenue and/or to reduce costs. We will work with joint-owners of our resource assets to leverage those resources and advocate to maintain or improve the value of existing resources into the future (LEAP and GULP strategies). Value harvested from Redwood gas pipeline capacity 100% Evaluate and implement opportunities to maximize the value of the Calaveras project in the new electric market framework. BP10. Manage implementation of strategic plan Completing the strategic plan is only the beginning of getting value from the strategic planning process. Ongoing management of the strategies and initiatives and reporting on progress of those initiatives is essential to achieving positive results from the strategy. We will report to the UAC and Council on plan progress twice annually and we will review and revise the objectives and develop new initiatives on an annual basis. Number of strategic initiatives completed 100% Develop a program to ensure that the strategic plan is pursued and that objectives and initiatives are managed Environmental Sustainability BP11. Increase the environmental sustainability of all Utilities activities Adding sustainable resources to the supply portfolios will help the City meet its Climate Protection Plan goals by reducing the carbon footprint of the utility services provided to our customers. We will achieve this by acquiring renewable resources and promoting the development of local renewable resources within the rate objectives in the Long-term Electric Acquisition Plan (LEAP). Sustainable practices will be pursued not just for the supply portfolios, but across all the Utilities day-to-day operations. Carbon intensity of the electric portfolio 80% of baseline (2005) level BP12. Promote efficient use of resources Resource efficiency programs meet our customers’ desire for environmental solutions that save money as well as contributing towards the Climate Protection Plan goals. We will promote resource efficiency by dedicating the tactical staffing and budgetary resources Actual electric energy efficiency achievement At least as high as goals set in May 2010 By June 2011, develop implementation plans to achieve the long- term water and energy 5 Utilities Strategic Plan – Strategic Objectives ATTACHMENT A Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative necessary to reach maximum deployment of economically feasible resource efficiency. We will revise and document our long-term efficiency strategies by updating our 10-year Energy Efficiency goals every three years and updating our water efficiency goals every five years in the Urban Water Management Plan. To maximize the savings potential for new development, coordinate with the City’s Economic Development Manager to ensure that new developments incorporate energy saving features in the design phase. Actual gas energy efficiency achievement At least as high as goals set in January 2011 efficiency goals and implement programs as outlined in the implementation plans. People and Technology Perspective PT1. Be an attractive place to work We will create a positive values-based work environment which attracts and retains qualified staff. To achieve this objective we will try to better understand employees desires and incentives, and will articulate our values both internally and as we recruit. Employee satisfaction rating Improvement from baseline level Implement an annual survey to determine employee satisfaction levels and establish the baseline satisfaction level for 2011. PT2. Obtain, develop and train employees to ensure an adequate and qualified workforce A properly sized, trained and certified workforce is essential to our effectiveness. We will identify skill and staffing gaps at the individual and organizational levels and seek to fill those gaps through the effective use of opportunities including hiring, mentorship programs, role rotations, knowledge transfer opportunities, long-term developmental assignments and both internal and external training opportunities. We will plan for workforce succession and provide cross-training opportunities for employees to improve employee satisfaction and build a more robust work force Percentage of operations personnel that has appropriate certification and training required for working in all areas they may be assigned 100% Develop a 5-year succession plan for each division. 6 Utilities Strategic Plan – Strategic Objectives ATTACHMENT A Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative PT3. Ensure employees have adequate tools to perform job duties As major users of technology assets, we must have access to quality and timely delivered IT services. We must build and maintain an effective relationship with the City’s IT division that includes clear, frequent communication as well as productive coordination. We will collaborate with IT to identify barriers to providing support for technology projects and remove them. In those instances in which our immediate technology needs cannot be addressed by the City’s IT division in a timely or sufficiently-comprehensive fashion, we will utilize external expertise. Technology needs being met 100% for all Utilities work groups Develop a Utilities- specific IT strategic plan. PT4. Investigate and adopt innovative technologies Our customers value Utilities embracing new technologies that will help reduce costs and/or meet Climate Protection Plan goals. We will innovate by researching technologies and cultivating relationships with entrepreneurs and academics to identify new cost-effective and environmentally sustainable technologies to consider adopting. The smart grid strategic plan will be complete by the end of FY 2012 and new technologies, programs, and projects identified in the plan will be implemented. Number of new technologies evaluated per year by an in-depth study or pilot project Three Develop a process to evaluate and implement new technology through targeted programs and consider creating a fund for innovative projects and pilots. Financial Perspective F1. Maintain financial strength Maintaining a high credit rating reduces the cost of borrowing if needed for capital projects. We will continue best practices for financial management, adhere to energy risk management policies and guidelines to minimize financial risk, and maintain sufficient reserves to cover debt obligations as required to retain CPAU’s current favorable bond rating so that the cost of capital is low for any bond funded capital projects. Credit rating At least AA as determined by Fitch Ratings or Standard and Poor’s or at least Aa3 as determined by Moody’s 7 Utilities Strategic Plan – Strategic Objectives ATTACHMENT A 8 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative F2. Maintain adequate reserves Maintaining adequate cash reserves contributes to maintaining our overall financial health and retaining our current favorable bond rating. We will maintain Rate Stabilization Reserves levels within Council-approved guidelines and sufficient to provide rate stability as desired by ratepayers. During the annual budget and rate setting process, the risks that each Utilities fund is exposed to will be identified along with the trajectory of costs and revenues to allow Council to determine appropriate reserve levels and rate adjustments. Rate Stabilization Reserve levels Adequate to cover cost uncertainties over a two-year period while meeting rate stability objective Re-evaluate the need for and purpose of the Calaveras (stranded cost) Reserve by the end of 2011. F3. Implement rate structures that balance cost of service and resource conservation Retail rates should be designed so that the revenues from a customer group match the cost to serve those customers. Rates consist of fixed charges and volumetric charges, which are based on usage. Fixed costs consist of customer-related costs (meter reading, billing, etc.) and costs related to capital projects and operations while variable costs include the cost of buying supplies (water, gas, or electricity). When fixed costs are recovered through charges based on usage, costs will not be recovered if customers reduce usage more than projected. To address this problem we will examine alternate rate structures that strike a balance between the two competing objectives (cost of service and resource efficiency) to ensure that certain fixed costs are recovered with a fixed charge, but other costs are recovered with charges that vary depending on usage (volumetric charges). By the end of 2011, evaluate the appropriate fraction of fixed costs that should be collected by fixed charges versus volumetric charges. F4. Provide a fair return to the City CPAU provides an equity transfer to the City of Palo Alto’s General Fund which provides a return on the City’s original investment in the Utilities and reflects the City’s ultimate responsibility for Utilities operations. Council approved the current equity transfer method in May 2009. The equity transfer is used by the General Fund as determined by the City Council and supports activities such as fire, police and library services to the City residents and businesses. This benefit, along with favorable rates and utility services, is a key value provided to the community from municipal ownership of Utilities. Equity transfer to the City’s General Fund 100% of the transfer as calculated by the Council-approved equity transfer methodology and permitted by law. 9 Maintain adequate reserves Maintain financial strength Implement rate structures that balance cost of service and resource conservation Fi n a n c i a l Re s o u r c e s Pe o p l e a n d Te c h n o l o g y Be an attractive place to work Obtain, develop and train employees to ensure an adequate and qualified workforce Ensure employees have adequate tools to perform job duties Values: Honesty and Integrity Teamwork Accountability Quality of Service “Be responsive to all my Utilities services- related needs” “I receive safe and reliable service” “I expect to pay a reasonable bill” “Care for our environment” Vision: We Deliver Extraordinary Value to Our Customers Strategic Destination: We will earn the high satisfaction of our customers with our cost- competitive provision of safe, reliable and environmentally sustainable utility services Cu s t o m e r Operate the Utilities systems safely Reliability and Safety Customer Service Excellence Manage Cost Environmental Sustainability Serve customers promptly and completely Offer programs to meet the needs of customers and the community Communicate clearly and proactively with all our stakeholders Negotiate supply contracts to minimize financial risk Reduce cost of delivering service through best management practices In t e r n a l B u s i n e s s P r o c e s s e s Increase the environmental sustainability of all Utilities operations Promote efficient use of resources Investigate and adopt innovative technologies Ensure a reliable supply of utility resources Replace infrastructure before the end of its useful life Maximize value of existing generation assets Manage implementation of strategic plan Provide a fair return to the City City of Palo Alto (ID # 1351) Finance Committee Staff Report Report Type:Meeting Date: 6/7/2011 June 07, 2011 Page 1 of 10 (ID # 1351) Summary Title: Utilities Strategic Plan Title: Utilities Advisory Commission Recommendation to Approve the 2011 Utilities Strategic Plan (Continued from Finance meeting of 3/0 1/11) From:City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission recommend that the Finance Committee recommend that the Council approve the proposed 2011 Utilities Strategic Plan. Executive Summary The City of Palo Alto Utilities (CPAU) has completed a process to update the Utilities Strategic Plan (Strategic Plan) last approved in 2005. Global climate change; macro, regional and local economic challenges; new legislative and regulatory requirements; and major technology changes in the water, wastewater collection, gas, and electric industries have all necessitated the need to evaluate and update the Strategic Plan to ensure CPAU’s vision and key objectives are in line with those of CPAU’s stakeholders, including CPAU ratepayers, Palo Alto citizens, the City Council and the Utilities Advisory Commission (UAC). The UAC reviewed the Strategic Plan many times during its development and established a subcommittee in April 2010 to assist staff in developing the plan. Following a recommendation from the UAC subcommittee, staff interviewed key stakeholders to assist in the development of an overall vision for CPAU Using information collected in the interviews, the UAC’s feedback and assistance from a consultant, staff provided the UAC a draft Strategic Plan for discussion at its January 2011 meeting. The UAC requested additional changes at that meeting, which staff supported and incorporated into a revised plan. At its February 2011 meeting, the UAC acknowledged that the changes requested in January 2011 were incorporated and voted unanimously to recommend Council approve the 2011 Utilities Strategic Plan. Background In the Spring of 2009, CPAU hired the consulting firm, Management Partners, Inc., to initiate an internal strategic visioning and communications process for employees. CPAU Management sought to develop a set of employee values prior to moving forward with the strategic planning process. Management Partners conducted an employee survey and focus groups of June 07, 2011 Page 2 of 10 (ID # 1351) management and non-management staff and found that employees placed the highest value on: 1) honesty and integrity; 2) teamwork; 3) accountability; and 3) quality of service. The Director of Utilities determined that the 2005 Utilities Strategic Plan needed to be updated and the UAC created a committee to work with staff on the effort in April 2010. In June 2010, staff, along with the UAC’s Ad Hoc Committee for Strategic Planning, engaged in an analysis of external drivers shaping the industries in which CPAU operates, and a discussion of the strengths, weaknesses, opportunities, and threats (SWOT) unique to CPAU. The external review and SWOT analysis formed the basis for developing the key CPAU functions for which objectives and strategies will be developed. Another driver for updating the Utilities Strategic Plan was Council action on May 3, 2010 in response to a Council Colleagues’ Memo (Colleagues' Memo from Mayor Burt, Vice Mayor Espinosa, Council Members Yeh and Scharff Requesting the City Council Direct the Utilities Advisory Commission to Make Recommendations to the City Council on a Comprehensive Energy Efficiency and Renewables Procurement Strategy). During its discussions in July, the UAC recommended that the Long-term Electric Acquisition Plan (LEAP), the Gas Utility Long- term Plan (GULP) and the Utilities Strategic Plan should address the major issues raised in the May 3, 2010 Council Colleagues’ Memo. The UAC also agreed that if there are any issues from the Colleagues’ Memo that are either unresolved or not addressed in the updated LEAP, GULP, or Strategic Plan, the UAC may wish to address those separately. The UAC received informational memoranda for its meetings of July 20, 2010 and September 1, 2010 on the road map for and status of the development of the Utilities Strategic Plan. From August through November, staff interviewed 26 community members to get their perspectives on the problems and issues facing the CPAU, regional, state, national, and global issues of interest to Palo Alto, the values of the community and how the department should make adjustments in the future. On November 3, 2010, the UAC reviewed the input gathered from the interviews, draft mission and vision statements and draft strategic objectives for the Strategic Plan. In early November, the City engaged a consultant to assist with the finalization of the Strategic Plan. Based on information collected in the interviews, the UAC’s feedback and assistance from the consultant, staff revised the strategic objectives, developed performance measures for the strategic objectives and finalized the strategy map. At its January 2011 meeting, the UAC reviewed a draft Strategic Plan and provided comments and input to staff. Based on comments received from the UAC at that meeting, staff revised the Strategic Plan and presented it to the UAC at its February 2011 meeting. At that meeting, the UAC acknowledged that the changes requested in January 2011 were incorporated and voted unanimously to recommend Council approve the 2011 Utilities Strategic Plan. June 07, 2011 Page 3 of 10 (ID # 1351) Discussion The updated Utilities Strategic Plan needs to be consistent with the City’s mission and value statements as stated in the Fiscal Year 2011 Council-approved Operating Budget and Council priorities, as follows: City of Palo Alto’s Mission: The government of the City of Palo Alto exists to promote and sustain a superior quality of life in Palo Alto. In partnership with the community, our goal is to deliver cost-effective services in a personal, responsive, and innovative manner. City of Palo Alto’s Values: Quality –Superior delivery of service. Courtesy –Providing service with respect and concern. Efficiency –Productive, effective use of resources. Integrity –Straight-forward, honest and fair relations. Innovation –Excellence in creative thought and implementation. Core Values CPAU’s core values were developed through a process, facilitated by a strategic planning consultant, which involved surveys, interviews, and focus groups with input from employees from all the work groups in the Utilities Department. The core values and traits and how each trait will be carried out are listed below. 1.Honesty and Integrity: We exhibit honesty and integrity when we model good behavior and a strong work ethic; communicate with honesty, sincerity and respect for one another; share all knowledge and create transparency; and follow-through at all levels. 2.Teamwork: We promote teamwork at CPAU by communicating clearly and respectfully while proving to be dependable and respectful and exhibiting a positive attitude. 3.Accountability: We demonstrate this value by taking responsibility for our actions; being clear about our vision, direction and expectations; following through on work tasks; and being a results-oriented and accountable employee. 4.Quality of Service: We each contribute to achieving quality of service by being responsive to customers’ needs and customer-focused, having a can-do attitude, and striving for excellence by operating a safe and reliable system. Planning Horizon The planning horizon for the strategic plan is five years. The plan should be developed with a longer-term (15-to 20-year) timeframe in mind, but so many things change over the course of five years that after that time, it will likely be time to redo the strategic plan. In addition, the issues that a strategic plan will address are likely to change significantly in five years. What’s Included and Not Included in the Plan Discussions on some related decisions are already well underway in the updated the LEAP and GULP, which are expected to be considered by the Council in March 2011. The Utilities June 07, 2011 Page 4 of 10 (ID # 1351) Strategic Plan encompasses several plans, policies and/or guidelines related to key CPAU functions, including: 1.Water, electric and gas efficiency and electric demand reduction; 2.Resource management: water, electric and gas supply acquisition, asset management and energy risk management; 3.Climate Protection: greenhouse gas reductions; 4.Financial management: rates, reserves, budget and long-term financial planning; 5.System reliability; 6.Information technology; 7.Customer service; programs,rates, information, communication; smart metering and billing; 8.Distributed and local resources; 9.The equity transfer from the gas and electric funds to the City’s General Fund; 10.Regulatory compliance and reporting; and 11.CPAU workforce: recruitment, retention and management. The Strategic Plan is not intended to include the following items: 1.Whether or not to sell Utilities; 2.What CPAU must do to comply with laws or regulations; 3.Governance of Utilities; and 4.Operating and compliance plans Plans that will need to be in alignment with, whether or not incorporated into, the Strategic Plan include the following: 1.LEAP, GULP, and WIRP (Water Integrated Resource Plan) 2.Capital Improvement Program 3.IT Strategic Plan 4.Rates Policy 5.Communications Plan 6.Energy Efficiency Plans 7.Urban Water Management Plan 8.Smart Grid Strategy Plan 9.SAP Billing System Plan 10.Energy Risk Management Policy 11.Fiber Broadband Business Plan Interviews of Community Leaders From August through November, staff conducted interviews of 26 community leaders including Council Members, UAC Commissioners, and other people engaged in Utilities issues including former Council Members and former UAC Commissioners. The interviews were conducted to elicit input into the development of a vision for CPAU and to determine the viewpoints of community leaders regarding several key topics. The summaries of the interviews are provided as Attachment C to this report. June 07, 2011 Page 5 of 10 (ID # 1351) The feedback from the interviews can be broken down into general topic areas, including communications; costs,prices and rates; technology and innovation leadership, support for and cost of green programs; and reliability, safety, and emergency preparedness. 1.Communications Many of those interviewed felt that communications with customers and Council could be improved. Many felt that CPAU should educate customers about programs and the benefits to customers. Outage notification was specifically mentioned as an area that needs improvement. However, there were some that felt that communication should not be a major piece of what CPAU does as the main concern for customers is that the services be reliable and safe, and that there is little interest or need in more communications from CPAU unless it relates to those things (i.e. outages). Some suggested using social networking for communications. 2.Costs, Prices, and Rates When asked whether they supported stable gas rates as opposed to gas rates that vary each month with gas prices (as with Pacific Gas and Electric Company (PG&E)), almost all supported stable gas rates in Palo Alto. Some advised that high water rates are a big concern and many said that our bills overall should be competitive, or else the community will question the value of having an independent, municipally-owned utility. Several brought up the problems with having to raise prices if consumption declined. The recent issues with cost recovery in the Refuse Fund were mentioned as a cautionary tale. 3.Leadership in Technology and Innovation Most of those interviewed did not recommend that CPAU become a leader in technology or innovation if doing that would require significant investment. Many felt that leadership in this area would inevitably result in some failures and noted that the City is very risk averse. However, almost all interviewees recommended that CPAU be aware of and consider new technologies. Many recommended that a small amount of money be reserved for new technology or innovative research and development projects (such as with the Light Emitting Diode, or LED, streetlight pilot project). Some advised that CPAU be a test bed for new technology and that it use the expertise of the community to help in these evaluations. 4.Support for and Cost of Environmental/Green Programs Even in the current economic situation, most of those interviewed felt that the community continues to support green programs as long as the additional cost for those programs is reasonable. However, some did caution against starting new green programs that would raise costs and rates in this economic environment. The 0.5 cent per kilowatt-hour rate impact limit for renewable energy was mentioned as a reasonable adder, but many warned against raising that limit. Many noted that environmentally beneficial programs are often also economically beneficial and that staff should always conduct a complete, long-term, life-cycle economic analysis and identify any rate impacts from green programs. As evidence of the community’s support for green programs and the willingness to pay more for a green program, the PaloAltoGreen voluntary renewable energy program was cited by several of those interviewed. June 07, 2011 Page 6 of 10 (ID # 1351) 5.Reliability, Safety, and Emergency Preparedness Many of the people interviewed cited system reliability and safety of the distribution system as a very important focus for CPAU. Many added that emergency preparation is very important. Interviewees described locally-sited resources, such as the new water reservoir and groundwater wells, as being very valuable to the City’s emergency preparedness and were supportive of local electric generation as well. Some mentioned that local generation should be from renewable sources. Mission and Vision Statements The feedback from the interviews helped to formulate the vision for CPAU. The mission statement should describe what CPAU is and does. The proposed new mission statement compared to the mission statement in the 2005 Strategic Plan is shown in the table below. Mission Statement from 2005 Utilities Strategic Plan Proposed New Mission Statement Provide valued utility services to customers and dependable returns to the City. The City of Palo Alto Utilities provides safe, reliable, environmentally sustainable and cost- effective services. The vision statement should describe what CPAU is striving to become. The 2005 Strategic Plan did not contain a vision statement. To develop this vision, staff determined that CPAU needs to choose the appropriate value proposition. One possible value proposition is to be the lowest cost provider. A utility with this value proposition would seek to minimize costs in the provision of services. Alternately, a utility could seek to be a high quality provider with high standards for service reliability, safety and service offerings. Or, a utility could seek to be a product leader and provide unique, or high performance services. Of these choices, staff recommends that CPAU seek to be a high quality provider, which seems to be the expectation of the Palo Alto community. Of course, the cost for the services provided must also be reasonable. The proposed vision statement that incorporates these concepts is: We deliver extraordinary value for our customers. To be more specific about the vision, the Strategic Plan should have a more defined “strategic destination.” The proposed strategic destination is: We will earn the high satisfaction of our customers with our cost-competitive provision of safe, reliable, and environmentally sustainable utility services. Balanced Scorecard (BSC) Approach As with the 2005 Utilities Strategic Plan, the balanced scorecard methodology will be used to track implementation by perspective. Using this framework, the strategic plan should include Strategic Objectives, or statements of what the strategy must achieve and what is critical to its June 07, 2011 Page 7 of 10 (ID # 1351) success. Each Strategic Objective should have Performance Measures and Targets for how success in achieving each objective will be measured, tracked and reported and the level of performance or rate of improvement needed to achieve the objective. The draft strategic objectives are listed below by BSC perspective. Customer Perspective C1.“Be responsive to all my utilities-related service needs.” C2.“I receive safe and reliable service.” C3.“I expect to pay a reasonable bill” C4.“Care for our environment” Internal Business Process Perspective BP1.Ensure a reliable supply of utility resources BP2.Operate the utilities systems safely BP3.Replace infrastructure before the end of its useful life BP4.Serve customers promptly and completely BP5.Communicate clearly and pro-actively with all our stakeholders BP6.Offer programs to meet the needs of customers and the community BP7.Negotiate supply contracts to minimize financial risk BP8.Reduce cost of delivering service through best management practices BP9.Maximize value of existing generation assets BP10.Manage implementation of strategic plan BP11.Increase the environmental sustainability of all Utilities practices BP12.Promote efficient use of resources People and Technology Perspective PT1.Be an attractive place to work PT2.Obtain, develop and train employees to ensure an adequate and qualified workforce PT3.Ensure employees have adequate tools to perform job duties PT4.Investigate and adopt innovative technologies Financial Perspective F1.Maintain financial strength F2.Maintain adequate reserves F3.Implement rate structures that balance cost of service and resource conservation F4.Provide a fair return to the City Based on input from the UAC and with guidance from the consultant, staff further developed the Strategic Objectives and Performance Measures for each Strategic Objective. Each Strategic Objective is explained in an “Objective Statement” to provide detail and clarity to all stakeholders so that there is no ambiguity about what is meant by the objective. Using the BSC method, the development of a strategy map is also recommended. A strategy map is a single- page representation of the Strategic Plan that can be used to communicate the overall plan and June 07, 2011 Page 8 of 10 (ID # 1351) how the enterprise creates value for customers. The list of draft Strategic Objectives and their corresponding Performance Measures and Targets is provided as Attachment A. This attachment also contains the draft Strategy Map. Strategic Initiatives Another element of the BSC method is the development of strategic initiatives, or key new action programs required to achieve one or more objectives and the overall strategic plan. Strategic initiatives aim to significantly change the way we do business, require significant resources to complete, and have definite start and end dates. They are not daily or one-off tasks or activities (“business as usual”), any project that is underway, tactical or steady state (“the annual…”), or intentions (“meet quarterly sales targets”). The proposed strategic initiatives include the following: For the customer perspective: 1.Establish mechanisms to elicit customer feedback on their satisfaction with all interactions with CPAU. 2.Redesign the Utilities bill to improve understandability. 3.Reassess the gas portfolio laddering purchasing strategy. 4.Redesign the PaloAltoGreen program. For the internal business process perspective: 5.Develop a plan to complete a new electric transmission interconnection. 6.Prepare a Utilities Communications Plan that incorporates increased use of neighborhood and business organizations and schools to disseminate program and educational information. 7.Pursue gas prepay transactions to leverage the City’s low cost of capital and tax-exempt status to acquire low cost gas supply resources. 8.Actively participate in Citywide efforts to improve the procurement process. 9.Evaluate and implement opportunities to maximize the value of the Calaveras project in the new electric market framework. 10.Develop a program to ensure that the strategic plan is pursued and that objectives and initiatives are managed. 11.Develop implementation plans to achieve the long-term water and energy efficiency goals and implement programs as outlined in the implementation plans. For the people and technology perspective: 12.Implement an annual employee satisfaction survey. 13.Develop a 5-year succession plan for each division. 14.Develop a Utilities-specific IT strategic plan. 15.Develop a process to evaluate and implement new technology through targeted programs and consider creating a fund for innovative projects and pilots. For the financial perspective: June 07, 2011 Page 9 of 10 (ID # 1351) 16.Re-evaluate the need for and purpose of the Calaveras (stranded cost) Reserve. 17.Evaluate the appropriate fraction of fixed costs to be collected by fixed charges. Commission Review and Recommendation The UAC was very involved in the development of the Utilities Strategic Plan. In April 2010, the UAC Chair appointed an ad hoc committee on strategic planning to assist staff in developing the plan. While under development, the plan was discussed at UAC meetings in July 2010, September 2010, November 2010, and January 2011. At its January 2010 meeting, the UAC reviewed the draft Utilities Strategic Plan and made several requests for changes. The UAC provided comments and suggestions that were useful to staff and which were incorporated into the proposed Strategic Plan. The comments ranged from changes to the proposed mission statement, revisions to the performance measures, additional clarificaitons to the objective statements, and the addition of a new strategic objective. The notes from the UAC’s January 12, 2011 meeting are attached (Attachment D). On February 2, 2011, the UAC considered the Utilities Strategic Plan for final action. After acknowldeging that the changes requested in January 2010 were incorporated, the UAC voted unanimously to recommend Council approve the proposed 2011 Utilities Strategic Plan. The draft notes from the UAC’s February 2, 2011 meeting are attached (Attachment E). Since the UAC reviewed the Strategic Plan in February 2011, staff changed the date from June 2011 to Decvember 2011 on the strategic initiative to prepare a Communications Plan since the new Communications Manager was not on board as early as anticipated. Timeline After Council approves an updated Utilities Strategic Plan, staff plans to review the plan annually and recommend any appropriate updates as part of the annual budget approval process. In addition, staff will monitor and report on the implementation of the Utilities Strategic Plan to the UAC and Council on a semi-annual basis. Resource Impact Implementation of the Utilities Strategic Plan is planned to be done without additional requests for resources. However, some of the strategic initiatives may require additional, unbudgeted resources. If this is the case, staff will request additional resources and Council will have the ability to approve, or not, those requests. One example of a new initiative that is expected to require additional resources is the creation of an innovation fund to implement or pilot new technologies. Policy Implications Approval of a new Utilities Strategic Plan represents new Council policy. June 07, 2011 Page 10 of 10 (ID # 1351) Environmental Review Approval of a new Utilities Strategic Plan does not meet the definition of a project pursuant to Section 21065 of the California Environmental Quality Act (CEQA). Thus, no environmental review is required. Attachments: ·Attachment A: 2011 Utilities Strategic Plan Balanced Scorecard Objectives and Strategy Map (DOC) ·Attachment B: 2005 Strategic Plan (DOC) ·Attachment C: Strategic Plan Interview summaries (DOC) ·Attachment D: UAC Minutes for the January 12 2011 Special Meeting (DOC) Prepared By:Jane Ratchye, Assistant Director Department Head:Valerie Fong, Director City Manager Approval: James Keene, City Manager Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 1 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative Customer and Community Perspective Average time to restore service per interrupted customer Less than 90 minutes C1.“I receive safe and reliable service.” Customers expect that Utilities services are provided on a continuous basis, without interruption. In addition, customers expect that the Utilities delivery systems are safe and will not harm them or put them in any danger. We will listen to our customers and seek to understand their reliability and safety concerns and implement programs and projects to address them. Number of electric system interruptions per year for average customer Ranks in the top quartile nationwide (less than three) C2.“Be responsive to all my utilities- related service needs.” We understand that the customer wants clear, accurate bills with easy methods of payment; access to usage history and enough understanding to efficiently manage usage; to feel quickly and completely “taken care of” when they have concerns, questions or requests and to be communicated with effectively both as individuals and as CPAU’s owners.One of the ways to achieve this is to elicit feedback from customers to help improve service. Customer satisfaction scores on annual surveys for overall value. Ranking in the top two utilities statewide By the end of 2011, establish mechanisms to elicit customer feedback on their satisfaction with all interactions with CPAU. C3.“I expect to pay a reasonable bill” We understand that customers expect their bills to be comparable to those in surrounding communities and do not expect to pay more than PG&E customers. Customers believe it is reasonable to pay slightly more in exchange for increased reliability, safety and protection of the environment.However, customers’ overall bills for Utilities services must remain reasonable and be reasonably stable and should not increase significantly in any one year. Customers also want their bills to provide useful information about their consumption of resources in addition to the rate so that they can understand how they The average combined residential customer bill for electricity, water, gas, and wastewater services Less than the average of bills for comparable services in nearby communities (MP, MV, SC, Hayward, RC, Roseville, and Alameda). Redesign the Utilities bill to improve understandability and implement the changes by 2012. Reassess the gas portfolio laddering purchasing strategy Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 2 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative can influence their total cost for Utilities services. For natural gas service, Palo Alto’s supply cost has been relatively stable due to a laddered gas portfolio purchasing strategy;however, this strategy needs to be re-evaluated as gas prices are currently low and are projected to stay low for the foreseeable future.Although, the average bill for all services should be comparable to those in surrounding communities, staff will continue to monitor and report the bills for each service separately on a quarterly basis. Annual rate change Maximum of 10% per year for electric and wastewater services. Maximum of 20% per year for water service. (GULP initiative)and develop a rate change performance measure for gas service. C4.“Care for our environment” Our community wants its customer-owned utility to offer choices for them to manage their resource use in ways that reflect their environmental values.Utilities will improve existing programs and develop new programs to meet customer needs and allow customers to manage their own environmental footprint. Percentage of customers participating in the PaloAltoGreen program Top rank nationally Redesign the PaloAltoGreen program by June 2012 (LEAP task). Internal Business Process Perspective Safety and Reliability Duration of electric system interruption per year for average customer Ranks in the top quartile nationwide (less than 60 minutes per customer) BP1.Ensure a reliable supply of utility resources We will implement strategies that ensure the reliable supply of utility resources to meet present and future needs. To provide opportunities for economic development within Palo Alto,we must provide sufficient resources that meet the short and long-term needs of our customers. To achieve this we will maintain the utility system components, and provide for adequate utility resource supplies to our current and future customers. We will also develop new management practices and organizational structure to ensure compliance with regulatory requirements. Response time to water and wastewater leaks Under 30 minutes Develop a plan to complete a new electric transmission interconnection by the end of 2011. BP2.Operate the utility systems safely We will continue to ensure the safety of our customers, employees and the community by the ongoing implementation of a safety programs. Protecting customers and employees from injury and customer’s property from damage is essential for delivering quality utility services to our customers. The safety programs will be AGA (American Gas Association) Incidence Rate Less than industry (APPA, APGA, AWWA) average with a goal of 0 Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 3 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative implemented by updating safety procedures, educating customers via outreach materials and workshops, correcting system deficiencies, operating in accordance with existing safety rules, and ensuring that products delivered to customers are safe. Customer awareness of gas safety issues 90% of customers responding to annual gas customer safety awareness survey BP3.Replace infrastructure before the end of its useful life We will continue to implement a long-term strategy for replacing infrastructure before the end of its useful life. Reliable delivery of electric service to our customers is critical for the success of business and the quality of life for our residents. To accomplish this, we will focus on reducing the backlog and replaces infrastructure systems in a manner that spreads the expense across multiple years resulting in program with even expenditures patterns in future years. Backlog of infrastructure elements whose age is beyond its useful life. Zero Customer Service Excellence Average phone wait time Less than 90 seconds BP4.Serve customers promptly and completely We will provide customers with the highly responsive service they desire. We will do this by reviewing and improving our processes for managing accounts, handling payments,resolving billing issues, responding to information and field service requests and notifying customers during service disruptions. We will identify ways to streamline these processes and implement changes.Specifically, we will review, document and improve business processes that have been identified as having long customer response times. Number of billing adjustments 10% reduction from number in 2009. BP5.Communic ate clearly and pro-actively with all our stakeholders We will proactively communicate with all our stakeholders, including all customer groups, civic leaders, community groups and the press. To achieve this objective we will provide the information needed for our stakeholders to effectively access, understand and utilize all utilities services and programs. In addition, we will design communication vehicles and dissemination processes that will enable our residents to be educated owners of their municipal utilities system.For example, Palo Alto’s gas rate stability is something customers should be educated about as it differentiates CPAU from PG&E. Time until informing the public and local media of a disruption affecting at least 500 customers or any sensitive major customers Less than 90 minutes after becoming aware of a disruption Prepare a Utilities Communications Plan by December 2011 that incorporates increased use of neighborhood and business organizations and schools to disseminate program and educational information. Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 4 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative BP6.Offer programs to meet the needs of customers and the community We will assist customers to lower their cost of utilities services and support the environment. We will assist customers facing economic hardship by offering bill payment assistance programs. We will educate customers on the reasons for and their means of compliance with our safety and regulatory requirements.We will also identify all customer groups, identify any gaps in service provision to those customers, and propose new programs or changes to existing programs to close those gaps. Participant* satisfaction with Utilities programs (*rebate recipients, workshop attendees, callers, etc.) At least 90% of program participants satisfied with their experience Reduce Costs BP7.Negotiate supply contracts to minimize financial risk We will continue to negotiate supply contracts to acquire supply resources while managing supply portfolio cost uncertainty to meet rate and reserve objectives and following sound risk management practices. To ensure that we are buying commodities at as competitive prices as possible, we will negotiate contracts with new counterparties to continue to have a sufficient set of credit-worthy trading partners. We will continue to develop long-term acquisition policies and plans (LEAP and GULP)and update those plans at least every three years.We will also determine all that is necessary to execute a gas prepay transaction as that is one clear way to lower the cost of gas supply resources. Number of competitive bids received for each fixed-price transaction. Minimum of three Pursue gas prepay transactions to leverage the City’s low cost of capital and tax-exempt status to acquire lower cost gas supply resources (GULP Strategy). BP8.Reduce cost of delivering service through best management practices We will reduce the cost of delivering service to customers. We will identify opportunities to better coordinate between Utilities and other City departments to improve efficient delivery of services. We will perform benchmarking studies to identify potential modifications to procedures, practices, materials, and plans and to ensure that we are following best practices.One best practice is to increase calibration and replacement schedules for gas and water meters since the meters slow over time so that the actual usage is under-recorded, resulting in lost revenue. “lost and unaccounted for” volumes of gas and water 80% of 2009 levels. Actively participate in Citywide efforts to improve the procurement process. Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 5 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative BP9.Maximize value of existing generation assets Palo Alto owns significant supply resource assets including a portion of the Calaveras Hydroelectric Project, a contract with the Western Area Power Administration, a permanent allocation of water from the regional water system managed by San Francisco,and allocated capacity on a gas transportation pipeline. We will seek out both daily and operational and long-term opportunities to optimize the value of these assets to enhance revenue and/or to reduce costs. We will work with joint-owners of our resource assets to leverage those resources and advocate to maintain or improve the value of existing resources into the future (LEAP and GULP strategies). Value harvested from Redwood gas pipeline capacity 100%Evaluate and implement opportunities to maximize the value of the Calaveras project in the new electric market framework. BP10.Manage implementation of strategic plan Completing the strategic plan is only the beginning of getting value from the strategic planning process. Ongoing management of the strategies and initiatives and reporting on progress of those initiatives is essential to achieving positive results from the strategy. We will report to the UAC and Council on plan progress twice annually and we will review and revise the objectives and develop new initiatives on an annual basis. Number of strategic initiatives completed 100%Develop a program to ensure that the strategic plan is pursued and that objectives and initiatives are managed Environmental Sustainability BP11.Increase the environmental sustainability of all Utilities activities Adding sustainable resources to the supply portfolios will help the City meet its Climate Protection Plan goals by reducing the carbon footprint of the utility services provided to our customers. We will achieve this by acquiring renewable resources and promoting the development of local renewable resources within the rate objectives in the Long-term Electric Acquisition Plan (LEAP).Sustainable practices will be pursued not just for the supply portfolios, but across all the Utilities day-to-day operations. Carbon intensity of the electric portfolio 80% of baseline (2005) level BP12.Promote efficient use of resources Resource efficiency programs meet our customers’ desire for environmental solutions that save money as well as contributing towards the Climate Protection Plan goals. We will promote resource efficiency by dedicating the tactical staffing and budgetary resources Actual electric energy efficiency achievement At least as high as goals set in May 2010 By June 2011, develop implementation plans to achieve the long- term water and energy Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 6 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative necessary to reach maximum deployment of economically feasible resource efficiency.We will revise and document our long-term efficiency strategies by updating our 10-year Energy Efficiency goals every three years and updating our water efficiency goals every five years in the Urban Water Management Plan.To maximize the savings potential for new development, coordinate with the City’s Economic Development Manager to ensure that new developments incorporate energy saving features in the design phase. Actual gas energy efficiency achievement At least as high as goals set in January 2011 efficiency goals and implement programs as outlined in the implementation plans. People and Technology Perspective PT1.Be an attractive place to work We will create a positive values-based work environment which attracts and retains qualified staff. To achieve this objective we will try to better understand employees desires, work with City management to establish sufficient compensation, benefits, and incentives, and will articulate our values both internally and as we recruit. Employee satisfaction rating Improvement from baseline level Implement an annual survey to determine employee satisfaction levels and establish the baseline satisfaction level for 2011. PT2.Obtain, develop and train employees to ensure an adequate and qualified workforce A properly sized, trained and certified workforce is essential to our effectiveness. We will identify skill and staffing gaps at the individual and organizational levels and seek to fill those gaps through the effective use of opportunities including hiring, mentorship programs, role rotations, knowledge transfer opportunities, long-term developmental assignments and both internal and external training opportunities. We will plan for workforce succession and provide cross-training opportunities for employees to improve employee satisfaction and build a more robust work force Percentage of operations personnel that has appropriate certification and training required for working in all areas they may be assigned 100%Develop a 5-year succession plan for each division. Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 7 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative PT3.Ensure employees have adequate tools to perform job duties As major users of technology assets, we must have access to quality and timely delivered IT services. We must build and maintain an effective relationship with the City’s IT division that includes clear, frequent communication as well as productive coordination. We will collaborate with IT to identify barriers to providing support for technology projects and remove them. In those instances in which our immediate technology needs cannot be addressed by the City’s IT division in a timely or sufficiently-comprehensive fashion, we will utilize external expertise. Technology needs being met 100% for all Utilities work groups Develop a Utilities- specific IT strategic plan. PT4.Investigate and adopt innovative technologies Our customers value Utilities embracing new technologies that will help reduce costs and/or meet Climate Protection Plan goals. We will innovate by researching technologies and cultivating relationships with entrepreneurs and academics to identify new cost-effective and environmentally sustainable technologies to consider adopting.The smart grid strategic plan will be complete by the end of FY 2012 and new technologies, programs, and projects identified in the plan will be implemented. Number of new technologies evaluated per year by an in-depth study or pilot project Three Develop a process to evaluate and implement new technology through targeted programs and consider creating a fund for innovative projects and pilots. Financial Perspective F1.Maintain financial strength Maintaining a high credit rating reduces the cost of borrowing if needed for capital projects. We will continue best practices for financial management, adhere to energy risk management policies and guidelines to minimize financial risk,and maintain sufficient reserves to cover debt obligations as required to retain CPAU’s current favorable bond rating so that the cost of capital is low for any bond funded capital projects. Credit rating At least AA as determined by Fitch Ratings or Standard and Poor’s or at least Aa3 as determined by Moody’s Utilities Strategic Plan –Strategic Objectives ATTACHMENT A 8 Strategic Objective Objective Statement Performance Measure 2015 Target Strategic Initiative F2.Maintain adequate reserves Maintaining adequate cash reserves contributes to maintaining our overall financial health and retaining our current favorable bond rating. We will maintain Rate Stabilization Reserves levels within Council-approved guidelines and sufficient to provide rate stability as desired by ratepayers. During the annual budget and rate setting process, the risks that each Utilities fund is exposed to will be identified along with the trajectory of costs and revenues to allow Council to determine appropriate reserve levels and rate adjustments. Rate Stabilization Reserve levels Adequate to cover cost uncertainties over a two-year period while meeting rate stability objective Re-evaluate the need for and purpose of the Calaveras (stranded cost) Reserve by the end of 2011. F3.Implement rate structures that balance cost of service and resource conservation Retail rates should be designed so that the revenues from a customer group match the cost to serve those customers. Rates consist of fixed charges and volumetric charges, which are based on usage. Fixed costs consist of customer-related costs (meter reading, billing, etc.) and costs related to capital projects and operations while variable costs include the cost of buying supplies (water, gas, or electricity). When fixed costs are recovered through charges based on usage, costs will not be recovered if customers reduce usage more than projected. To address this problem we will examine alternate rate structures that strike a balance between the two competing objectives (cost of service and resource efficiency) to ensure that certain fixed costs are recovered with a fixed charge, but other costs are recovered with charges that vary depending on usage (volumetric charges). By the end of 2011, evaluate the appropriate fraction of fixed costs that should be collected by fixed charges versus volumetric charges. F4.Provide a fair return to the City CPAU provides an equity transfer to the City of Palo Alto’s General Fund which provides a return on the City’s original investment in the Utilities and reflects the City’s ultimate responsibility for Utilities operations. Council approved the current equity transfer method in May 2009. The equity transfer is used by the General Fund as determined by the City Council and supports activities such as fire, police and library services to the City residents and businesses. This benefit, along with favorable rates and utility services, is a key value provided to the community from municipal ownership of Utilities. Equity transfer to the City’s General Fund 100% of the transfer as calculated by the Council-approved equity transfer methodology and permitted by law. 9 Maintain adequate reserves Maintain financial strength Implement rate structures that balance cost of service and resource conservation Financial Resources People and Technology Be an attractive place to work Obtain, develop and train employees to ensure an adequate and qualified workforce Ensure employees have adequate tools to perform job duties Values: Honesty and Integrity Teamwork Accountability Quality of Service “Be responsive to all my Utilities services- related needs” “I receive safe and reliable service” “I expect to pay a reasonable bill” “Care for our environment” Vision: We Deliver Extraordinary Value to Our Customers Strategic Destination: We will earn the high satisfaction of our customers with our cost- competitive provision of safe, reliable and environmentally sustainable utility services Customer Operate the Utilities systems safely Reliability and Safety Customer Service Excellence Manage Cost Environmental Sustainability Serve customers promptly and completely Offer programs to meet the needs of customers and the community Communicate clearly and proactively with all our stakeholders Negotiate supply contracts to minimize financial risk Reduce cost of delivering service through best management practices Internal Business Processes Increase the environmental sustainability of all Utilities operations Promote efficient use of resources Investigate and adopt innovative technologies Ensure a reliable supply of utility resources Replace infrastructure before the end of its useful life Maximize value of existing generation assets Manage implementation of strategic plan Provide a fair return to the City ATTACHMENT B 1 2005 Utilities Strategic Plan - Key Strategies and Tactics MISSION “Provide valued utility services to customers and dependable returns to the City.” SUPPORTING OBJECTIVES 1. Enhance customer satisfaction and utility infrastructure. 2. Employ balanced environmental solutions. 3. Provide fair and reasonable returns to the City and competitive rates to customers through municipal ownership. 4. Ensure a safe and engaged workforce. KEY STRATEGIES, Years 2005-10 STRATEGY 1: Ensure a high level of system reliability in a cost effective and timely manner. STRATEGY 2: Manage supply portfolio risk as per council policy to provide stable gas and electric rates, to preserve a supply cost advantage, and to manage business processes cost effectively. . STRATEGY 3: Improve inter-and intra-departmental business processes to reduce cost, improve efficiency and enhance information flow. STRATEGY 4: Provide low and stable rates, adequate reserves, and budgeted transfers to the General Fund. STRATEGY 5: Provide proactive, responsive and integrated communication to customers. STRATEGY 6: Provide targeted customer and environmental programs and services. STRATEGY 7: Foster a productive workplace environment that promotes safety, job satisfaction and self improvement goals. ATTACHMENT B 2 KEY STRATEGIES with TACTICS STRATEGY 1: Ensure a high level of system reliability in a cost effective and timely manner A.Complete budgeted CIP projects as scheduled. B.Flush and clean ½ million feet of sewer main per year. C.Flush and clean 1/3 of the water system main lines each year. D.Check and operate 1/3 of the main line water valves each year, replace or repair as needed. E.Check and operate all Gas system Key valves each year, repair or replace as needed. F.Check and operate all gas system valves once every 3 years, repair or replace as needed. G.Complete the gas leak survey of the business districts once per year, leaks repaired (depending upon grade) within specified time frames. H.Gas leak survey 1/5 of the city each year, leaks repaired (depending upon grade) within specified time frames. I.Gas leak survey all bridges, railroad crossings and creek crossings each year, leaks repaired (depending upon grade) within specified time frames. J.Inspect all water reservoirs once every 3 years. K.Maintain all traffic signal cabinets and lighting systems once per year. L.Test all traffic signal battery backups monthly. M.Continue the citywide undergrounding of utility wires. Minimize the impacts of undergrounding on street tree root systems and planting areas. N.Continue with line clearing and vegetation management activities and meet the goal of 9000 trees per year that interfere with power lines. O.Complete annual GO 95 and GO 128 inspections and make corrections by December of each year, complete the GO165 report by the following February. P.Evaluate transmission alternatives and implement physical, regulatory and legislative alternatives that improve reliability. Q.Evaluate the potential for small-scale distributed generation and demand-side measures to improve distribution system reliability and power quality.. STRATEGY 2: Manage supply portfolio risk as per council policy to provide stable gas and electric rates, to preserve a supply cost advantage, and to manage business processes cost effectively. A.Prepare a recommendation for policy-makers on the remaining elements of the WIRP not already addressed in the Council-approved WIRP Guidelines. B.Comply with the Urban Water Management Planning Act by updating the City’s UWMP/UWSCP by December 2005. C.Implement Council adopted long-term electric acquisition plan (LEAP). D.Implement Local Generation Feasibility Study. E.Develop efficiency goals and integrate efficiency into resource planning. F.Work towards achieving Renewable Portfolio Standard goals of 10% by 2008 and 20% by 2015, and review or revise those goals to meet customer needs and regulatory requirements. G.Evaluate transmission alternatives and implement physical, regulatory and legislative alternatives that reduce cost. H.Implement Council adopted gas utility long-term plan (GULP). I.Manage the electric and gas portfolio as per Council adopted recommendations and risk management policies. J.Develop and implement annual regulatory and legislative goals by working individually and through collaboration with BAMx, BAWSCA, NCPA, TANC, and CMUA. K.Monitor and influence cost structure of partner agencies such as NCPA, TANC and BAWSCA. ATTACHMENT B 3 STRATEGY 3: Improve inter-and intra-departmental business processes to reduce cost, improve efficiency and enhance information flow. A.Identify and map key business processes to eliminate waste, increase accuracy and minimize complaints. B.Ensure timely information related to preparing accurate budgets and financial forecasts. C.Identify areas where technology would increase efficiency and implement. D.Establish back-up systems for mission critical billing and communication system. E.Evaluate and implement a CIS System. F.Review and modify bill presentation. G.Design and implement a department-wide complaint tracking and response database. H.Evaluate the integration of Automated Meter Reading, Advanced Metering. SCADA and Dark Fiber. I.Evaluate SAP solutions for business process improvements. J.Improve recordkeeping and tracking a.Maintain and publicize Point-of-Contact numbers for customer problems b.Update Blockfinder database and online search applications c.Update customer phone number database and circuit mapping for the automated Porsche Outage Notification system K.Develop and maintain a centralized system of key administrative information for frequently used templates and critical timelines L.Review and update Service Level Agreements as appropriate. M.Ensure timely interdepartmental communications at the manager level and above. N.Coordinate major project initiatives with other City priorities (e.g. Alma Sub –Housing; Local Generation/ESC/WQP; etc.) STRATEGY 4: Provide low and stable rates, adequate reserves, and budgeted transfers to the General Fund A.Explore SAP solutions in designing and implementing effective (user friendly) financial and other reporting systems to include: a.Budget –to-Actual reports for Operating and Capital Budgets for both labor and expenses. b.Asset management in compliance with FERC requirements, c.Revenue margin guidelines, d.Review the use of allocated vs direct charges for charges for support services from other departments and develop a methodology to track these charges and their impacts on the financial health of CPAU, e.Develop a system to study, review, and authorize all budget transfers to other departments, both for support services and other services. B.Review the use of financial reporting tools such as income statements, balance sheets, and others for drivers for decisions at the appropriate time within the appropriate ranges. C.Establish and manage retail cash management policies that include credit policies, deposits, cycle balance and working capital. D.Evaluate and implement contractor damage cost recovery plans that encourage reduction in occurrences. E.Implement changes to rates and reserves policies as necessary. F.Monitor and pursue outside funding opportunities to leverage City resources ATTACHMENT B 4 STRATEGY 5: Provide proactive, responsive and integrated communication to customers A.Maintain ongoing and effective customer communications in the service areas of: a.Red Tags b.Turn-ons and Turn-offs c.Unscheduled Service Disruptions d.Planned Shutdowns e.Changes in Water Quality B.Enhance ongoing and effective internal and customer communications: a.Communicate CIP plans b.Communicate CIP construction schedules and status c.Communicate long-term resource plans d.Engage the public on major initiatives (PP/reservoirs/intertie/water and electric rates) e.Promote visibility in the community through public speaking opportunities at neighborhood groups, service groups, etc. f.Develop and implement a plan to improve reliability perception g.Create New Customer “Welcome Packets”for Residential and Business customers C.Implement and evaluate targeted customer communications: a.Website b.Email list serve c.Promotional events d.Bill stuffers and UCAs e.Program materials f.Form letters to customers g.Customer Satisfaction Surveys h.Required annual notifications: Water quality notifications, Gas safety, Call Before You Dig i.Brand awareness campaigns ATTACHMENT B 5 STRATEGY 6:Provide targeted customer and environmental programs and services A.Continue providing high quality Key Account Services B.Expand Low Income Assistance Program C.Provide integrated energy and water efficiency programs D.Continually evaluate and revise forecasts for electric power demand. Pursue adequate low cost supplies to meet this demand by participating in cost-effective programs offered by Northern California Power Agency (NCPA) or other suppliers and marketers of energy. E.Work individually and through partner agencies such as SCVWD, NCPA, CMUA, BAWSCA, CUWCC to maintain and enhance efficiency and conservation program effectiveness F.Monitor other utilities that successfully use alternative energy sources and seek funding for similar projects that would be appropriate in Palo Alto G.Support implementation of City’s Sustainability Program H.Support implementation of the environmental components of the City’s Comprehensive Plan a.Continue providing staff support and technical assistance in energy conservation and demand side management to architects, developers, and utility customers. b.Regularly review the water rate structure to ensure that it encourages efficiency and is competitive. c.Maintain citywide water conservation and efficiency programs for all customer classes. d.Where practical, incorporate federal, state, and other agency policies and standards for water efficiency into City codes, regulations, and procedures. e.Implement incentives for the use of drought-tolerant landscaping and recycled water for landscape irrigation. f.Implement gas and electric rate structures that encourage energy conservation and that are in balance with other rate-making objectives, such as providing competitive rates. Set rates to achieve a balance between actual service costs, market prices, and the goal of promoting conservation and efficient use. Continue to provide a baseline service rate. g.Encourage establishment of public education programs addressing energy conservation and efficiency. h.Provide information and advice on the use of alternative energy technologies, including the relative costs and benefits of different types of fuel to all customers. i.Encourage the use of compact and well-designed utility elements, such as transformers, switching devices, and backflow preventers. Place these elements in locations that will minimize their visual intrusion I.Work with the Santa Clara Valley Water District to identify and map key groundwater recharge areas for use in land use planning and permitting and the protection of groundwater resources. J.Embrace Environmental Solutions: Invest in equipment, facilities and programs that reduce the environmental footprint of providing utility services: increased efficiency, lower losses, environmentally friendly materials and processes, and reduced environmental impact. a.Use environmentally friendly materials for parts and equipment b.Use less destructive construction methods c.Continue to support the Right Tree in the Right Place program d.Continue to support the Shade Tree Program e.Continue to stay up-to-date on current industry practices on minimizing, mitigating negative environmental impact K.Evaluate fossil fuel efficiency and greenhouse gas impacts of thermal generation [per AB1478] L.Develop the City Council approved fiber optic ring around the City as recommended in the 1996 Telecommunications Strategy Study and evaluate and implement enhancements to the system a.Improve dark fiber billing, pricing and contract terms b.Promote VOIP to hotels c.Use dark fiber as AMR and advanced metering back bone infrastructure [and evaluate use for SCADA or distribute resources monitoring and control even though it is not in the report?] ATTACHMENT B 6 STRATEGY 7: Foster a productive workplace environment that promotes safety, job satisfaction and self improvement goals A.Maintain OSHA Reporting System and incent employees to adhere to safety regulations B.Provide employees with ergonomics recommendations C.Ensure all employees are aware of and implementing security procedures D.Ensuring targeted safety meeting participation E.Implement Phase II Gallup Q12 Program F.Schedule quarterly communication from department/senior management to entire department (State of the Department) [rotate divisions chairing meeting] G.Ensure 100% involvement in Strategic Plan development [input and buy-in] H.Develop interdivisional work teams for identified projects. I.Track skills related training hours and dollars J.Implement Career Development Actions J.1.Career-day once per quarter / open house J.2.Cross-training J.3.Shadow mentoring K.Ensure all employees have a learning and development plan ATTACHMENT C 1 Strategic Planning Interview Summaries By Topic Area By Interviewee Type Communications: Council ·Should tout our non-GHG-emitting electric portfolio, our low electric rates, and our efficiency gains. Should do more communications and more effective communications. ·All communication with customers follows a continuum from a low level of engagement due to low level of knowledge to participation, to active involvement, to advocacy as the level of knowledge increases. If you want engagement, you have to educate. ·Staff can improve how it presents information in staff reports.Would like staff to identify the uncertainties in the analysis and present a simple matrix of costs, benefits and impact on rates for all decisions. We provide a lot of outreach efforts –bill stuffers, brochures etc. and could be done more effectively and cheaply. ·Public relations should improve –there is a good story to tell, but it has not been sent by us or received by the community. ·Should not be under the radar and supports communication efforts, especially those to market efficiency programs, but concerned with staff capacity limitations. ·Communication is not working now –need to go out of the box to find a better way. Use people in the community to help design and implement programs –you will end up with practical solutions and an engaged community. UAC ·Suggests that we think like a marketing and brand management person –like a campaign. Have an idea of what image should be and repeat relentlessly. ·Do a better job on outage notification. Need to proactively tell the positive story of Utilities –annual report? ·Seems to be a disconnect between staff’s expertise and the Council decision-making (e.g. Ameresco contract issues). Conversations between the UAC and Council need to improve. ·Improvements are needed in communicating to the public. Glad we’ll have new communication person. Really need to improve communications when something goes wrong -have to let people know when service will be restored. Need to spend more time educating Council so that they are ready when facing an action item. ·Experiment with ways to communicate, including “raw” communication, which is cheaper. City Management ·New communications manager should develop relationships with local reporters. Put out regular messages. No one knows what Utilities is/does –could offer classes (e.g. Electric 101) that could net you supporters. ·Communications with public should be improved. Need to use all tools: twitter, facebook, ongoing messaging through social media. Need to explain Calaveras Reserve. Things to communicate: What’s coming up, what’s on horizon, new initiatives. This could engage people that are generally not aware of Utilities business. Use triple bottom line to tell the story.Could ask for direct customer feedback after delivery of service. ·Communication is important in changing how the community perceives the value the City provides and whether or not we’re transparent. We need to think of our decisions/policies as ATTACHMENT C 2 being long-term and not react to short-term disruptions. Strong and consistent leadership are important. Branding and imaging done through bill inserts is good conveying a good image and thus positioning the City in a positive way with the public. ·We need to improve communication and outreach to the community. We have a good story to tell (e.g. aggressive infrastructure replacement programs), but we don’t do a good job of telling it. It is essential to tell this story as it helps explain our rates for some utilities. Part of the communication needs to be with the Council, which needs to be continually re-educated. The outcome should be that Council feels that Utilities indeed has a comprehensive and coordinated plan to address all their issues (efficiency, renewables, rates, costs, etc.). Community Members ·Utilities should be invisible –should be available, but not a concern to citizens. Be so good that no one knows you exist. Don’t want customers to have to think or worry about us. It’s very hard to get to the public given all their other interests. Press should know who to call in Utilities for outages and press should be posted by Utilities on these incidents immediately. ·Communication strategy should be to not be in the newspaper. The best way to avoid being in the newspaper is continue to run a tight shop and have a reliable, safe system. ·CPAU is highly regarded by the citizens. Utilities is a critical component of city finances. The General Fund Transfer is not communicated well. ·Most people think Utilities does a great job. Bad things make the paper. Utility bill inserts are fantastic. Should use CANS system for emergency situations. Should be proactive in calming public’s fears given recent San Bruno incident. Neighborhood associations are a great way to distribute information. ·Web site should be improved and could add a blog. Would like a more informal engagement process –UAC and Council meeting setting is too rigid and isn’t encouraging of public input. ·Overall, Utilities communication is better than the rest of the City. Could do more occasional outreach about the utility budget with comparison to PG&E. Also information on the rates is needed. ·CPAU should communicate to the public about its infrastructure maintenance and replacement projects and history. Utilities does a good job of informing folks before a project begins. Could thank people for their patience after replacement projects are completed. ·City needs to use the press to inform the public –it can help to do the City’s work. The City needs to be more coordinated in its public communication activities. ALL outages should be reported to the media –let media decide if they are too small to report to the public. Should view “talking with the media” (which may be a low priority in an emergency) as “informing the general public.” ·In general, customers just want reliable service at a reasonable cost and don’t need to hear a lot from the utility. Not many people read bill stuffers.Most people don't pay attention even when rates increase. Don't raise an issue higher than you need to. Garbage rate increase was a big problem because it was so drastic. Costs/Prices/Rates: Council ·Remember the lessons from the Refuse Fund –can’t provide services for free and allow revenues to fall too low to cover costs. ATTACHMENT C 3 ·People should pay the real cost of things, and is not so concerned about rate increases. Community perception is that we used to have lower rates than PG&E and now we are above. If economy lags, more Council members will be concerned with cost-cutting.Some will challenge the General Fund transfer. ·Concerned about rate increases for all utilities and affordability of services for all Palo Altans especially renters and those on fixed income. Need to manage rates and services to avoid extreme fluctuations in either –prefers current stable gas rates. Should consider providing rate subsidies to encourage small business to come and stay. Should not penalize small users with higher rates –ensure that rates increase for larger users. ·High water rates are a big concern. Supports stable rates –take the longer view. Need to keep up with the laddering strategy. ·Supports stable, predictable rates. Some customers feel angst about their Utilities bill and feel that they don’t have any control or influence over it. They worry about what rates may be in the future. ·Concerned about keeping rates low and making sure that any programs, environmental or otherwise, are economically justified and are not justified by saving the world. What happened in Refuse Fund is a problem. Utilities should not be in a position of needing a huge rate increase due to not thinking through the impacts of a contract or a plan/program. ·Concerned about finances and pricing –don’t repeat the Refund Fund mistake by reducing use of service and providing other services for free. Need to make sure that our models adequately address rate impacts and the need for reserves. Concerned with narrowing gap between PG&E and CPAU’s rates. UAC ·Can’t ignore costs, but can be both green and cost conscious at same time. ·Low rates are a two-edged sword since they do not encourage conservation and renewables (PV on roof). Could increase the price of the top tier while lowering the price of the lowest use tier to encourage conservation. Think about rate impact vs. bill impact. ·Rates should be stable in the short-term. Utilities should provide long-term rate projections to assist customers in evaluating the cost-effectiveness of efficiency improvement investments. There is much anger in the community about the General Fund Transfer to the City. There is a less concern with money spent on Utilities infrastructure. ·Price is important as an economic driver. City Management ·Utilities operates in a highly regulated and a highly political environment. Many costs are not under our control (e.g. gas and electric market prices and the availability of water). Operating costs are subject to constraint as for the rest of City government –can’t be separate from the City in that respect. ·This is a tolerance for some increases related to green programs, but they need to be done gradually. There will always be grouchiness. Careful, incremental changes would be supported. ·Integration versus Isolation -The Utilities Department needs to become better integrated with the rest of the City departments and consider the implications of its policies, rates, actions on the whole of the community. ATTACHMENT C 4 ·Need to stay competitive with our rates. If rates keep going higher, the question will be raised of why the City has its own utilities. Council has an increasing focus on costs and on Utilities expenses. Even if complicated to do, benchmarking studies are a good way to have this information available. May have to do some outreach with our story, especially with respect to efficiency and lower usage leading to higher rates. Community Members ·People are more sensitive to electric rates than gas rates. If electric rates are higher than PG&E, the call will go out to sell the utility and there will be questions about the value of being independent. Water rates are high, but we have spent more on infrastructure replacements and the emergency water supply and storage project. If costs are high due to infrastructure costs, for example, break out that as a separate component on the bill. People can then see what they are paying for this and most people support infrastructure improvements. ·Understands that Hetch Hetchy costs will go up and that energy costs are volatile, but in the end we should ensure that our bills are lower than PG&E’s. Does not have a strong feeling about stable vs. fluctuating gas rates, but acknowledges that some people might have problems with volatile rates. ·Continue to strive to be low cost. Do not exceed rate cap for renewables. Stable gas rates are still a good objective. ·Rates are really not a huge issue in this community. We are fortunate to have cheap hydro and renewable resources. ·This community can afford reasonable rate increases to support moving to carbon neutrality. We must recognize that the costs of mitigation (for climate change) will be high if we don’t act now. ·Community is served well by stable rates. Remind people about the long-term view. Should talk about overall impact on bills, not rates –try to reduce costs for homeowners. ·There is a value to stable rates. It is good to protect customers from extreme swings. Water problems can be the same as with the Refuse Fund where conservation can bankrupt the utility. Likes the idea of raising fixed charges to stabilize part of the revenue and so that system is not penalized by efficiency. ·Keep with current stable rates objective and gas laddering strategy –it is no better or worse than other strategies. There is no reason to change. To control rates, place increased emphasis on the rate impact of expenditures which are not directly related to safety and reliability (e.g. the proposed water recycling project,smart meters for residential customers, and the acquisition of high-priced renewable electric supplies beyond what is required by the State). Technology/Innovation Leadership: Council ·We should be a test bed for emerging innovations and technologies. We have top intellectuals in town –how can we harness these resources? We need to enlist these folks on a volunteer basis –tap into their area of expertise. How can staff and the UAC guild a clearinghouse of experts –from Stanford, EPRI, the community –to help them? ATTACHMENT C 5 ·Consideration of new technologies needs to be part of the model. Show that staff is always aware of and considering new technologies. Community likes the idea of innovation but in reality there isn't an appetite for it unless there is a really great cost/risk ratio. ·Utilities should be a leader and at least be willing to test new technology with a small pot of money –costs can’t be high. ·Supports only limited technology investments given staff limitations. Should enhance relationships with Stanford and seek low-cost ways to do demonstration projects or make ourselves available for others to test technologies. ·CPAU should not be cutting edge, early adopter of new technology. We should not take on new risk. Believes in low cost, low rates, high reliability delivery of services –not new tech for new tech sake. ·The stomach for innovative projects that could fail is very small. Re: Ameresco contracts, LFG projects are not the friendliest environmentally. NYTimes article shows that burning trash and making electricity is better than landfilling it and making electricity from the methane generated in the landfill. ·We should look at smart tech. Use the precautionary principle –put out your parameters, define your borders. Could set aside a certain amount of funds for innovation and R&D. UAC ·We don’t need to be a first mover, but don’t appear to drag feet either –work prudently to evaluate new technologies. We are a leader –we do LED, hired a smart grid consultant, etc. The perception that we’re not a leader could be an issue of messaging. Embrace EVs –Palo Alto will have a huge penetration of this technology. ·Should also do additional innovative programs.Do cheap, time-tested technologies, but also new, cutting edge technologies, but on a small scale, or pilot, basis. Do not lead on smart grid. Should support EVs. PA could position itself as a green tech home.Promote clean tech “revolution” –can we attract economic development of green tech businesses? Can we allow clean tech businesses to conduct pilots of their technologies in town? ·CPAU should have an education center similar to PG&E’s Energy Center to show how shading, design of a building, etc. affects energy use. Utilities should take a more active role in new building design. ·Should not be bleeding edge adopters, but be second movers on adoption. Should invest some reasonable time and money to be a test bed. ·Have couple percent of our budget to explore new ideas. City Management ·Don’t mistake the City for an entrepreneurial entity, but should have a small pot of money and some resources devoted to trying some new things. City is too small and can’t afford to take a risk. Instead, City should be on the examining leading edge. ·We should not be technology leaders –incremental, steady changes only. Do trials of new technology before jumping in with both feet. City has very little tolerance for error and wasting money. ·The community wants us to be leaders in technology and sustainability and our challenge is to find a way to effectively communicate and strike a balance between our fiduciary responsibilities versus being a leader especially in challenging economic times. ATTACHMENT C 6 ·Be less resistant to try new technologies. Find a way to test them, or at least be open to analyze them and report your results to Council. Need to show that you are aware of the technologies and have a way to evaluate them, try them, pilot them. Community Members ·CPAU is not big enough to influence roll-out of new technology. Being on leading edge exposes you to negative reviews that will end up in the press, which could swamp all the good that you do. Let others work out growing pains of new tech. Be aware of new technology and when something does make sense, embrace it. Be in front of technology just by knowing about it.For EVs, be a “following leader” by watching demands. Don’t promote by installing charging stations, but make it easy for people to install charging units at their homes. Should encourage night-time charging. Downtown charging stations would encourage daytime charging. ·CPAU should not be a technology leader. We should not spend a lot of money on research – should be frugal. Leading in technology is risky. Risky ventures and bad outcomes are another opportunity to be in the newspaper.On smart grid, wait for the technology to shake out. LED streetlights tactic with pilots was good. ·CPAU should not be on the leading edge of technology. Stick with the tried and true since 8 out of 10 new ventures fail –let the venture community lead. Wait until things shake out. Pilots are the way to test new tech. Firm believer in a fiber system build-out (fiber to the premises). It is the leading,but not bleeding,edge. ·Should be cutting edge on some projects like anaerobic digester. We should wait to see how things fall out with PG&E smart meter project. Need to think ahead on electric cars. ·CPAU should be on leading edge of innovation, especially with respect to establishing carbon neutrality goal. Can use PA’s cachet to move the state/nation. Should find a way for entrepreneurs to demo their technology. Utilize Stanford’s expertise. ·CPAU should be slightly ahead of the game, especially on climate issues. One way to handle is to have an innovation fund to try new technologies. ·Palo Alto should not be a leader here just to be a leader. You should upgrade the system with technology if it makes sense. Changes should be slow and incremental. Continue to evaluate the impact of technology, but make decisions based on economic feasibility. Not every advance (tech) will survive in the long term. Palo Alto is not in the gasoline business so we shouldn't be in the EV charging business. ·Don't be a technology leader;rates and reliability are the two important issues. Support for and Cost of Environmental (Green) Programs: Council ·Sustainability programs and plans need to be dynamic since thinking, understanding, costs, and impacts are constantly changing. Embrace change –it’s the way of Silicon Valley. Within renewables, what are different shades of green? What is the true objective? What is the greenest? ·Staff is asking the right questions about the environmental balance.Council should set very high-level policy and let staff run the department. Staff needs to have conversation with the Council to set broad policy so that staff is not always being second guessed.Staff’s presentation should be neutral and should highlight trade-offs to solicit opinions from Council. ATTACHMENT C 7 ·Staff should present a complete environmental picture (life cycle analysis) on green proposals and include an impact on rates. PA should be a green leader –but not at any cost and avoid green washing.Need to educate our customers on our sources of energy and water and how they are delivered so that our customers can get a sense of how bad some of these resources are for the environment. ·The community wants to be green –need to take a long view of these things. Should stay on a constant course even if public can be flighty and respond to whims. Need to do more innovative efficiency programs and programs to save water. Green policies should continue even in this economic environment –they are long term goals that should not be put on hold. Keep focus steady. ·Community generally supports environmentally focused programs. ·Should be as environmental as possible without raising rates. Can’t give a number for acceptable rate impact of environmental programs, but if we have increasing rates for other reasons, don’t add to the burden with environmental programs cost. If rates are flat or not increasing, there may be an opportunity to increase rates for enviro programs.Should maintain our brand as environmentally conscious community –keep up the talk and the low cost/no cost programs. Don’t do anything just for environmental good –only do if makes economic sense. Reducing GHG reductions in Palo Alto does nothing for the world. We’re too small. Efficiency does have value. ·The gap between cost of renewables and market prices is a sticking point. Thinks there is a better way to think about renewables –are we giving consumers the best value for environmental goals? ·The community is too provincial in its approach to environmental sustainability. We need to look globally at the overall worldwide resource constraints and accept that our lifestyles are not sustainable. We need to accept the impacts locally of our use of resources –things must be sited here that may scratch the surface of pristine Palo Alto such as putting a windmill in our baylands. Need to look at whole picture –the life cycle of the process. We need now to make incremental steps towards this future. UAC ·We should be a green leader, but always remain cost conscious. Don’t need to pull back on environmental goals –there is huge support in the community. In addition, we can be a green leader without huge economic impact. The issue of either environment or cost is a false issue. Keep doing the right thing environmentally at a prudent cost. Most enviro decisions are very economically reasonable. ·PA has an opportunity to be a green leader that would have a large impact if other areas were to follow. For example, in solar hot water heating, which many do not offer at this time – figure out a way to do this before others do –get out ahead. General support for efficiency vs. renewables. Should push as hard as reasonable on efficiency. Community is very green oriented. ·People are very ignorant of how much energy they use and how much it costs. Education is needed. Utilities should provide long-term rate projections to assist customers in evaluating the cost-effectiveness of efficiency improvement investments. ·City should not be a leader on RPS, should only follow fed and state regulations. Energy independence is more important than climate problem. Renewables more valuable when local (solar, cogen, landfill gas). ATTACHMENT C 8 ·Most of the Council doesn't necessarily understand what RPS will mean for rates. Will spend a lot of time dealing with the economic implications of green, but we need to tell Council all the consequences. City Management ·Community is supportive of green programs, but must temper expenditures given economic recession. Need to show the cost-benefit of proposals. Now is not the time for big new green programs and projects. ·Cost of green efforts generally supported by the community, but need to communicate what’s being done with the money. ·Community still supports green programs, but need to have visibility of results. There is a sensitivity to rates in the community, but community is generally supportive of green projects and programs, but don’t increase the ½ cent rate impact limit at this time (during current recession). Community Members ·Palo Altans are willing to pay more for greenness, but be cautious. If we could provide more green power and still be lower cost than PG&E that would be great. Palo Alto is affluent enough that money spent on renewables and EE spending is still acceptable. ·Green resources are fine and supported by the community as long as the cost is moderate. CPAU should push water conservation. Projects like recycled water should be analyzed financially not theologically (in the religion of green at any cost). For new developments, City rules should require minimized lawn and use low-water using landscaping. ·Values PA role in environmental leadership and efforts done to date. Believes climate change is the biggest concern for the world and for Palo Alto due to its proximity to the bay. Charging more for brown power is not a tax –it is removing subsidies. We should use the money to create a fund to deal with problems created by climate change. ·Climate change is the biggest issue and CPAU is a large part of the carbon footprint of its customers so it must be engaged here. We must recognize that the costs of mitigation (for climate change) will be high if we don’t act now. ·There is still support for green programs and people are still willing to pay extra for a renewable portfolio. Climate change is a huge issue for the City –we should be considering the long-term impacts on the utility. For example, water supply and hydroelectric generation both may be impacted. ·People are willing to pay more for green but that fades when people are anxious about the safety of the system. Safety comes before green but green is still important. Even though hydropower doesn't count for RPS we should communicate our low carbon portfolio to the public. ·Community still supports sustainability. High PaloAltoGreen participation rate is a good indication of level of community support. Small rate impact for portfolio RPS is still ok. Does not support the recycled water project. Reliability/Safety/Emergency Preparedness: Council ·For local generation: avoidance of GHG emissions should be the goal. ·Staff seems to have answered the questions about our system integrity. ATTACHMENT C 9 ·Keep service level high.Wants reliable service and to be well prepared for emergencies. We should continue discussions regarding a second electric transmission connection and should ensure that we can shut down our gas system as needed in an emergency. ·Reliability is a concern –there was big publicity on a business leaving City due to electric reliability issues and the outage caused by the plane crash highlighted the issue. ·Top priority of Utilities should be reliable service –the core function of Utilities ·How can we integrate new, high tech, green solutions? UAC ·Reliability is one of the top issues for Utilities. ·Reliability is a top issue –both in short-term and long-term. Lack of redundancy due to a small islanded system. Supports a high level of maintenance and infrastructure improvements. ·Emergency preparedness should be the top priority. Should think about what we need to do to keep City alive for some period of time –all utilities. Local generation is key. ·Should evaluate building some local generation. City Management ·Focus on safety, reliability and running a well managed utility. Community Members ·Service reliability is vital. ·A large (25-50 MW) gas-fired generation facility would be a hard sell to the community, but local plant is attractive for reliability reasons. Good to be self reliant. Solar within the city is a better bet although cost may be an issue. ·Control your own destiny –consider buying gas supplies at the wellhead and pursue a baseload power plant or cogen unit in town. ·Emergency preparedness is an important issue and directly tied to the environment as we can find solutions through local generation with a focus on meeting critical loads (hospitals and key infrastructure). Locally generated green power is best. Must have an environmental platform to win a council seat in Palo Alto –this is proof that community values environmental sustainability. ·Emphasized that safety and basic, reliable services are our core mission. Utility issues should be handled in an integrated fashion. For example, drought and emergency preparedness as well as flooding potential are all water issues that should be dealt with in a comprehensive, integrated manner. ·Safety of the distribution systems is paramount. Now (in the wake of the San Bruno disaster) would be the time to ask for bond money for any needed capital projects related to infrastructure upgrades. We are lucky to have a large number of firms who recognize that reliability and safety are more important than being the lowest cost. ·We should be doing everything we need to do to make sure we have top reliability.Local gas-fired gen, if done economically, is a good idea for reliability. ATTACHMENT D Utilities Advisory Commission Minutes Approved on: February 2, 2011 Page 1 of 2 FINAL UTILITIES ADVISORY COMMISSION –SPECIAL MEETING EXCERPTED MINUTES OF JANUARY 12, 2011 CALL TO ORDER Chair Waldfogel called to order at 7:05 p.m. the meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Berry, Cook, Foster, Keller, Melton and Chair Waldfogel and Council Member Scharff. Absent: Commissioner Eglash NEW BUSINESS ITEM 3: DISCUSSION: Draft 2011 Utilities Strategic Plan Assistant Director Jane Ratchye stated that the Utilities Strategic Plan is close to final, but that she is soliciting additional feedback before bringing the plan back to the UAC for action at the next (February) meeting of the UAC. She provided a presentation of the highlights of the four themes of the strategic plan: safety and reliability, customer service excellence, cost management, and environmental sustainability. One strategy that was added was to ensure that the strategy itself was implemented as this will require resources to manage, track and report regularly so that the UAC and Council can follow the progress towards completion of the initiatives and whether the performance targets are met. Commissioner Berry stated that he was very involved with staff in the development of the strategic plan and requested that the UAC use this opportunity tonight to provide staff feedback on the draft plan so that it can be finalized for consideration at the next meeting. Commissioner Keller asked why objective BP1 (ensure a reliable supply of utility resources) did not include anything about back-up supplies and emergency preparedness.Ratchye said that not all Utilities activities are reflected in the Strategic Plan, but it is intended to capture those areas that need continued focus and, especially, those areas that need improvements, changes in focus, additional resources, or changes in practice or operations. Commissioner Keller asked if there needs to be a placeholder for important issues that may not be an issue now, but could be in the future. Ratchye stated that the strategic plan will necessarily change as we move forward with implementation and that new initiatives will be added as others are completed. Since the plan will be reported on every six months, there will be opportunities to make adjustments to the strategic objectives and performance measures. Regarding objectives BP4 and BP6 relating to customer service, Commissioner Keller asked if there was a way to add outreach for new development. She is concerned that there are resource efficiency opportunities for new buildings that could be incorporated in the design phase. She suggested coordinating with the City’s Economic Development Manager to determine any upcoming development plans. Regarding objective PT1 (be an attractive place to work), Commissioner Keller noted that the performance measure relates only to new employees and not to retaining valued existing employees. Chair Waldfogel stated the draft strategic plan omits the rate of return to the City provided by the Utilities Department and, since it is a key element of the City’s revenues and the Utilities expenses, it should be captured in the strategic plan. He recommended the financial perspective as the location for an objective related to the City as a stakeholder. ATTACHMENT D Utilities Advisory Commission Minutes Approved on: February 2, 2011 Page 2 of 2 Council Member Scharff commented that the stable rate objective is embedded in the strategic plan, but that is premature since the laddering strategy and rate stability issue will be reconsidered by the UAC and Council as a result of an added implementation task in the proposed Gas Utility Long-term Plan (GULP). He added that the performance measure for objective C3 (I expect to pay a reasonable bill) should not necessarily be the aggregate Utilities bill, but rather each fund separately. Otherwise, the information about the relative position of each fund is lost. Commissioner Berry added that he did not think the performance measure for objective C3 related to the annual rate change should necessarily be the same for all Utilities funds. Ratchye acknowledged that, at least in the short term, rate increases for water are likely to be higher than 10% per year. Commissioner Berry stated that, if that was the case, it is not a good idea to include a performance measure that you know you are not likely to meet and suggested having different targets for each fund. This would signal to the Council and public what the direction of rate changes are likely to be. Commissioner Keller added that predictable rates are valuable if communicated to customers to allow them to make informed investment decisions regarding efficient appliances and other improvements. Regarding objective C4 (care for our environment), Commissioner Cook stated that environmental sustainability should be across all operations. He indicated that he supported objective PT4 (investigate and adopt innovative technologies) and agreed with Chair Waldfogel that the equity transfer should be added to the financial perspective. Minimizing financial risk should be incorporated into the financial perspective as well. Commissioner Cook also indicated that environmental sustainability should be included in the mission statement. Commissioner Foster agreed that environmental sustainability should be included in the mission statement and that the last phrase “…in support of the vibrant community of Palo Alto” should be omitted. Commissioner Foster stated that objective C1 (I receive safe and reliable service) is about service interruptions, yet the performance measure was about response time after an interruption. He suggested that the measure should be related to the number of interruptions/outages. Regarding objective PT4 (investigate and adopt innovative technologies), Commissioner Foster recommended additional clarity on the performance measure target of three new technologies evaluated per year. He wanted to ensure that it was at least a somewhat extensive evaluation, perhaps including a trial or pilot program, rather than solely a paper economic evaluation. Commissioner Foster also stated that the performance measure and target for objective F3 regarding rate structures essentially is a policy change and this type of policy change should be debated and discussed prior to be incorporated into the strategic plan. Ratchye responded that she agreed with Commissioner Foster’s suggestion and will move the idea to a strategic initiative as something that should be addressed and a policy call made. Commissioner Berry stated that the performance measure for objective PT1 (be an attractive place to work) should be employee satisfaction as determined by a regular, periodic survey. He suggested that this is the best way to determine if employees feel that they are working in an attractive place.It is also a way for management to address any issues that are raised. Regarding objective C1 (I receive safe and reliable service), Commissioner Berry advised that recovery time is important as well as number of outages. This page was intentionally left blank. FINANCE COMMITTEE DRAFT EXCERPT Regular Meeting June 7, 2011 3. Utilities Advisory Commission Recommendation to Approve the 2011 Utilities Strategic Plan (Continued from Finance meeting of 3/01/11) Utilities Director, Val Fong stated the Utilities Strategic Plan was driven mainly by two individuals; Assistant Director of Utilities, Jane Ratchye and Utilities Advisory Commissioner, Bill Berry who had spent a significant amount of personal time in meetings and brain storming sessions. Assistant Director of the Utilities Department, Jane Ratchye stated the Strategic Plan had been brought forward on March 1, 2011 and it had been continued to June 7, 2011. She gave a background review of the project indicating it began in spring of 2009 with an employee survey. The objective of the survey was to establish the core value of the Utilities Department resulting in; Integrity, Team Work, Accountability, and Quality in Service. In April of 2010, the Utilities Advisory Commission (UAC) appointed a sub-committee to work on the Strategic Plan with the Utilities Department. There were 26 interviews of key community members over several months to determine feedback on where the community felt the Utilities was, where they were heading, and what some of the issues were that may need to be addressed. The Mission Statement was The City of Palo Alto Utilities was to provide safe, reliable, environmental, sustainable, and cost effective services. The Vision was Where do you see you going. She summarized the interviews and relayed information that was heard from the community as; improvement needed in the notification area where outages were involved, improved communication was generally needed, there was general support for the current Gas rate structure which was stable gas rates, cost recovery was an important issue for the community, costs should be competitive to neighboring communities. It was recognized Palo Alto should be a leader without over extending the community costs and she noted the Green Programs were highly supported throughout the community. She stated there were four themes to the Strategic Plan; 1) Safety and Reliability, 2) Customer Service Excellence, 3) Cost Management, and 4) Environmental Sustainability. It was determined the Balanced Scorecard would be the method used to measure the performance and organize the matrix to track whether the objectives were being met. There were different perspectives and objectives to meet the satisfaction of the stakeholders; the customer, the internal business process, the equipment and IT resources, and the financial resources. Council Member Schmid asked if there was a contingency plan in the event the anticipated funds did not materialize or in the amount thought to be. Ms. Fong stated the Strategic Plan was a diagram in which Staff could layout the issues they were faced with and strategically figure how to approach each one. She felt the safety was regarded as the highest priority therefore Staff had not considered a reduction in the CIP budget and similar situation with the Maintenance budget. She noted all other programs within Utilities were presented to the Council for their input on the budgetary costs. Council Member Schmid asked what the limiting factors were that would debilitate the department from moving forward with its priorities. Ms. Fong stated the table Staff prepared and presented to the Committee represented the factors and measures. She clarified there were other policies in place which supported the factors and measure such as the Long-Term Electric Acquisition Plan (LEAP), the Energy Efficiency Plan, and the Gas and Utility Long-Term Plan (GULP) all played a part on the strategy for the utilities. The Council was informed on each move taken by the Staff and their input determined the manner in which those plans moved forward. Council Member Schmid suggested Council having all of the necessary information readily available in the table type format so as to have the ability to reference the plans and quickly determine whether or not a GULP, LEAP, or rate increase would be appropriate. Ms. Ratchye stated the table consisted of the Utilities Department goals although the costs were not yet known so Staff may return once the costs were calculated. Some goals may be more expensive than thought and it could be determined to remove it from the table. Chair Scharff stated he was under the impression the Council had determined it was too costly to redesign the utility bill and yet it was on the table of goals. He asked why. Ms. Fong stated the table of goals was prepared to be presented in March and it was postponed to June, subsequently the Finance Committee held a meeting with respect to the CIP budgets. She noted the Committee had the ability to weigh in on each component of the Strategic Plan and Staff notes which policy each component was consistent with when they were brought before the Committee or Council. If Council did not approve the item it did not move forward. Council Member Shepherd stated she looked at the Strategic Plan and the table of goals as a synergy of culture and a business type atmosphere for utilities. She noted communication was a key component for the community, and she noted in the approach to going paperless there needed to be a virtual manner in which to maintain open communication. She appreciated the idea of a survey after contact with a customer although recommended not every time; she felt every tenth time would be sufficient. Vice Mayor Yeh asked for areas where there was no LEAP or GULF opportunity for Council to weigh in, he was envisioning an annual review of the Strategic Plan and with that did Staff anticipate that going through the UAC, Finance Committee, and Council each year. Ms. Ratchye stated under the Managed Cost column one of the objectives of the Strategic Plan was to manage the implementation of the Strategic Plan. The initial process was the need to expend resources and then there was follow up with internal Staff meetings and reporting on the information biannually with the UAC, annually with the City Council. Vice Mayor Yeh asked how Staff prioritized and crafted the strategic initiatives against the Council priorities and when would the Council see dates as to when the initiatives would be implemented. He stated it was critical the community be aware of what Utilities was and what they were doing, how can Staff get the information to them most efficiently. Ms. Fong stated the information was posted on the website. As for the customers there concerns were what was happening today and where would we be tomorrow. She stated Staff would look into the best way to communicate to the public what was happening in the utilities arena. Vice Mayor Yeh stated this type of information would not be released to the customers of the Pacific Gas and Electric Company. That level of transparency exists in the City and he did not want to lose the momentum that had been achieved. Council Member Shepherd stated as a Council Member the information being presented gave a sense of confidence in the Utilities Department and knowledge of where they were going; she felt it was equally important the public felt the same. She stated the Vision Statement was lacking an explanation of its vision, she felt it was not as clear as it could be. She stated her understanding was the City was not yet a fully environmentally sustainable community, so she asked what Staff’s thought process was behind the statement. Ms. Ratchye stated there would always be room for improvement; although, Palo Alto had a carbon free portfolio and although the City was not carbon neutral it was at approximately 70 percent. Chair Scharff stated at the present time Palo Alto was one of the highest in the country at 80 percent carbon neutral energy. Council Member Shepherd stated Mission Statements were important and they ensured the Staff was cued into the mission and the policy makers were holding them to it. She wanted to be on board with the Mission Statement and the Vision Statement but at the time she was not comfortable with the vision. Ms. Fong stated the Vision Statement was a vision of where utilities wanted to end up over time not necessarily where they were. Chair Scharff thanked Staff and Commissioner Berry for their work. He stated in the strategic objectives there were performance measures and a target but there was no information noting where Palo Alto was reporting at. Ms. Fong stated Palo Alto had not yet begun reporting therefore the numbers were not available until the process was adopted. Chair Scharff stated if there was no understanding of where you were then how could there be a realistic goal set. Commissioner Berry stated to review the information presented as the first step in the process. When Staff returns in 6 months with the next version the information it would show where Palo Alto was in the ranking currently and what their target goal was. Chair Scharff shared a broad and mild concern that Palo Alto had not completed this type of project in the past and he asked what amount of Staff time would it be involving. Ms. Ratchye stated that was one of the criteria for selecting some of the performance measures was the City was already involved in them thereby not having the concern of spending extra funds doubling the Staff effort. There was a customer survey that was performed; the new portion of the project was reporting back to the Council. Chair Scharff stated he concern was the amount of Staff time being spent on the strategic objectives. He noted in the non-utility functions of the City the Council was sensitive to the amount of Staff time spent on projects where the Utilities Department was different. Council Member Shepherd asked whether Chair Scharff felt there should be a Strategic Plan. Chair Scharff stated yes, he agreed there needed to be a Strategic Plan, he merely acknowledged there was a cost to this type of project and he wanted to ensure those costs were recognized and kept under control. Ms. Fong clarified the Strategic Plan took a significant amount of time and effort to complete and there was not a request for additional Staffing or funding. The Assistant Director, Jane Ratchye was sent for additional training where the remainder of Staff and Commissioners involved trained during their own time. Chair Scharff appreciated the personal and on the job time devoted to the project and process. He asked if there were assurances that on an ongoing basis there would not be a request for additional Staff. Ms. Fong stated if a specific program was adopted due to the Strategic Plan she could not guarantee there would not be a request. Chair Scharff stated he understood and agree that would be a different situation. Ms. Ratchye stated on of the processes was to combined some of the management performances together and look at coordination to alleviate unnecessary overlapping in time management. Chair Scharff stated there was a cost advantage over PG&E in the electricity area. Ms. Fong stated that was correct although that advantage was lost on gas and again on the water side. She stated there were a number of matrixes and measures the Utilities Department currently performed although this level was not business as usual for the department, there were new measures in the plan which placed discipline around what was done. Chair Scharff stated he understood which was why his initial question was to inquire on the current benchmark, without a current benchmark there was no measure on discipline. Chair Scharff asked what the current bond rate was. Director of Administrative Services, Lalo Perez stated ratings were at A for AA Plus and AA for most of the Enterprise. Chair Scharff stated for standard boards it was at an A-, Aa3, was that correct. Mr. Perez stated that was correct. Chair Scharff stated this was the manner in which to maintain the City’s current rating. Mr. Perez stated it differed from the General Fund which was a rating of AAA. Chair Scharff asked why the General Fund rating differed from the Utility Fund ratings. Mr. Perez stated there was a larger risk factor involved. Vice Mayor Yeh stated his understand with the Enterprise Funds was general the rating were not seen on the same scale since it was revenue based rather than assessed evaluation of property backing the bonds. Mr. Berry stated he was unaware of any AAA rating in municipal utilities throughout the country. Chair Scharff stated his uncertainty as to why the utilities Staffing compensation was included in the Strategic Plan and he clarified he felt the Staffing was compensated fairly well. Ms. Fong stated that portion was from the employees’ perspective. Chair Scharff stated he understood the employee’s were asked for there thoughts on what would make the department better but the Strategic Plan was for the City and again, how did Staff compensation fit in the overall Strategic Plan for the City. Ms. Ratchye clarified if the City was hiring employees for the Utilities Department you wanted to ensure there was sufficient compensation. Chair Scharff asked whether there was a plan for other employee groups throughout the City. He stated compensation appeared to be a Human Resources matter and not that of a Strategic Plan. Assistant City Manager, Pam Antil stated the Strategic Plan was for the City through the Utilities Department and the function of the utilities and therefore would call out Staffing for utilities. She clarified there were challenges hiring in the Utilities Department because the competition was two entities in the private sector. Commissioner Berry stated while using the balance score sheet methodology, the employee perceptive was included. Chair Scharff stated he did not see the connection between employee satisfaction ratings and the ability to recruit. Ms. Fong stated the verbiage was to recruit and retain Staff. She noted the term sufficient was better than competitive since utilities compensation with the City was fairly uncompetitive. Ms. Antil clarified the ability to retain employees in any department was critical to the sustainability of knowledge. When employees leave there was a cost to the City to locate and retain knowledgeable replacements. She noted employee satisfaction was not referring simply to the compensation and benefits but how the schedules were managed, the work environment; the tools and training were accessible so they could perform at thee highest level possible. Chair Scharff he clarified he agreed with the comments of Ms. Antil although he felt those comments would suit all employees not just utilities. Ms. Fong stated if there were an overarching City Strategic Plan the employee section would be one of the items although she did not believe there was one. Chair Scharff stated he does not care for the concept of singling out the Utilities Department employees and felt it was a strategic mistake. Ms. Antil stated there was similar language in the Human Resources Department for over all employees although there was not specific to any one group. The language was in the Management Rules and Compensation Plan; the City was continually reviewing ways to make working at the City a better place to be employed. Ms. Fong asked whether it would be acceptable if the "Objective Statement" (PT1) was changed from "We will create a positive values- based work environment which attracts and retains qualified Staff. To achieve this objective we will try to better understand employees desires, work with City Management to establish sufficient compensation, benefits, and incentives, and will articulate our values both internally and as we recruit" to "We will create a positive values- based work environment which attracts and retains qualified Staff. To achieve this objective we will try to better understand employees’ desires and will articulate our values both internally and as we recruit." Chair Scharff stated the language sounded great. Ms. Fong clarified the employee satisfaction survey would continue to be performed. Chair Scharff asked what the thought was behind the statement; develop a 5 year succession plan for each division. Ms. Fong stated there had been a significant amount of institutional knowledge on the systems, how to get things up and running if they were to go down, was lost by retirements so number of the retirees had returned in order to train other employees although the information training was not a short time event. Council Member Shepherd stated in the Staff Report there was Management, Implementation and Strategic Plan; there was nothing regarding being regenerative. She stated allowing for newness with the loss of a component was an important part a strategic plan. Ms. Fong clarified there was a desire to see some evolution in the plan. Council Member Shepherd stated there needed to be a consideration in the Strategic Plan for the consideration of the change in communication style. There will be an evolution of communication as the billing system goes electronic. MOTION: Vice Mayor Yeh moved, seconded by Council Member Shepherd that the Finance Committee recommends that the City Council approve the proposed 2011 Utilities Strategic Plan with the language change on Attachment A: and/or people and technology perspective objective statement so the second sentence reads – to achieve this objective we will try to better understand employees desires and will articulate our values not only internally but as we recruit. Chair Scharff asked if the redesign of the utility bill in the strategic initiative. Ms. Fong stated Staff did not receive the budget approval for this year although they may receive the approval for next year if they could make their case. She stated she could remove it but felt it could stay as a reminder that it was an option Staff would attempt to push through again. Chair Scharff moved to remove the redesign of the utility bill from the Strategic Plan. He clarified if it remained it appeared as the Finance Committee approved it. Council Member Shepherd suggested a language change to being more mobile or innovative in the delivery of the utility bill. INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND SECONDER to change the language from redesign of the utility bill to reassess the design and delivery of the utility bill. MOTION PASSED: 4-0 City of Palo Alto (ID # 1805) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 3 (ID # 1805) Summary Title: Improve Recreational Opportunities for Dog Owners Title: Parks And Recreation Commission Recommendation that Council Direct Staff To Consider Improvement of Recreational Opportunities For Dog Owners Among Other Community Recreational Interests During the Planning and Design Phase of Park Renovation Projects and the Design Of Any New, Or Renovation Of Existing, Neighborhood Or Regional Parks From:City Manager Lead Department: Community Services Recommendation The Palo Alto Parks and Recreation Commission unanimously recommends that the Council direct staff to consider improving recreational opportunities for dog owners among other community recreational interests during the planning and design phase of park renovation projects and in the design of any new, or renovation of existing neighborhood or regional parks. Background The Parks and Recreation Commission has routinely heard from the public about the need for more recreational opportunities for dog owners. The Commission defines the issue, as follows: ·The City has improved many parks and playgrounds over the last 15 years, yet little has been done to improve recreational spaces and opportunities for dog owners in Palo Alto. ·Several commissioners have observed dog owners, without authorization, allowing their dogs to be off-leash at numerous parks on a regular basis. This behavior suggests there is a need to improve recreational opportunities for dog owners. ·A primary Commission and Community Services Department priority is to create a culture of fitness in Palo Alto. Walking one’s dog is a good way to be active. Providing additional spaces and/or destinations to walk one’s dog will further encourage healthy behavior from dog owners. For the reasons above, Community Services staff coordinated a public meeting to engage the community in a discussion about recreational opportunities for dog owners. The July 18, 2011 Page 2 of 3 (ID # 1805) primary purpose of the public meeting was to discuss the adequacy of recreational opportunities for dog owners. At the public meeting, which occurred in the winter 2010, approximately 100 people attended, and the vast majority were dog owners. The primary hope of the residents who attended was for the City to establish more off-leash dog areas that are within walking distance from homes. After discussing the outcome of the public meeting in subsequent months at regular Parks and Recreation Commission meetings, the Commission unanimously recommended to Council the policy direction urging staff to consider improving recreational opportunities for dog owners among other community recreational interests in the design of any new, or renovation of existing, neighborhood or regional parks. Discussion Off-leash dog areas provide not only exercise and socialization for healthy dogs and their owners,but also provide a significant benefit to dog owners through increased connections between neighbors. The Commission and staff however also recognize the sensitivity of off leash dog areas and the concerns and competing interests of some non- dog owners, sports clubs, and parents. Consequently a prudent course of action for the Commission is to make a policy recommendation to Council, for staff to consider the feasibility of improving recreational opportunities for dog owners in the design of any new or renovation of existing neighborhood or regional park. Each new park and park renovation is unique, and may or may not present an opportunity to improve recreational opportunities for dog owners. Considerations of park size, proximity to homes, engineering constraints, other park activities, community support, budget among others factors will be included in the consideration. The Parks and Recreation Commission recommendation will, at a minimum, ensure the feasibility of improving recreational opportunities for dog owners is considered as new parks and park renovations opportunities develop. The expectation, as a result of this recommendation, is that over time it will lead to more areas for off-leash dog play as the feasibility of recreational opportunities for dog owners is routinely considered in the design process for new and renovated park projects. This recommendation of the Parks and Recreation Commission has been delayed in its presentation to the Council for approximately one year, in part, because of department restructuring and reorganizing of Parks and Recreation responsibilities due to fewer staff and resources. Furthermore, the workload of the Recreation staff, in particular, this past year and a half has increased considerably due to the coordinating role Recreation staff continues to play in the Project Safety Community Coalition among other duties, which has caused some work items to be deferred. It is, however, not staff’s intention to July 18, 2011 Page 3 of 3 (ID # 1805) postpone the recommendations of the Parks and Recreation Commission; this is a unique circumstance, and every effort will be made to ensure future recommendations of the Parks and Recreation Commission are forwarded to the Council in a timely manner. Resource Impact The resource impacts will be evaluated on a case-by-case basis as staff and the Parks and Recreation Commission review park planning and renovation designs that lend themselves to improving recreational opportunities for dog owners. Policy Implication The policy implications are minimal; staff not only supports this recommendation from the Parks and Recreation Commission, but staff further believes that it is consistent with current practice. Over the past year, the City has had the opportunity to significantly expand the dog-run area at Greer Park and provide the infrastructure for an enclosed field for a possible shared space for field users and dog owner recreation as part of these park renovations. With El Camino Park being renovated in the near future, staff again explored park design opportunities for dog owners among other recreational needs. Prepared By:Robert De Geus, Manager Department Head:Greg Betts, Director, Community Services City Manager Approval: James Keene, City Manager City of Palo Alto (ID # 1852) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 3 (ID # 1852) Council Priority: Land Use and Transportation Planning Summary Title: Award of On-Call Traffic Signal Support Contract Title: Approval of an On-Call Contract to Cal-West Signal & Lighting in an Amount Not to Exceed $150,000 for Traffic Signal Support Services From:City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that Council authorize the City Manager or designee to execute a contract with Cal-West Signal and Lighting, in the amount of $150,000, for on-call traffic signal construction support services. Executive Summary The City operates and maintains approximately 99 signalized intersections throughout the City. This contract provides construction support for functions outside of the capacity of City services including: the construction of foundations for traffic signal cabinets and poles; installation of underground conduit facilities; installation of electrical facilities such as vehicle speed feedback signs and video detection systems; and additional on-call services. This contract may be extended twice, each extension for either an additional $150,000 or additional one-year time period. Background On February 8, 2011, the City released a Request for Proposals for On-Call Traffic Signal Support Services. Three proposals were received in response to the RFP. The proposals were reviewed by staff from the Utilities Department and the Transportation Division of the Department of Planning and Community Environment. Cal-West Signal & Lighting was selected as the preferred contractor for this project based on experience in offering similar service with other local agencies around the San Francisco Bay Area and because they best fit the selection criteria identified within the RPF by the review committee including their ability to provide immediate response support, equipment inventory, and reference checks. The City currently does not have an On-Call Traffic Signal Support Services contractor. Staff from the Utilities Department provides both regular maintenance functions for traffic signals and special project support on an as needed basis and when maintenance functions allow. July 18, 2011 Page 2 of 3 (ID # 1852) Special projects that cannot be implemented by City staff are competitively bid on an as- needed basis per project. Having an on-call contractor will provide a more streamlined process for the City to implement special project improvements and allow the City to focus its resources on regular maintenance functions. Discussion The proposed project includes providing on-call support services to help advance special projects such as the installation of video detection systems to help better optimize traffic signal operations, installation of new traffic signal field equipment such as traffic signal cabinet and pole standards, installation of vehicle speed feedback signs to encourage speed reductions along arterial streets, and the installation of enhanced pedestrian crosswalk facilities. Cal-West is familiar with the traffic signal standards of the City having helped with the installation of facilities along Arastradero Road and Alma Streets. July 18, 2011 Page 3 of 3 (ID # 1852) Timeline This project provides on on-call support services through the current and new FY2011-12. The project may be extended twice for either an increase in funding in an amount equal to the initial contract value each time or for a time extension equal to one year each time. Resource Impact This project is funded through the Capital Improvement Program (CIP) through the PL-05030 Traffic Signal Upgrades project. The project will allow City staff to focus its efforts on regular traffic signal maintenance functions. Policy Implications This project is consistent with the following Comprehensive Plan Goals and associated Policies and Programs: Goal T-4 (An Efficient Roadway Network for All Users) and Goal T-6 (A High Level of Safety for Motorists, Pedestrians, and Bicyclists on Palo Alto Streets). Environmental Review Typical improvements through this project are maintenance functions that qualify for categorical exemption from CEQA. No environmental review is required for award of the contract. Attachments: ·Attachment A: Contract with Calwest Signal and Lighting (PDF) Prepared By:Jaime Rodriguez, Chief Transportation Official Department Head:Curtis Williams, Director City Manager Approval: James Keene, City Manager CITY OF PALO ALTO CO:NTRACT NO. SI1139791 AGREEMENT BETWEEN TBE CITY OF PALO ALTO AND }'OR. PROFESSIONAL SERVICES OF ONCALL TRAFFIC SIGNAL SERVICES This Agreement is entered into on this 18th day of April, 2011, ("Agreement") by and between the CITY OF PALO ALTO, a California chartered municipal corporation ("CITY"), andCAL·WEST LIGHTING & SIGNAL MAINTENANCE, INC., a corporation, located at 530 North Marburg Way, San Jose, California 95133, (408) 923·1313 ("CONSL"L TANT"). RECIT.4.LS The following recitals are a substantive portion of this Agreement. A. CITY intends to improve on highway, roadway, and curb signals and markings as needed. ("Project") and desires to engage a consultant to perform standard highway sign installations, roadway marking removal & installations, and curb painting installations in connection with the Project ("Services"). B. CONSL"L TAl~T has represented that it has the necessary professional expertise, qualifications, and capability, and all required licenses andlor certifications to provide the Services. C. CITY in reliance on these representations desires to engage CONSL"LTANT to provide the Services as more fully described in Exhibit "A", attached to and made a part of this Agreement. NOW, THEREFORE, in consideration of the recitals, covenants, terms, and conditions, this Agrcement, the parties agree: AGREEMENT SECTION 1. SCOPE OF SERVICES. CONSULTANT shall perform the Services described in Exhibit "A" in accordance with the terms and conditions contained in this Agreement. The performance of all Services shall be to the reasonable satisfaction of CITY. !8l QQtional On-Call Provision (This provision only applies if checked and only applies to on-call agreements.) Services will be authorized by the City, as needed, with a Task Order assigned and approved by the City's Project Manager. Each Task Order shall be in substantially the same form as ExhibitA·I. Each Task Order shall designate a City Project Manager and shall contain a specific scope of work, a specific schedule of performance and a specific compensation amount. The total price of all Task Orders issued under this Agreement shall not exceed the amount of Compensation set forth in Section 4 of this Agreement. CONSULT ANT shall only be compensated for work performed under an authorized Task Order and the City may elect, but is not required, to authorize work up to the maximum compensation amount set forth in Section 4. Profession!1l Services Rev, looe2, 2010 SECTION 2. TERM. The tenn of this Agreement shall be from the date ofits full execution through three-years from the execution date, unless tenninated earlier pursuaut to Section 19 of this Agrecment. SECTION 3. SCHEDULE OF PERFORMANCE. Time is of the essence in the perfonnance of Services under this Agreement. CONSULTANT shall complete the Services within the tenn of this Agreement and in accordance with the schedule set forth in Exhibit "B", attached to and made a part of this Agreement. Any Services for which times forperfonnance are not specified in this Agreement shall be commenced and completed by CONSULT ANT in a reasonably prompt and timely manner based upon the circumstances and direction communicated to the CONSULTANT. CITY's agreement to extend the tenn or the schedule forperfonnance shall not preclude recovery of damages for delay if the extension is required due to the fault of CONSULTANT. SECTION 4. NOT TO EXCEED COMPENSATION. The compensation to be paid to CONSULTANT for perfonnance of the Services described in Exhibit "A", including both payment for professional services and reimbursable expenses, shall not exceed One-Hundred & fifty- Thousand Dollars ($150,000.00). In the event Additional Services are authorized, the total compensation for services and reimbursable expenses shall not exceed zero Dollars ($0.00). The applicable rates and schedule of payment are set out in Exhibit "C-I ", entitled "HOURLY RATE SCHEDULE," which is attached to and made a part of this Agreement. Additional Services, if any, shall be authorized in accordance with and subject to the provisions of Exhibit "C". CONSULTANT shall not receive any compensation for Additional Services perfonned without the prior written authorization of CITY. Additional Services shall mean any work that is determined by CITY to be necessary for the proper completion of the Project, but which is not included within the Scope of Services described in Exhibit "A". SECTION 5. L'lVOICES. In order to request payment, CONSULTANT shall submit monthly invoices to the CITY describing the services perfonned and the applicable charges (including an identification of personnel who perfonned the services, hours worked, hourly rates, and reimbursable expenses), based upon the CONSULTANT's billing rates (set forth in Exhibit "C-I "). If applicable, the invoice shall also describe the percentage of completion of each task. The information in CONSULTANT's payment requests shall be subject to verillcation by CITY. CONSULT ANT shall send all invoices to the City's project manager at the address specified in Section 13 below. The City will geuerally process and pay invoices within thirty (30) days of receipt. SECTION 6. QUALIFICATIONS/STANDARD OF CARE. }JI of the Services shall be perfonned by CONSULTANT or under CONSULTANT's supervision. CONSULTANT represents 2 Professional Se{Vices Rev. June 1, 2010 S;\ASDIPtJRCH\SOLrCrrATIONS\CURRENT BUYER-CM FOLDBRS\JOHN M\RFPm9791~PLA_Oncali Tra1SigSrvcl139791_0nc.J1 SigSrvcs_ProSrveCQntractl.doc by this Agreement and that the personnel have sufficient skill and experience to perfonn the Services assigned to them, CONSULTANT represents that it, its employees and subconsultants, if pennitted, have and shall maintain during the tenn of this Agreement all licenses, pennits, qualifications, insurance and approvals of whatever nature that are legally required to perfonn the Services, All of the services to be furnished by CONSULTANT under this agreement shall meet the professional standard and quality that prevail among professionals in the same discipline and of similar knowledge and skill engaged in related workthrougbout California under the same or similar circumstances. SECTION 7. COMPLIANCE WITH LAWS. CONSULT ANT shall keep itself informed of and in compliance with all federal, stste and local laws, ordinances, regulations, and orders that may affect in any marmer the Project or the performance of the Services or those engaged to perform Services under this Agreement. CONSULTANT shall procure all pennits and licenses, pay all charges and fees, and give all notices required by law in the performance of the Services, SECTION 8. ERRORS/OMISSIONS. CONSULTANT shall correct, at no cost to CITY, any and all errors, omissions, or ambiguities in the work product subrnitted to CITY, provided CITY gives notice to CONSULTANT, If CONSUL TANT has prepared plans and specifications or other design documents to construct the Project, CONSULTANT shall be obligated to correct any and all errors, omissions or ambiguities discovered prior to and dnring the course of construction ofthc Project. This obligation shall survive termination of the Agreement. SECTION 9. COST ESTIlVIATES. If this Agreement pertains to the design of a public works project, CONSULT Ml' shall submit estimates of probable construction costs at each phase of design submittal. Ifthe total estimated construction cost at any submittal exceeds ten percent (10%) of the CITY's stated construction budget, COKSULTANT shall make recommendations to the CITY for aligning the PROJECT design with the budget, incorporate CITY approved recommendations, and revise the design to meet the Project budget, at no additional cost to CITY. SECTION to. INDEPENDENT CONTRACTOR. It is understood and agreed that in perfonning the Services under this Agreement CONSULTANT, and any person employed by or contracted with CONSULTANT to furnish labor and/or materials under this Agreement, shall act as and be an independent contractor and not an agent or employee of the CITY, SECTION 11. ASSIGNMENT. The parties agree that the expertise and experience of CONSULTANT are material considerations for this Agrecment. CONSULTANT shall not assign or transfer any interest in this Agreement nor the performance of any of CONSULTANT's obligations hereunder without the priorv,Titten consent of the city manager. Consent to one assignment will not be deemed to be consent to any subsequent assignment. Any assignment made without the approval of the city manager will be void, SECTION 12. SUBCONTRACTING. I2!JOption A: No Subcontractor: CONSULTANT shall not subeontractany portion of the work to be performed under this Agreement without the prior written authorization of the city manager or Professional Services Rev. Ju."1e 2,2010 3 S:IASD\PURCfllSOLlCITA TIONSICUltRENT BUYER-CM FOLDERS\JOHN M\RFPlI19i9l ]LA _ OIlCllIl TralSigSrvcll19791_ Oneall SigSrvcs _ PmSrvcContractLdoc designee. DOption B: Subcontracts Authorized: Notwithstanding Section 11 above, CITY agrees that subconsultants may be used to complete the Setvices. The subconsultants authorized by CITY to perform work on this Project are: N/A CONSULTANT shall be responsible for directing the work of any sub consultants and for any compensation due to subconsultants. CITY assumes no responsibility whatsoever concerning compensation. CONSULTANT shall be fully responsible to CITY for all acts and omissions of a subconsultant. CONSli'L T ANT shall change or add subconsultants only with the prior approval of the city manager or his designee. SECTION 13. PROJECT MANAGEMEl'o'T. CONSu'LTANT will assign Craig Geis as the Program Manager to have supetvisory responsibility for the performance, progress, and execution of the Setvices and as the Project Coordinator to represent CONSULTANT during the day4o-day work on the Project. If circumstances cause the substitution of the project director, pr~ject coordinator, or any other key personnel for any reason, the appointment of a substitute project director and the assigument of any key new or replacement personnel will be subject to the prior written approval of the CITY's project manager. CONSULTANT, at CITY's request, shall promptly remove personnel who CITY frods do not perform the Setvices in an acceptable manner, are uncooperative, or present a threat to the adequate or timely completion of the Project or a threat to the safety of perSOILS or property. The City's project manager is Jaime Rodriguez, Planning Department, Traffic Division, Palo Alto, CA 94303, Telephone (650) 329-2136. The project manager \\'ill be CONSULTANT's point of contact with respect to performance, progress and execution of the Services. The CITY may designate an alternate project manager from time .to time. SECTION 14. Ow}\''ERSHIP OF MATERIALS. Upon delivery, all work product, including without limitation, all wTitings, drawings, plans, reports, specifications, calculations, documents, other materials and copyright interests developed under this Agreement shall be and remain the exclusive property of CITY without restriction or limitation upon their use. CONSULTANT agrees that all copyrights which arise from creation of the work pursuant to this Agreement shall be vested in CITY, and CONSu'L TANT waives and relinquishes all claims to copyright or other intellectual property rights in favor of the CITY. Neither CONSu'L T ANT norits contractors, if any, shall make any of such materials available to any individual or organization without the prior written approval of the City Manager or designee. CONSULTANT makes no representation of the suitability of the work product for use in or application to circumstances not contemplated by the scope of work. SECTION 15. AUDITS. CONSULTANT will permit CITY to audit, at any reasonable time during the term of this Agreement and for three (3) years thereafter, CONSULTANT's records pertaining to matters covered by this Agreement. CONSULT k'IT further agrees to maintain and retain such records for at least three (3) years after the expiration or earlier termination of this Agreement. 4 Professiona! Services Rev. Iune2,2010 S:\ASDIPURCHISOLICITA nONSlCURRENT BUYER-CM FOLDERSIJOHN MlRFPl139791 ]LA~ Oneall TraffiigSrvcl139791_ OnCali S igSrvcs _ ProSrvcContrllCtl. doc SECTION 16. INDEMNITY. [gJ[Option A applies to the following design professionals pursuant to Civil Code Section 2782.8: architects; landscape architects; registered professional engineers and lic.ensed professionailand surveyors.] 16.1. To the fullest extent permitted by law, CONSULTANT shall protect, indemnify, defend and hold harmless CITY, its Council members, officers, employees and agents (each an "Indemnified Party") from and against any and all demands, claims, or liability of any nature, including death or injury to any person, property damage or any other loss, including all costs and expenses of whatever nature including attorneys fees, experts fees, court costs and disbursements ("Claims") that arise out of, pertain to, or relate to the negligence. recklessness, or willful misconduct of the CONSULTANT, it~ officers, employees, agents or contractors under this Agreement, regardless of whether or not it is caused in part by an Indemnified Party. O[Option B applies to any consultant who does not qualify as a design professional as defined in Civil Code Section 2782.8.) 16.1. To the fullest extent permitted by law, CONSULTANT shall protect, indemnify, defend and hold halmless CITY, its Council members, officers, employees and agents (each an "Indemnified Party") from and against any and all demands, claims, or liability of any nature, including death or injury to any person, property damage or any other loss, including all costs and expenses of whatever nature including attorneys fees, experts fees, court costs and disbursements ("Claims") resulting from, arising out of or in any manner related to performance or nonperformance by CONSULTANT, its officers, employees, agents or contractors under this Agreement, regardless of whether or not it is caused in part by an Indemnified Party. 16.2. Notwithstanding the above, nothing in this Section 16 shall be construed to require CONSULTANT to indemnify an Indemnified Party from Claims arising from the active negligence, sole negligence or willful misconduct of an Indemnified Party. 16.3. The aceeptance of CONSULTANT's services and duties by CITY shall not operate as a waiver of the right ofindemnification. The provisions of this Section 16 shall survive the expiration or early termination of this Agreement. SECTION 17. WAIVERS. The waiver by either party of any breach or violation of any covenant, term, condition or provision of this Agreement, or of the provisions of any ordinance or law, will not be deemed to be a waiver of any other term, covenant, condition, provisions, ordinance or law, or of any subsequent breach or violation of the same or of any other term, covenant, condition,provision, ordinance or law. SECTION 18. INSURANCE. 18.1. CONSULTANT, at its sole cost and expeose, shall obtain and maintain, in full force and effect during the term of this Agreement, the insurance coverage described in Exhibit "D". CONSL'LTANT and its contractors, if any, shall obtain a policy endorsement naming CITY as an additional insured under any generalliahility or automobile policy or policies. 18.2. All insurance coverage required hereunder shall be provided through carriers withAl\1 Best's Key Rating Guide ratings of A-:VII or higher which are licensed or authorized to S Professional Services Rev. June 2, 2010 S:\ASDIPURCH\SOLICITATIONSICURRENT BUYER·eM FOLDERS\JOHN MlRFPI 13919l ]LA~ Or~all TrafSigSrvclJl9791 JlnCaIl SigSrvc!UlroSrveContracU.doc transact insurance business in the State of California. Any and all contractors of CONSUL TAKT retained to perform Services under this Agreement will obtain and maintain, in full force and effect during the term of this Agreement, identical insurance coverage, naming CITY as an additional insured under such policies IlB required above. 18.3. Certificates evidencing such insurance shall be filed with CI1Y concurrently with the execution of this Agreement. The certificates will be subject to the approval of CITY's Risk Manager and will contain an endorsement stating that the insurance is primary coverage and will not be canceled, or materially reduced in coverage or limits, by the insurer except after filing with the Purchasing Manager thirty (30) days' prior ",'fitten notice of the cancellation or modification, CONSULTANT shall be responsible for ensuring that current certificates evidencing the insurance are provided to CITY's Purchasing Manager during the entire term of this Agreement. 18.4. The procuring of such required policy or policies of insurance will not be construed to limit CONSULTANT's liability hereunder nor to fulfill the indemnification provisions of this Agreement. Notwithstanding the policy or policies of insurance, CONSULTANT will be obligated for the full and total amount of any damage, injury, or loss caused by Of directly arising as a result of the Services performed under this Agreement, including such damage, injury, or loss arising after the Agreement is terminated or the term has expired. SECTION 19. TERMINATION OR SUSPENSION OF AGREEMENT OR SERVICES. 19.1. The City Manager may suspend the performance of the Services, in whole or in part, or terminate this Agreement, with or without cause, by giving ten (l0) days prior written notice thereof to CONSULT Mi. Upon receipt of such notice, CONSULT ANT will immediately discontinue its performance of the Services. 19.2. CONSULTANT may terminate this Agreement or suspend its performance of the Services by giving thirty (30) days prior written notice thereof to CITY, but only in the event of a substantial fuilure of performance by CITY. 19.3. Upon such suspension or termination, CONSULTANT shall deliver to the City Manager immediately any and all copies of studies, sketches, drawings, computations, and other data, whether or not completed, prepared by CONSULTANT or its contractors, if any, or given to CONSULTANT or its contractors, ifany, in conoection with this Agreement. Such materials will become the property of CITY. 19.4. Upon such suspension or temtination by CITY, CONSUL TANTwill be paid for the Services rendered or materials delivered to CITY in accordance with the scope of services on or before the effective date (Le., 10 days after giving notice) of suspension or termination; provided, however, if this Agreement is suspended or terminated on account of a default by CONSULTANT, CITY will be obligated to compensate CONSULTANT only for that portion of CONSULTANT's services which are of direct and immediate benefit to CITY as such determination may be made by the City Manager acting in the reasonable exercise ofhisther discretion. The following Sections will survive any expiration or termination of this Agreement: 14, 15, 16, 19.4,20, and 25. 6 Professional Services Rev. June 2. 2010 S:IASDIPURCIDSOL1CITA TIONSIClJRRE:>iT BUYER-CM FOLDERSIJOHN M\RFPII 3979 !]LA_ Oneall TraiSigSevc1139791_ One"]l SigSrvcs_ProSrvcContractl,doc 19.5. No payment, partial payment, acceptance, or partial acceptance by CITY will operate as a waiver on the part of CITY of any of its rights W1der this Agreement. 7 Profess-ional Services Rev. June 2, 20W S,IASD\PURCH\SOLICITATIONSICURREl'lT BUYER-CM FOLDERSIJOHN MlRFPI139791 PLA Oneall TrafSigSrvelJ39791 Oneall SigSrvcs_ProSrvcContractLdoc -- -- SECTION 20. NOTICES. All notices hereunder will be given in writing and mailed, postage prepaid, by certified mail, addressed as follows: To CITY: Office of the City Clerk City of Palo Alto Post Office Box 10250 Palo Alto, CA 94303 With a copy to the Purchasing Manager To CONSULTANT: Attentiou of the project director at the address of CONSULTANT recited above SECTION 21. CONFLICT OF INTEREST. 21.1. In accepting this Agreement, CONSULTANT covenants that it presently has no interest, and will not acquire any interest, direct or indirect, fmandal or otherwise, which would conflict in any manner or degree ""ith the performance of the Services. 21.2. CONSULTANT further covenants that, in the performance of this Agreement, it will not employ subconsultants, contractors or persons having such an interest. CONSULTANT certifies that no person who has or will have any fmandal interest under this Agreement is an officer or employee of CITY; this provision will be interpreted in accordance with the applicable provisions of the Palo Alto Municipal Code and the Government Code of the State ofCalifomia. 21.3. If the Project Manager determines that CONSULTANT is a "Consultant" as that term is defined by the Regulations of the Fair Political Practices Commission, CONSULTANT shall be required and agrees to file the appropriate fmancial disclosure docurnent~ required by the Palo Alto Municipal Code and the Political Reform Act. SECTION 22. NONDISCRIMINATION. As set forth in Palo Alto Municipal Code section 2.30.510, CONSULTANT certifies that in the performance of this Agreement, it shall not discriminate in the employment of any person because of the race, skin color, gender, age, religion, disability, national origin, ancestry, sexual orientation, housing status, marital status, fumilial status, weight or height of such person. CONSULTANT acknowledges that it has read and understands the provisions of Section 2.30.510 of the Palo Alto Municipal Code relating to Nondiscrimination Requirements and the penalties for violation thereof, and agrees to meet all requirements of Section 230.510 pertaining to nondiscrimination in employment. SECTION 23. ENVIRONMENTALLY PREFERRED PURCR.-\SING AND ZERO WASTE REQUIRElVlENTS. CONSULTANT shall comply with the City's Environmentally Preferred Purchasing policies which are available at the City's Purchasing Department, incorporated by reference and may be amended from time to time. CONSULTANT shall comply with waste reduction, reuse, recycling and disposal requirements of the City's Zero Waste Program. Zero B Professional Services Rev. June 2, 2010 S:\ASDIPURCHlSOLICITATlONS\CURRENT BUYER-CM FOLDERSIJOHN MlRFP1139791]LA _Oneall TrafSigSrvcl 139791_ OnCali SigSrvcs~ProSrvcContrr1C-ttdoc Waste best practices include first minimizing and reducing waste; second, reusing waste and third, recycling or composting waste. In particular, Consultant shall comply with the following zero waste requirements: • All printed materials provided by Consultant to City generated from a personal computer and printer including but not limited to, proposals, quotes, invoices, reports, and public education materials, shall be double-sided and printed on a minimum of30% or greater post-consumer content paper, unless otherwise approved by the City's Project Manager. A.ny submitted materials printed by a professional printing company shall be a minimum of30% or greater post-consumer material and printed with vegetable based inks. • Goods purchased by Consultant on behalf of the City shall be purchased in accordance with the City's Environmental Purchasing Policy including but not limited to Extended Producer Responsibility requirements for products and packaging. A copy of this policy is on file at the Purchasing Office. • Reusable/returnable pallets shall be taken back by the Consultant, at no additional cost to the City, for reuse or recycling. Consultant shall provide documentation from the facility accepting the pallets to verifY that pallets are not being disposed. SECTION 24. NON-APPROPRIATION 24.1. This Agreement is subject to the fucal provisions of the Charter of the City of Palo Alto and the Palo Alto Municipal Code. This Agreement will terminate without any penalty (a) at the end of any fiscal year in the event that funds are not appropriated for the following fiscal year, or (b) at any time within a fiscal year in the event that funds are only appropriated for a portion of the fiscal year and funds for this Agreement are no longer available. This section shall take precedence in the event of a conflict with any other covenant, term, condition, or provision of this Agreement. SECTION 25. MISCELLANEOUS PROVISIONS. 25.1. This Agreement will be governed by the laws of the State of California. 25.2. In the event that an action is brought, the parties agree that trial of such action will be vested exclusively in the state courts of California in the County of Santa Clara, State of California. 25.3. The prevailing party in any action brought to enforce the provisions of this Agreement may recover its reasonable costs and attorneys' fees expended in connection with that action. The prevailing party shall be entitled to recover an amount equal to the fair market value of legal services provided by attorneys employed by it as well as any attorneys' fees paid to third parties. 25.4. This document represents the entire and integrated agreement between the parties and supersedes all prior negotiations, representations, and contracts, either written or oral. This document may be amended only by a written instrument, which is signed by the parties. 25.5. The covenants, terms, conditions and provisions of this Agreement will apply 9 Proressionai Servfces Rev. June 2. 2010 S:\ASDIPURCH\SOLlCITATIONSlCURRENT BUYER·CM FOLDERSI10HN M\RFP\139J91_ PLA_ Oneall TralSISSnoc1139791_0nCall SigSrvcs~ProSrvcContractl.doc 25.5. The covenants, terms, conditions and provisions of this Agreement will apply to, and will bind, the heirs, successors, executors, administrators, assignees, and consultants of the parties. 25.6. If a eourt of competent jurisdiction finds or rules that any provision of this Agreement or any amendment thereto is void or unenforceable, the unaffected provisions of this Agreement and any amendments thereto will remain in full forcc and effect. 25.7. All exhibits referred to in this Agreement and any addenda, appendices, attachments, and schedules to this Agreement which, from time to time, may be referred to in any duly executed amendment hereto are by such referenee incorporated in this Agreement and ",ill be deemed to be a part of this Agreement. 25.8 If, pursuant to this contract with CONSULTANT, City shares with CONSULTANT personal information as definedin California Civil Code section 1798.81.5( d) about a California resident ("Personal Information"), CONSULTANT shall maintain reasonable and appropriate security procedures to protect that Personal Information, and shall inform City immediately upon learning that there has been a breach in the security of the system orin the security of the Personal Information. CONSULTANT shall not use Personal Information for direct marketing purposes without City's express written consent. 25.9 All unchecked boxes do not apply to this agreement. 25.10 The individuals executing this Agreement represent and warrant that they have the legal capacity and authority to do so on behalf of their respective legal entities. lN WITNESS WHEREOF, the parties hereto have by their duly authorized representatives executed this Agreement on the date first above written. CITY OF PALO ALTO city Manager (Required on contraclll over $85,000) Purchasing Manager (Required 011 con1r.clll over $25,000) Contracts Administrator (Required on contr1lCts under $25,000) 9 ProfeSSional Services Rev, June 2, 201Q S:iASDIPIJRCHlSOLlCTI'ATION5\CURRENT BUYER·CM FOI.DERS'·]OHN M\RfP\139791_PLA _ Oneall TrafSigSrvc\SIII39191_ On·Call Traffic Signal Srvc.doc # 22, 710. Cal-West -I 2.0 I ~Ss:. Republic ITS # ;r"i!; 7Z.S:. Team Econolite Proposal Evaluation Scoring Results RFP 139791 On-Call Traffic Signal Support 86 71 62 88 62 40 72 68 61 60 70 46 59 70 68 City of Palo Alto (ID # 1855) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 5 (ID # 1855) Summary Title: Letter of Intent with Friends of Magical Bridge Title: Approval of a Letter Of Intent with the Friends Of The Magical Bridge LLC for the Design, Construction and Installation of Playground Equipment, Pathways, Park Amenities and Other Improvements for a Universally Accessible Children's Play Area at Mitchell Park -Capital Improvement Project (PE-12000) From:City Manager Lead Department: Community Services Recommendation Staff recommends that Council authorize the City Manager or designee to sign the attached Letter of Intent with the Friends of the Magical Bridge for improvements located within Mitchell Park, including the installation of children’s playground equipment, pathways, site amenities and other improvements necessary to create a universally accessible playground. Background In June 2007, Friends Founder Olenka Villarreal approached staff about the need for a universally accessible children’s playground. Ms. Villarreal pointed out that although some Palo Alto playgrounds have rubber pathways that may allow some children to approach a play structure, all of the play structures in Palo Alto have very little accommodation for persons confined in wheel chairs. She showed staff that some children with developmental disabilities are unable to use existing park swings because some kids with special needs are unable to grip the support chains of a swing to maintain balance. She also informed staff that because of the Palo Alto Unified School District has an excellent program for special needs, there are more than 1,500 children in Palo Alto that have developmental, sight, hearing, balance or autistic challenges that require special play equipment and access. Ms. Villarreal has shared the stories of her own daughter, those of other local parents and even handicapped caregivers who are unable to play with their children at playgrounds because of physical barriers. July 18, 2011 Page 2 of 5 (ID # 1855) In April 2008, the Friends of the Magical Bridge made a presentation to the Parks and Recreation Commission and asked the Commission to determine if the Commission felt that a new children’s universally accessible playground at Mitchell Park would be compatible with the Master Plan for the Park. On July 22, 2008, the Commission heard a second presentation from Ms. Villarreal and the Commission concurred with staff that the project would be compatible with Mitchell Park and would also well serve the special need students and participants at the adjoining Achieve center and Abilities Unites. On Jun 20, 2011, Council approved the allocation of $300,000 from the Infrastructure Reserve Fund to Capital Improvement Project PE-12000 for design and construction services associated with the construction of a new children’s playground at Mitchell Park (3800 Middlefield Road, in the southwest corner of the park) as part of a public/private partnership with the Friends of the Magical Bridge (“Friends”). The Friends intend to raise the balance of the funds necessary to build the playground, conceptually estimated at $1,600,000. The Friends have worked with landscape architects to create a conceptual plan for the universally accessible playground that will make the playground inviting, family oriented, and completely accessible to all children and their caregivers. The 20,000-square foot playground is to be constructed in a rarely used and undeveloped area of Mitchell Park near two tennis courts and a pathway that connects to Charleston Road. The original master plan called for the area to be used as an archery range. In the distant past the sparsely landscaped area has been used for scout camp fires. Discussion Staff has worked cooperatively with the Friends to develop a Letter of Intent (Attachment A) that lays out the responsibilities and expectation of both parties. Similar to Letters of Intent with the Friends of Heritage Park, the Friends of Lytton Plaza and the Palo Alto Art Foundation, the letter describes the scope of the construction project, the amount of money that will be July 18, 2011 Page 3 of 5 (ID # 1855) contributed by each partner, and the responsibilities for the on-going maintenance of the park once it is improved. Once the Letter of Intent is executed by both parties, the Friends will work with design consultants to prepare conceptual design options for the project. The Friends will return to the City with plans to be submitted for Planning Department, Architectural Review Board, and Planning & Transportation Commission review. The Friends will then develop a budget for the project, ensuring that there are adequate funds to successfully complete the project, a detailed construction timeline and evidence of insurance. Staff will then return to Council with a Park Improvement Ordinance, Budget Amendment Ordinance, and Agreement for the Design, Construction and Installation documents for review and approval. The Agreement would specify policy and procedural guidelines for the Friends to follow regarding construction, safety, liability, and payment details. The agreement would follow similar public/private partnership agreements that provide for authorized non-profits to manage the improvement of City facilities. Other examples of such partnerships include the Friends of the Children’s Theatre for the construction of the Magic Castle, and an agreement with Perry-Arrillaga for the construction of a refreshment stand at the Baylands Athletic Center. Timeline Once the attached Letter of Intent is approved by Council, the Friends will have two years (until July 1, 2013) in which to negotiate a contract and work with staff on the preparation of design plans and specifications. These plans will include engineer’s estimates that will enable the Friends to develop fundraising strategies to raise the $1,300,000 necessary for the project. Resource Impact Funds for the City’s share of this project are included in Capital Improvement Program Project – PE-12000 (Magical Bridge Playground at Mitchell Park). Funds for this project will be matched by the Friends of the Magical Bridge. The Friends estimates the total cost of the construction to be $1,600,000. The Letter of Intent caps the City’s financial participation for design and construction of improvements at $300,000. July 18, 2011 Page 4 of 5 (ID # 1855) The current maintenance and utilities cost of this area of Mitchell Park is less than $5,000 per year. The projected annual cost to the City for maintaining and operating the playground is estimated at $10,000. This cost includes the maintenance of playground facilities and its periodic inspection by staff field inspectors and replacement of play structure parts. When the new project is completed will an additional $5,000 be needed in the parks budget to maintain and inspect the playground. Policy Implications This project is consistent with the recently approved (Policies & Services Committee) public/private partnership policy as a “joint partnership project.” The proposed project is consistent with existing City policy, including C-26: Maintain and enhance existing park facilities. A Park Improvement Ordinance will be required for park development. The Ordinance will be prepared and presented to the Council at the point when the actual project agreement is ready for Council approval. ENVIRONMENTAL REVIEW Environmental review will be performed at the time the project is presented to Council for approval. Attachments: ·Attachment A -Letter of Intent (PDF) Prepared By:Greg Betts, Director, Community Services Department Head:Greg Betts, Director, Community Services July 18, 2011 Page 5 of 5 (ID # 1855) City Manager Approval: James Keene, City Manager City of Palo Alto (ID # 1828) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 2 (ID # 1828) Council Priority: Environmental Sustainability Summary Title: Approval of Agreement with SolFocus, Inc. Title: Approval of an Agreement with SolFocus, Inc. for a Solar-Electric Research Project at the Regional Water Quality Control Plant From:City Manager Lead Department: Public Works Recommendation Staff recommends that Council approve and authorize the City Manager to continue the existing Installation and Use Agreement (Attachment A) and Amendment 01 and 02 with SolFocus, Inc. (SolFocus) for a continuing solar-electric research project at the Regional Water Quality Control Plant (Plant). Executive Summary The Plant supports the use of renewable power onsite and as a city facility more than 50% of its consumed power comes from a variety of renewable sources.. SolFocus, located in San Jose, develops, manufactures, and markets products that generate electricity using solar concentrator photovoltaic technology. The partnership between the Plant and SolFocus began June 11, 2007 and has continued to provide positive results for each party (i.e., free power and research site). Background SolFocus needs a full-scale demonstration site to research, test, develop, and improve its large-scale solar projects near industrial and marine environments. SolFocus contacted Sustainable Silicon Valley and the Palo Alto Utilities Department in search of a site to host the research project, and was referred to the Plant. Under the initial agreement in 2007, SolFocus installed five arrays providing 15 KW of demonstration units on Plant grounds at its own cost and began delivering power at zero cost to the Plant. In October 2008, under Amendment-01 (Attachment B) approved by staff, the agreement was extended. Power continues to be delivered at no cost; however the agreement and extensions must be approved by Council because the original three-year authority of the City Manager has been exceeded. Discussion Amendment (Amendment-02) extends the existing agreement until June 10, 2016. All July 18, 2011 Page 2 of 2 (ID # 1828) remaining terms and conditions under the initial Installation and Use Agreement will remain in full force and effect. This amendment allows SolFocus to install additional equipment at the Plant and continues the requirement that all power generated at the Plant be provided to the Plant free of charge for the term of the agreement. Policy Implications Recommendation of this staff report is consistent with City Council’s environmental sustainability priority. Resource Impact Approval of the amendment to extend the agreement results in no financial impact to the City. Failure to extend this agreement would result in an annual increase of about $2,000 to $3,000 in electric expenses for the Wastewater Treatment Fund to offset the loss of about 15.7 kilowatts in photovoltaic energy Attachments: ·A -SolFocus Agreement (PDF) ·B -SolFocus Amendment-01 (PDF) ·C -SolFocus Amendment-02 (PDF) Prepared By:Althea Carter, Administrative Associate II Department Head:J. Michael Sartor, Interim Director City Manager Approval: James Keene, City Manager City of Palo Alto (ID # 1485) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 7 (ID # 1485) Summary Title: Contract Approval for Household Hazardous Waste Title: Approval of a Contract with Clean Harbors Environmental Services, Inc. in the Amount of $418,000 Per Year for Household Hazardous Waste Management and Emergency Response Services From:City Manager Lead Department: Public Works Recommendation Staff recommends that Council: 1.Approve and authorize the City Manager or his designee to execute the attached contract with Clean Harbors Environmental Services, Inc. (Attachment A) for a period of three years in a not to exceed amount of $390,000 for the first year for household hazardous waste (HHW) and 24 hour emergency response services; and 2.Authorize the City Manager or his designee to approve fee increases to the contract for the second and third year, provided the proposed increased cost of the fees do not exceed the Consumer Price Index for all urban consumers (San Francisco-Oakland-San Jose, CA). Background Program History Palo Alto’s HHW program began in 1983 when Palo Alto became the second jurisdiction in the state to provide collection of household hazardous wastes to its residents in response to community concerns about toxic wastes in the environment. The objectives of the HHW program were to provide a point of contact for educating the public about the safe use, storage, disposal and alternatives to HHW products, and to help reduce the release of HHW to storm drains, landfill and the sanitary sewer. In 1986, the Tanner Bill (AB 2948) was passed requiring counties to establish hazardous waste management plans (Health & Safety Code 25135-25135.9). In 1987, the Greene Bill (SB 477) was passed requiring each City to either adopt a city hazardous waste management plan or incorporate the County’s plan into the City’s plan. July 18, 2011 Page 2 of 7 (ID # 1485) HHW Element -In 1989, AB 939 was passed mandating that cities adopt and submit a HHW Element (HHWE), a document that sets policies, objectives and programs for collection of HHW in compliance with state mandates. Palo Alto’s HHWE (June 1991) evaluated HHW alternatives and selected the development of a permanent HHW facility to phase out the monthly collection events that were taking place during that time. At the time, Palo Alto decided to continue its own program instead of joining the Santa Clara County HHW Program since Palo Alto had a mature well-run HHW program that predated the Santa Clara County program. RWQCP -In the early 1990’s, the Palo Alto Regional Water Quality Control Plant (RWQCP) became a permitted permanent HHW collection facility, focusing on the collection and proper disposal of target wastes that directly affected the waste water effluent such as photo chemicals, mercury wastes, certain types of pesticides and more recently pharmaceutical wastes. In 2008, the RWQCP upgraded its hazardous wastes storage structures by adding a new hazardous waste storage locker (and related improvements) at the entrance to the RWQCP. This new storage locker allows the RWQCP to store both plant generated hazardous wastes as well as HHW collected through the permanent facility permit. Current HHW Program Components Currently, Palo Alto provides a comprehensive program for HHW management that includes: Monthly Drop-off (1st Saturday of the Month)–This is the most popular HHW program and involves once per month collection events for residents. These events are conducted at the RWQCP parking lot on the first Saturday of each month and operate under a Temporary HHW Collection Facility Permit. All of the collected HHW is manifested and transported to a disposal facility the same day as the event. In addition, all HHW collected during the month by the RWQCP and by staff through the landfill’s load check program are consolidated with the monthly event HHW and transported offsite for disposal; RWQCP Permanent Facility Drop-off –This program involves a Monday through Friday collection of selected HHW related to problem chemicals for sewage effluent (photo chemicals, mercury wastes, pesticides and pharmaceuticals). An appointment based mid-month HHW drop-off program was added in late 2008 when more storage capacity was added through the installation of a larger storage locker. The RWQCP’s HHW collection program operates under a Permanent HHW Collection Facility Permit. All HHW collected at the RWQCP is properly segregated and stored onsite until the monthly events where the HHW are manifested and transported the 1st Saturday of each month; Recycling Center Drop-off –The recycling center accepts recyclable HHW such as oil, oil filters, antifreeze, household/vehicle batteries, and fluorescent lights. The Recycling Center operates seven days per week and is registered as a Recycle Only HHW July 18, 2011 Page 3 of 7 (ID # 1485) Collection Facility. These recyclable HHW are stored in bulk quantities so that full loads of HHW can cost effectively be transported to a certified recycling facility; Curbside pickup –The City’s Waste Hauler (Greenwaste of Palo Alto) collects used motor oil, oil filters, and household batteries at the curb from residents during their routes. Also, Greenwaste of Palo Alto accepts certain e-waste from residents and commercial customers in the recycling carts; Door-to-door HHW pickup –Qualified residents that are physically limited and cannot bring their HHW to the monthly events can schedule their pickups at their homes. The City’s HHW Contractor will dispatch personnel to the homes to collect and transport the HHW to the monthly events for manifesting and transportation; Palo Alto’s HHW program is instrumental in satisfying City goals and objectives and is essential for implementing: 1) the City’s Comprehensive Plan; 2) the City’s Zero Waste Operational Plan (ZWOP); 3) the City’s HHW Element; and 4) the City’s National Pollutant Discharge Elimination System (NPDES) Permit. The City’s HHW program is also part of a broader pollution prevention program developed to protect Palo Alto’s creeks and San Francisco Bay by diverting toxics from disposal that could otherwise occur to the sanitary sewer and/or the storm drain system. Palo Alto Comprehensive Plan -The HHW program is an integral part of the City’s Comprehensive Plan relating to environmental concerns. Some of the comprehensive plan references include: ·GOAL N-4: Water Resources that are Prudently Managed to Sustain Plant and Animal Life, Support Urban Activities, and Protect Public Health and Safety. ·POLICY N-23: Reduce the discharge of toxic materials into the City’s sanitary sewer collection system by promoting the use of Best Management Practices (BMPs).One of the BMPs for the City is “Hazardous waste collection and recycling”. ·GOAL N-6: An Environment Free of the Damaging Effects of Biological and Chemical Hazardous Materials.“Palo Alto will also continue its household hazardous waste collection programs and will strive to make these programs more convenient and accessible to residents” (Page N-21). ·POLICY N-30: “Minimize the use of toxic and hazardous materials. Encourage the use of alternative materials and practices that are environmentally benign”. ·PROGRAM N-48:“Continue sponsoring a regular household hazardous waste collection event”. July 18, 2011 Page 4 of 7 (ID # 1485) ·PROGRAM N-50:“Continue the program that allows small quantity generators to dispose of hazardous waste at cost” Regional Water Quality Pollution Prevention: As mentioned above, the HHW program serves as an integral part of the broader Pollution Prevention Programs developed to protect Palo Alto’s creeks and San Francisco Bay by diverting toxics from disposal that could otherwise flow to the sanitary sewer and/or the storm drain system. The HHW programs are key components of the water pollution prevention programs which the Public Works’ Environmental Compliance Division must meet its obligations under the State National Pollutant Discharge Elimination System (NPDES) permits issued for the City’s Wastewater Treatment Plant and the Storm Drain System. Without these programs, increased intentional and accidental discharge of pollutants both to interior drains (sewer lines) and external drains (storm system) would most likely occur. Pesticides, fertilizers mercury, heavy metals, solvents, paints, oils, batteries and cleaners all contain pollutants for which permit limits exist. These limits are designed to protect aquatic ecosystems from chemicals which can be toxic, bioaccumulative, persistent, or all three. Degrading ecosystems effects people quite directly because humans depend on aquatic plants and animals for food and other resources. The RWQCP relies on the HHW program to divert toxics that could upset treatment operations or pass through to the natural environment. Businesses are heavily regulated to prevent toxics from killing the “good” bacteria in the RWQCP. The RWQCP was not designed to remove toxic waste and a portion flows through the treatment plant and into the San Francisco Bay. Removal rates vary from extremely low to over 90% for some toxics that can absorb onto sludge particles. However, even that removal has a dark side as some “removed” pollutants volatilize to the atmosphere. With tens of thousands of chemicals now in use, local governments’ ability to monitor all of them has been overwhelmed. Landfill Groundwater Contamination Concerns: The HHW program contains a hazardous waste exclusion program to reduce the illegal disposal of HHW in the landfill. Illegal disposal of HHW in the landfill could cause contamination in the underlying groundwater and thereby cause a groundwater “corrective action” to occur. A corrective active involves groundwater extraction and treatment and additional monitoring in order to reduce the contamination of the groundwater. The landfill’s potential cost for corrective action due to groundwater contamination is estimated to be as high as $650,000 per event. Worker Safety: The HHW program provides a level of safety for workers at the landfill, recycling center and SMaRT where solid waste workers may come in contact with illegally disposed hazardous wastes. Exposure to HHW may cause health hazards. Sustainability and Zero Waste Policies:The City’s adopted Zero Waste Operational Plan recommends a local recycling center and permanent HHW facility (Section 7.2). A July 18, 2011 Page 5 of 7 (ID # 1485) robust and effective HHW program is an important part of the City’s sustainability and zero waste policies. Removing toxic contaminates from the garbage, sanitary sewer and storm drains will help to protect the environment. In addition, the HHW program provides education, and a point of contact for public/small business disposal of toxic wastes and usage of alternative safe products. The Palo Alto HHW program requires that the majority of the HHW collected be either recycled or used as beneficial fuel substitution. Moreover, local collection of HHW, as opposed to usage of the Santa Clara County regional HHW facility, reduces the distance residents and small businesses have to travel, thereby reducing the amounts of energy and greenhouse gas vehicle emissions into the atmosphere. Local collection also demonstrates Palo Alto’s commitment to take responsibility for the HHW that is generated. Palo Alto’s HHW program meets these objectives by providing convenient and safe collection and proper disposal of the HHW as well as encouraging the use of safer less toxic products and the reuse of these products. Improvements to the existing permanent HHW facility in Palo Alto would enhance these plan objectives by increasing operating hours thereby increasing the frequency and convenience for residents, and allowing for the reuse of unopened hazardous products. Discussion The work to be performed under this contract includes the operation the City’s ongoing monthly HHW program, a CESQG Program, a door-to-door HHW pickup for physically limited residents program, the consolidation, packaging transportation and recycling of recycling center household batteries and fluorescent tubes and a weekly appointment- based HHW drop-off program at the hazardous materials storage locker at the entrance to the WQCP.The weekly appointment-based drop-off accommodates residents that can’t wait for the monthly event because they are moving or other reasons. Part of this scope of work also requires the Contractor to provide for 24-hour hazardous waste emergency spill response services. Selection Process A notice inviting formal proposals for the work was posted at City Hall and sent to four pre-qualified contractors on March 24, 2011, the bidding period was 26 days. Proposals were received from two qualified contractors on April 19, 2011. Summary of Solicitation Process Proposal Description/Number Household Hazardous Waste and Emergency Response Services/RFP #140620 Proposed Length of Project 36 months Number of Proposals Mailed 4 Total Days to Respond to Proposal 26 Pre-proposal Meeting Date N/A Number of Proposals Received:2 July 18, 2011 Page 6 of 7 (ID # 1485) An evaluation committee consisting of three staff members from the Public Works Operations Division reviewed the proposal to ensure that the firm was responsive to the criteria identified in the RFP. The criteria used to select the recommended firm included: ·Quality and completeness of proposal; ·Quality, performance and effectiveness of the solution and services to be provided by the Proposer; ·Proposers experience, including the experience of staff to be assigned to the project, the engagements of similar scope and complexity; ·Cost to the city; ·Proposer’s financial stability; ·Proposer’s ability to perform the work within the time specified; ·Proposer’s prior record of performance with city or others; and ·Proposer’s compliance with applicable laws, regulations, policies (including city council policies), guidelines and orders governing prior or existing contracts performed by the contractor. Clean Harbors was selected because of the experience of key staff that will be assigned to the City’s program, and because of their prior record with the City. Clean Harbors (or their subsidiaries) has been the City’s HHW Contractor for over 15 years. Staff confirmed that Clean Harbors has all of the State and local permits required for this work. The 3-year term, scope of work and procurement process used for this contract follow the same approach as HHW contracts let by the City in previous years. Resource Impact Funding for this contract is available in the Refuse Fund’s FY 2012. Policy Implications This project does not represent any change to existing City policies. Environmental Review The HHW program was reviewed in the negative declaration for the Source Reduction and Recycling Element and Household Hazardous Waste Element approved by Council on June 6, 1991 (Negative Declaration No. 91-EIA-12). The CESQG program was reviewed in the negative declaration for the implementation of the program approved by Council on June 24, 1993 (Negative Declaration No. 93-EIA-22). Attachments: ·Attachment A: Contract (PDF) July 18, 2011 Page 7 of 7 (ID # 1485) Prepared By:Ron Arp, Manager, Environmental Control Programs Department Head:J. Michael Sartor, Interim Director City Manager Approval: James Keene, City Manager City of Palo Alto (ID # 1918) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 4 (ID # 1918) Summary Title: Adoption of a Resolution for the Beacon Award Title: Adoption of a Resolution Authorizing City Participation in the Beacon Award Recognition Program: Local Leadership toward Solving Climate Change From:City Manager Lead Department: City Manager Recommendation Staff recommends that Council adopt the attached resolution supporting the City of Palo Alto’s participation in the Beacon Award recognition program. Executive Summary The Beacon Award: Local Leadership toward Solving Climate Change is a newly established program of the Institute for Local Government (ILG) recognizing and celebrating cities and counties that reduce greenhouse gas emissions and energy use; adopt policies and programs to address climate change; and promote sustainability. ILG is the non-profit research and education affiliate of the League of California Cities and the California State Association of Counties. The Beacon Award program is funded by the California utility ratepayers and administered by Pacific Gas and Electric Company, San Diego Gas and Electric Company, Southern California Edison and Southern California Gas Company, under the auspices of the California Public Utilities Commission. In order to participate in the Beacon Award, cities and counties must complete a simple application and do the following: ·Adopt a resolution by the governing body committing the agency to participate in the program; ·Designate a lead staff person as a point of contact; ·Prepare, or commit to prepare, a baseline greenhouse gas emissions inventory for agency facilities and the community as a whole (previously completed inventories using a commonly accepted methodology will be accepted); July 18, 2011 Page 2 of 4 (ID # 1918) ·Prepare, or commit to prepare, a climate action plan that includes actions in each of the Best Practice Areas (previously completed plans using a commonly accepted methodology will be accepted); ·Demonstrate compliance with AB 939, the California Integrated Waste Management Act of 1989; and ·Achieve specified measurable greenhouse gas reductions and energy savings in agency facilities, and achieve measurable greenhouse gas reductions and promote energy conservation activities in the community. Participating cities and counties will be recognized with Silver, Gold and Platinum Beacon Award for achieving specified measureable reductions. The program will also recognize participants for interim accomplishments. Awards are achieved through the tiered scale of criteria below: Silver Beacon Award Agency Facilities & Operations GHG Reduction:5 percent in agency facilities & operations Energy Savings:5 percent in agency faculties & operations from energy efficiency retrofits Community GHG Reduction:5 percent in the community as a whole Energy Savings:1 activity that promotes energy efficiency in the community Best Practice Areas:One activity in each of the ten Best Practice Areas Gold Beacon Award Agency Facilities & Operations GHG Reduction:10 percent in agency facilities & operations Energy Savings:10 percent in agency faculties & operations from energy efficiency retrofits Community GHG Reduction:10 percent in the community as a whole Energy Savings:2 activities that promote energy efficiency in the community Best Practice Areas:2 activities in each of the ten Best Practice Areas Platinum Beacon Award Agency Facilities & Operations GHG Reduction:20 percent in agency facilities & operations Energy Savings:20percent in agency faculties & operations from energy efficiency retrofits July 18, 2011 Page 3 of 4 (ID # 1918) Community GHG Reduction:20 percent in the community as a whole Energy Savings:4 activities that promote energy efficiency in the community Best Practice Areas:3 activities in each of the ten Best Practice Areas The ten Best Practice Areas referenced are from ILG’s California Climate Action Network’s Best Practices Framework which offers suggestions for action to reduce greenhouse gas emissions in each of the areas, for both agency facilities and the community at large. The ten Best Practice Areas are: 1.Energy Efficiency & Conservation 2.Water & Wastewater Systems 3.Green Building 4.Waste Reduction & Recycling 5.Climate-Friendly Purchasing 6.Renewable Energy & Low-Carbon Fuels 7.Efficient Transportation 8.Land Use & Community Design 9.Open Space & Offsetting Carbon Emission 10.Promoting Community & Individual Action Once a city or county is accepted as a Beacon Award participant, it will work towards achieving one or more of the three award levels at its own pace. There is no deadline or timeline for meeting award level criteria; awards will be given out on an ongoing basis. However, participants will be asked to provide periodic information about their efforts to reduce greenhouse gas emissions and save energy and as well as progress in completing a greenhouse gas inventory, climate action plan and undertaking activities in the ten best practice areas. Participants will receive special recognition at League of California Cities and California State Association of Counties events, be highlighted on the Beacon Award website, and receive certificates and other materials to display in agency facilities. They may also receive other appropriate and visible public tributes acknowledging their accomplishments. Additional detailed information about the program can be found at: www.ca-ilg.org/BeaconAward. Background The City of Palo Alto is currently a leader in adopting polices that are proactive in addressing climate change issues. Participating in the Beacon Award program will increase the City’s visibility within our region and state. This is an opportunity for the July 18, 2011 Page 4 of 4 (ID # 1918) City of Palo Alto to showcase its existing efforts to promote sustainability and save energy, while working towards these award levels. Resource Impact The program is designed to piggyback on existing efforts. The only resource impact that would result from participation in this program would be a minor amount of staff time. Further, participating in the program may increase the City’s competitiveness for future state or other grant funding. Environmental Review Opting to participate in the Beacon Award program is not a project under the California Environmental Quality Act. CEQA review for individual projects or best practices that may qualify toward Beacon Award criteria will be evaluated on a case-by-case basis. Attachments: ·Resolution Authorizing City Participation in Beacon Award Program (PDF) Prepared By:Richard Hackmann, Department Head:James Keene, City Manager City Manager Approval: James Keene, City Manager ** NOT YET APPROVED ** 110712 sh 8261645 1 Resolution No. ________ Resolution of the Council of the City of Palo Alto Approving the City’s Participation in the Institute for Local Government’s Climate Action Network Recognition Program, the Beacon Award: Local Leadership Toward Solving Climate Change WHEREAS, the City of Palo Alto is undertaking policies, programs and activities to reduce greenhouse gas emissions and save energy; and WHEREAS, these policies, programs and activities conserve natural resources, save energy and money, and promote sustainable land use and transportation planning in the community; and WHEREAS, cities and counties statewide are leading by example by adopting innovative sustainability programs and policies, including working with community residents, business groups and others; and WHEREAS, the City of Palo Alto is currently a leader in adopting polices that are proactive in addressing climate change issues; and WHEREAS, the City of Palo Alto wishes to continue these activities, share its experiences with other communities, and be recognized for its accomplishments; and WHEREAS, the Beacon Award: Local Leadership Toward Solving Climate Change is a voluntary program of the Institute for Local Government, the non-profit research and education affiliate of the California State Association of Counties and the League of California Cities; and WHEREAS, the Beacon Award recognizes and celebrates achievements of cities and counties that reduce greenhouse gas emissions and save energy; and WHEREAS, participating in the Beacon Award is an opportunity for the City of Palo Alto to be recognized for its efforts to promote sustainability, reduce greenhouse gas emissions and save energy. NOW, THEREFORE, the City Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. The City of Palo Alto agrees to participate in the Beacon Award: Local Leadership Toward Solving Climate Change. SECTION 2. The City of Palo Alto will work towards achieving the Silver, Gold and/or Platinum Beacon Award levels. ** NOT YET APPROVED ** 110712 sh 8261645 2 SECTION 3. The Council finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ______________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ______________________________ Sr. Deputy City Attorney City Manager City of Palo Alto (ID # 1915) City Council Staff Report Report Type: Consent Calendar Meeting Date: 7/18/2011 July 18, 2011 Page 1 of 2 (ID # 1915) Summary Title: Establishing GO Bond Tax Levy Title: Adoption of Resolution Establishing Fiscal Year 2011-12 Secured and Unsecured Property Tax Levy for the City of Palo Alto’s General Obligation Bond Indebtedness (Measure N) From:City Manager Lead Department: Administrative Services Recommendation 1)Adopt a resolution (Attachment A) approving the establishment of the Fiscal Year 2011- 12 property tax levy of $15.51 per $100,000 in Assessed Value (AV) for the secured and utility tax roll and $17.11 per $100,000 in AV for the unsecured tax roll for the City of Palo Alto’s Measure N General Obligation Bond (First Series). Background On November 4, 2008, City voters passed Measure N which gave the City authority to issue a maximum amount of $76,000,000 million of General Obligation bonds (the "Bonds") for capital improvements to the Mitchell Park, Downtown, and Main libraries and to the Mitchell Park community center. The City successfully sold the first of two series of Bonds to provide $58.5 million in funds for Mitchell Park Library, Mitchell Park Community Center, and Downtown Library construction costs as well as design costs for the Main Library. The Bonds were purchased by Citigroup Global Markets, Incorporated on June 9, 2010 with a closing on June 30, 2010. The True Interest Cost for the Bonds was 4.207 percent, which was 1.22 percent lower than the City originally projected in 2008. As a result, the City estimated savings of up to $14.5 million in cumulative interest costs over 30 years for the first series of Bonds. Both Standard and Poor's (S &P) and Moody's awarded their highest credit ratings, Triple A, to the Bonds. Discussion Debt service payments on the newly issued Bonds are paid through ad valorem taxes on all taxable land and improvements (both secured and unsecured assessment roll) within the City. Staff is seeking Council approval of the attached resolution (Attachment A) which authorizes the placement of an ad valorem property tax levy in the amount of $0.01551 per $100 or $15.51 per $100,000 in AV for the secured tax roll; and $0.01711 per $100 or $17.11 per $100,000 in AV for the unsecured tax roll. In comparison, prior years secured and unsecured tax levy was $17.11 and $0, respectively, per $100,000 of AV. According to the County,the General Obligation tax levy applies to the unsecured AV at the beginning of the second assessment year, July 18, 2011 Page 2 of 2 (ID # 1915) resulting in secured tax levy declining by 9.3 percent compared to the 2010-11 tax levy. The County’s methodology is that the prior year’s secured tax rate becomes the current year’s unsecured tax rate. A house with an assessed value of $1 million, for example, would see an annual assessment of $155.10 on their property tax bill. It is important to note that the secured and unsecured tax levy of $15.51 and $17.11 assessment, respectively, is for the first series of bonds and that a second series of bonds will be issued for construction costs on the Main Library. Resource Impact The first series bond issuance results in 2012 calendar year debt service expenditure of approximately $3.5 million and Council approval of the attached resolution will result in ad valorem tax levy revenue of this approximate amount. Again, secured and unsecured property owners will see a levy of $15.51 and $17.11 per $100,000 of AV on their 2011-12 property tax statement. Environmental Review There is no environmental review required for this report. Attachments: ·Attachment A: Resolution of the Council of the City of Palo Alto Establishing Fiscal Year 2011-12 Property Tax Levy for the City's General Obligation Bond Indebtedness (PDF) ·Exhibit A: General Obligation Bonds, Election of 2008, Series 2010 Tax Rate Calculation Based on 2011-12 AV (PDF) Prepared By:Tarun Narayan, Senior Financial Analyst Department Head:Lalo Perez, Director City Manager Approval: James Keene, City Manager Not Yet Approved 110711 jb 0130806 1 Resolution No. _____ Resolution of the Council of the City of Palo Alto Establishing the Fiscal Year 2011-12 Property Tax Levy of $15.51 Per $100,000 of Secured and $17.11 Per $100,000 of Unsecured Assessed Valuations for the City’s General Obligation Bond Indebtedness (Measure N Library Projects) WHEREAS, at the City of Palo Alto’s (“City”) general election held on November 4, 2008, more than two thirds of voters approved Measure N, authorizing the issuance of general obligation bonds in the amount not to exceed $76,000,000 (the “Authorization”) to fund construction of a new Mitchell Park Library and Community center and renovation and improvements to Downtown and Main libraries; and WHEREAS, pursuant to the Authorization, the City issued one series (Series 2010A) of general obligation bonds in June 2010 that yielded $58.5 million for project needs; and WHEREAS, the City is obligated to levy ad valorem taxes on all property within the City subject to taxation by the City, without limitation on rate or amount (except with respect to certain personal property which is taxed at limited rates), for the payment of the debt service on the Bonds; and WHEREAS, the City is obligated to direct the County of Santa Clara to collect such ad valorem taxes in such amounts and at such times as is necessary to ensure the timely payment of debt service on the Bonds; and WHEREAS, the amount of the annual ad valorem tax levied by the City to repay the Bonds is determined by the relationship between the assessed valuation of taxable property in the City and the amount of debt service due on the bonds. NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows: SECTION 1. Pursuant to the Authorization, an ad valorem property tax is hereby established to be levied on all land and improvements in the City of Palo Alto during fiscal year 2011-2012 in the amount of $0.01551 per $100 in assessed value for the secured and utility tax roll and $0.01711 per $100 in assessed value for the unsecured tax roll based on the calculations set forth in the attached Exhibit "A". SECTION 2. The City’s Director of Administrative Services shall cause a certified copy of this Resolution to be delivered to the Auditor of the County of Santa Clara for entry in the assessment book of the respective sums in dollars and cents // // // Not Yet Approved 110711 jb 0130806 2 SECTION 3. The Council finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: __________________________ __________________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: __________________________ __________________________________ Senior Asst. City Attorney City Manager __________________________________ Director of Administrative Services / CFO A)Assessed Valuations (AV) 1 )2011-12 Taxable Secured Assessed Valuation (AV)20,969,870,384$ 2 )2011-12 Taxable Unsecured AV 1,569,246,039$ 3 )Less: Estimated Delinquency 4.11%(64,496,012.20) 4 )Net Taxable Unsecured AV 1,504,750,026.80 B)Tax Levy Requirement 2011-12 Debt Service Payments 5 )February 1, 2012 1,247,534.38$ 6 )August 1, 2012 2,247,534.38 7 )Total Calendar Year 2012 Debt Service Payment 3,495,068.76 8 )Deficit Balance on Property Tax Revenue from Prior Year Levy 5,301.56 9 )Sub-total 3,500,370.32 10 )Santa Clara County Administration Fee (0.25% of Principal & Interest)8,750.93 11 )Total 2011-12 Annual Debt Service Requirement 3,509,121.25 C)Secured and Unsecured Tax Rate 12 )2011-12 Unsecured Tax Rate per $100 of Unsecured AV (Prior Year's Secured Tax Rate)0.017110$ 13 )2011-12 Unsecured Tax Rate per $100,000 of Unsecured AV 17.11$ 14 )2011-12 Estimated Revenue from Unsecured AV (line 4 divide by 100 times by line 12)257,462.73$ 15 )2011-12 Estimated Revenue from Secured AV (line 11 minus line 13)3,251,658.52 16 )Total 2011-12 Annual Debt Service Requirement 3,509,121.25$ 17 )2011-12 Secured Tax Rate per $100 of Secured AV (line 14 divided by line 1*100)0.01551$ 18 )2011-12 Secured Tax Rate per $100,000 of Secured AV (line 14 divided by line 1 times 100,000)15.51$ Exhibit A City of Palo Alto General Obligation Bonds, Election of 2008, Series 2010 Tax Rate Calculation Based on 2011-12 Assessed Values City of Palo Alto (ID # 1891) City Council Staff Report Report Type: Action ItemsMeeting Date: 7/18/2011 July 18, 2011 Page 1 of 4 (ID #1891) Summary Title: Refinancing 2002 Utility Revenue Bonds Title: Resolution of the Council of the City of Palo Alto Authorizing the Issuance and Sale of Utility Revenue Refunding Bonds, Approving Indenture of Trust, Official Notice of Sale, Notice of Intention to Sell and Official Statement, and Authorizing Official Actions Related There to From:City Manager Lead Department: Administrative Services Recommendation Staff recommends that the City Council approve the attached resolution (Attachment A), to: 1)Authorize staff to refinance the outstanding 2002 Utility (Water and Gas) Revenue Bonds through the issuance of Utility Revenue (Refunding) Bonds in the not to exceed amount of $18,050,000 2)Approve the Indenture of Trust, Official Notice of Sale, Notice of Intention, and Preliminary Official Statement; and authorize official actions related thereto Background In 2002 the City issued Water and Gas Utility Revenue bonds in the amount of $26.1 million for select water and gas system capital improvements for a reservoir, water pump and booster station improvements; well land acquisition; and gas distribution system improvements. The financing of these projects represented a departure from the City’s traditional pay-as-you-go approach for water and gas capital work. Discussion The principal amount remaining on the 2002 Utility Revenue Bonds is $18.05 million, and the City’s new Financial Advisor, Public Financial Management, Inc. (PFM), has determined that annual Water and Gas debt service costs can be reduced by refinancing these revenue bonds. Savings are estimated to be $147,000 annually over the next fifteen years with Water and Gas funds sharing this estimated savings by 45 percent and 55 percent, respectively. At this time, net present value (NPV)savings are estimated at $1.56 million or 8.64 percent of refunding bonds. The NPV savings of 8.64 percent exceeds the typically used threshold of 3.0 percent to determine a refinancing, so staff recommends moving forward at this time. The City expects the bond sale to occur during the week of September 5, 2011. It is important to note that July 18, 2011 Page 2 of 4 (ID # 1891) potential savings cited in this report are estimates and that final savings are dependent on prevailing interest rates and underwriter bids on the day of the bond sale. To maximize the quality of the City’s bond issuance and minimize interest expense, staff will deliver a ratings presentation to Standard and Poor’s (S&P) and Moody’s during the week of August 8, 2011. Staff from the Administrative Services and the Utilities Departments, as well as the City’s bond counsel and financial advisor, will participate in the presentation. Information such as the financial condition of the City’s utilities, the ability of the enterprise funds to repay debt, the status of the City’s utility contracts and commitments, and the pledges the City makes in its bond covenants will be presented to the ratings agencies. These agencies will be especially interested in recent City Council budgetary actions, the overall strength of the combined utility reserves, the amount of existing utilities debt, and the City’s long term water and gas contracts. This information is factored into each agency’s credit rating which investors use in buying the bonds. A high credit rating results in lower interest costs. All the City’s rated Utility bonds have a triple A rating. As soon as the ratings are received, staff will relay the results to Council. The most critical factors affecting a credit rating are the guarantees or covenants a borrower makes to bondholders for paying its debt. The City’s covenant for the proposed utility bonds is similar in structure to that used for the 2002 Utility Revenue Bonds issued for improvements (CMR:456:01). The attached (Exhibit D) Indenture of Trust (Section 5.11 and 5.12) outlines the City’s financial covenants. In general, the first and foremost guarantee the City is making is that the water and gas systems individually will generate sufficient charges/revenues, combined with their available Rate Stabilization Reserves, to cover all of their costs and to maintain a certain ratio of available resources to annual debt service. To further enhance credit worthiness, there is a second assurance in the attached Indenture. It requires that, in addition to having sufficient net revenue from the water and gas systems to pay principal and interest on the bonds, specific utility available reserves, which include includes water, gas, and electric systems, will be maintained at a level at least five times the maximum annual debt device on all utility bonded debt. As a result of refinancing the 2002 bonds, the Water and Gas utilities estimated average annual debt service will go from $1.72 million to $1.58, a savings of $0.14 million. When combined with the average annual debt service of $2.17 million on the City’s 2009 Water Utility Revenue Bonds, these two utilities will have a total $3.75 million (Water $2.88 million and Gas $0.87 million). The annual debt on all utility bonded debt for fiscal year 2010-11 is $5.92 million. At five times this level, all utility bonded debt would need to maintain at least $29.6 million in available reserves to meet its indenture requirements. Currently, the utility available reserves as of March 2011 for annual debt service and the five times the annual debt service stand at 25 times and 5 times, respectively on all utility bonded debt, easily exceeding the debt indenture requirement. These indenture requirements are the same as the existing indenture requirements and in the past the City’s Utility reserve policies have provided ample buffer to meet this requirement. While staff believes that these reserves will not fall below the level required by the outstanding indentures, it is important that Council and future staff be aware of the commitment this provision entails. July 18, 2011 Page 3 of 4 (ID # 1891) Council approval is required to sell up to $18,050,000 in Utility Revenue (Refunding) Bonds through a competitive sale process in the week of September 5, 2011. The settlement or closing of the bond sale will occur around September 19, 2011. The City’s Financial Advisor (PFM) will assist the City in receiving and evaluating bids received from underwriters for the bonds and in selecting the optimal bid. Underwriters are investment-banking firms, and the underwriter selected will resell the bonds to investors, typically institutional investors like mutual funds and high net worth individuals. The underwriter with a bid resulting in the lowest interest cost to the City will be selected on the bid day. Documents Submitted for Council Approval The Council must approve the attached Resolution before the 2011 Utility Revenue (Refunding) Bonds can be sold by a competitive sale. By approving this resolution, the City Council authorizes various City officials to sign and execute various documents. The Resolution also approves the following documents: o Preliminary Official Statement containing information material to the offering and sale of bonds (Exhibit A) o Official Notice of Sale to the investment community seeking bids to be received at the offices of PFM during the week of September 5, 2011 (Exhibit B) o Notice of Intention to Sell Bonds (Exhibit C) o Indenture of Trust between the City of Palo Alto and US Bank Trust National Association as Trustee (Exhibit D) o Escrow Deposit and Trust Agreement Between City of Palo Alto and US Bank National Association for the refunding of the 2002 Utility Revenue Bonds (Exhibit E) Resource Impact Refinancing of the 2002 Utility Revenue bonds is estimated to reduce annual expenditures by $147,000. Issuance costs that include bond and disclosure counsel, financial advisor, and rating agency fees will be paid through the sale of bonds. Precise debt service payments will not be known until competitive bids are received from the underwriting firms. At this time, the current interest rate environment is most favorable for issuing or refinancing debt. Policy Implications While there is no Council policy on the methods of refinancing debt, the traditional approach has been to sell bonds with competitive bids in the open bond market. July 18, 2011 Page 4 of 4 (ID # 1891) Timeline Week of Aug. 08, 2011 Ratings presentations to Moody’s and Standard and Poor’s Week of Aug. 22, 2011 Ratings commitments received Week of Aug. 29, 2011 Premarketing calls to underwriters Week of Sept. 05, 2011 Bids received and bonds priced. Bonds awarded to winning bidder Week of Sept. 19, 2011 Pre-close and close bond issue. Environmental Review The adoption of the attached resolution and documents does not constitute a project under the California Environmental Quality Act; therefore, no environmental assessment is required. Attachments: ·Attachment A: Resolution of the Council of the City of Palo Alto Authorizing the Issuance and Sale of Utility Revenue Refunding Bonds and Approving Related Documents (PDF) ·Exhibit A: Preliminary Official Statement (PDF) ·Exhibit B: Official Notice of Sale (PDF) ·Exhibit C: Notice of Intention To Sell (PDF) ·Exhibit D: Indenture of Trust between the City of Palo Alto and US Bank Trust National Association as Trustee (PDF) ·Exhibit E: Escrow Deposit and Trust Agreement between City of Palo Alto and US Bank National Association (PDF) Prepared By:Tarun Narayan, Senior Financial Analyst Department Head:Lalo Perez, Director City Manager Approval: James Keene, City Manager Not Yet Approved Resolution No.______ Resolution of the Council of the City of Palo Alto Authorizing the Issuance and Sale of Utility Revenue Refunding Bonds, Approving Indenture of Trust, Official Notice of Sale, Notice of Intention to Sell and Official Statement, and Authorizing Official Actions Related Thereto The Council of the City of Palo Alto does RESOLVE as follows: SECTION 1. Authority. The City is a chartered city and municipal corporation organized and existing under the constitution and laws of the State of California, and is duly empowered as a chartered city to exercise the powers reserved to it under said constitution with respect to municipal affairs. SECTION 2. Utility Systems. As an exercise of such powers, the City has heretofore adopted the provisions of Chapter 12.28 (commencing with Section 12.28.010) of the Palo Alto Municipal Code (the "Law") which authorize the City, when the public interest and necessity require, by resolution, to issue its revenue bonds for the purpose of financing or refinancing the acquisition, construction, extension or improvement of any utility enterprise system or facility of the City. SECTION 3. Outstanding Bonds. The City has heretofore authorized, issued and sold $26,055,000 principal amount of its City of Palo Alto Utility Revenue Bonds, 2002 Series A (the “2002 Bonds”) pursuant to an Indenture of Trust, dated as of January 1, 2002, between the City and the Trustee, to finance improvements to the City’s gas and water systems. SECTION 4. Bonds Proposed. The City, after due investigation and deliberation, has determined that it is in the public interest of the City at this time to authorize the issuance of its utility revenue refunding bonds (the “Bonds”) under the Law to realize interest savings for the benefit of the affected utility systems of the City, to (i) refinance the 2002 Bonds, (ii) establish a debt service reserve fund for the Bonds, and (iii) pay certain costs of issuing the Bonds. SECTION 5. Bond Sale Documents. Quint & Thimmig LLP, as disclosure counsel to the City (“Disclosure Counsel”) has prepared and submitted to the City a preliminary Official Statement relating to the Bonds, a copy of which is attached as Exhibit A and also on file with the City Clerk, for distribution to municipal bond broker-dealers, banking institutions and members of the general public who may be interested in purchasing the Bonds, and Jones Hall, A Professional Law Corporation, as bond counsel to the City (“Bond Counsel”), has prepared an official notice of sale of the Bonds (the "Official Notice of Sale") a copy of which is on file with the City Clerk, and a notice of intention to sell the Bonds (the "Notice of Intention"), a copy of which is on file with the City Clerk, for publication as herein provided. SECTION 6. Authorization of Sale. Not Yet Approved 2 The Council approves the competitive sale of the Bonds with bids to be received on such date and time as recommended by the City’s Financial Advisor and agreed to by the Director of Administrative Services. The Director of Administrative Services is hereby authorized to award the sale of the Bonds to the bidder whose responsive bid for the Bonds results in the lowest true interest cost to the City, to be determined in accordance with the Official Notice of Sale; provided that the term of the Bonds shall not extend the maturity of the 2002 Bonds, and the net present value savings achieved by the refunding of all or selected maturities of the 2002 Bonds is at least 3% of the principal amount of the 2002 Bonds being refunded.] SECTION 7. Indenture of Trust. The Bonds shall be issued pursuant to an Indenture of Trust dated as of September 1, 2011 (the "Indenture"), by and between the City and U.S. Bank National Association, as trustee (the "Trustee"). The Indenture, in substantially the form on file with the City Clerk, is hereby approved, and the Mayor, the City Manager and the Director of Administrative Services (each, an “Authorized Official”) are hereby separately authorized to execute the Indenture when finalized, following the sale of the Bonds, and the City Clerk is hereby authorized and directed to attest said Authorized Official’s signature. SECTION 8. Escrow Agreement. The 2002 Bonds shall be refunded pursuant to an Escrow Deposit and Trust Agreement dated as of September 1, 2011 (the "Escrow Agreement"), by and between the City and U.S. Bank National Association, as escrow bank (the "Escrow Bank"). The Escrow Agreement, in substantially the form on file with the City Clerk, is hereby approved, and the Authorized Officials are hereby separately authorized to execute the Escrow Agreement when finalized, following the sale of the Bonds and the structuring of the escrow for the 2002 Bonds, and the City Clerk is hereby authorized and directed to attest said Authorized Official’s signature. SECTION 9. Official Statement. The preliminary Official Statement describing the Bonds, in substantially the form submitted to the Council, is hereby approved, subject to whatever additions, deletions and corrections may be deemed advisable by the Authorized Official upon consultation with Disclosure Counsel, Public Financial Management (the “Financial Advisor”), Bond Counsel and the City Attorney. The Authorized Official is hereby separately authorized and directed, upon consultation with the Financial Advisor, Disclosure Counsel, Bond Counsel and the City Attorney, to approve such changes to the preliminary Official Statement as shall be necessary to cause such preliminary Official Statement to be brought into the form of a final Official Statement, and the Authorized Official is hereby authorized and directed to execute and deliver copies of the final Official Statement to the purchaser of the Bonds, at the time of delivery of the Bonds. The Council hereby approves, and hereby deems nearly final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934 (the “Rule”), the preliminary Official Statement. The Authorized Official is hereby authorized to execute an appropriate certificate stating the Council's determination that the preliminary Official Statement has been deemed nearly final within the meaning of the Rule. SECTION 10. Distribution of Official Statement and Official Notice of Sale. The Financial Advisor is hereby authorized and directed to cause copies of the preliminary Official Statement to be printed and mailed to prospective bidders for the Bonds, together with Not Yet Approved 3 copies of the Official Notice of Sale, which Official Notice of Sale, in substantially the form on file with the City Clerk, is hereby approved. SECTION 11. Execution of Documents. The Mayor, Vice Mayor, City Manager, City Clerk, Director of Administrative Services, Director of Utilities, Director of Public Works, City Attorney and any and all other officers of the City are each authorized and directed in the name and on behalf of the City to execute and deliver any and all certificates, requisitions, agreements, notices, consents, warrants and other documents, which they or any of them might deem necessary or appropriate in order to consummate the lawful issuance, sale and delivery of the Bonds to the original purchaser thereof. SECTION 12. Exemption from CEQA. The City Council finds that this resolution is not a project under Section 21065 of the California Environmental Quality Act (CEQA). SECTION 13. Effective Date. This resolution shall be effective upon the date of its adoption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: APPROVED: _________________________________ ______________________________ City Clerk Mayor APPROVED AS TO FORM: ______________________________ ______________________________ Senior Asst. City Attorney City Manager JONES HALL, A Professional Law Corporation ______________________________ Director of Utilities _________________________________ ______________________________ William H. Madison Director of Administrative Services Bond Counsel Th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t a n d t h e i n f o r m a t i o n c o n t a i n e d he r e i n a r e s u b j e c t t o c o m p l e t i o n o r a m e n d m e n t . U n d e r n o c i r c u ms t a n c e s s h a l l t h i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t c o n s t i t u t e an o f f e r t o s e l l o r a s o l i c i t a t i o n o f a n o f f e r t o bu y n o r s h a l l t h e r e b e a n y s a l e o f t h e s e s e c u r i t i e s i n a n y j u r i s d i c t i o n i n w h i c h s u c h o f f e r , s o l i c i t a t i o n o r s a l e w o u l d b e u n l a wf u l p r i o r t o r e g i s t r a t i o n o r q u a l i f i c a t i o n u n d e r t h e s e c u r i t i e s l a w s o f s u c h j u r i s d i c t i o n . PRELIMINARY OFFICIAL STATEMENT DATED AUGUST __, 2011 NEW ISSUE—BOOK-ENTRY ONLY RATINGS: Moody’s: “____” S&P: “___” See “RATINGS” herein. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. See “LEGAL MATTERS—Tax Matters” herein. $_______* CITY OF PALO ALTO (Santa Clara County, California) Utility Revenue Refunding Bonds, 2011 Series A Dated: Date of Delivery Due: June 1, as shown below The City of Palo Alto, a chartered city and municipal corporation (the “City”), is issuing its Utility Revenue Refunding Bonds, 2011 Series A (the “Bonds”), pursuant to an Indenture of Trust, dated as of September 1, 2011 (the “Indenture”), by and between the City and U.S. Bank National Association, as trustee (the “Trustee”), the Charter of the City and Chapter 12.28 of the Palo Alto Municipal Code. The Bonds are being issued to (a) refund, on a current basis, the City’s outstanding City of Palo Alto Utility Revenue Bonds, 2002 Series A (the “2002 Bonds”), (b) establish a debt service reserve account for the Bonds, and (c) pay certain costs of issuing the Bonds. See “REFUNDING PLAN” herein. The 2002 Bonds were issued to finance improvements to the City’s municipal water utility system (the “Water System”) and to finance improvements to the City’s municipal natural gas utility system (the “Gas System”). The Bonds are special obligations of the City and are secured by amounts held from time to time in the Debt Service Fund established under the Indenture and, subject to certain restrictions set forth in the Indenture, a pledge of and lien on certain net revenues (the “Net Revenues”) generated by the Water System and the Gas System (each, a “System”) securing subseries of the Bonds related to each System. The subseries of the Bonds secured by the Net Revenues of the Water System are issued on a parity, as to payment and security, with the City’s outstanding Water Revenue Bonds, 2009 Series A (the “2009 Bonds”), issued to finance certain improvements to the Water System. The City has agreed to advance moneys from certain rate stabilization reserve funds (the “Available Reserves”), if necessary, to pay debt service on the Bonds. The 2009 Bonds constitute additional claims on the Available Reserves as well as certain other rate stabilization reserve funds. See “SECURITY FOR THE BONDS” herein. The City’s Utility Revenue Bonds, 1995 Series A (the “1995 Bonds”), are currently outstanding in the principal amount of $4,595,000 (as of June 1, 2011) and are secured by a lien on net revenues of the City’s entire “Enterprise,” which consists of the Water System, the Gas System, the City’s municipal sanitary sewerage and sewage disposal system (the “Sewer System”), the City’s municipal storm and surface water system (the “Storm Drain System”) and the City’s electric utility (the “Electric System”). The lien of the 1995 Bonds on the Net Revenues of the Water System is senior to the lien on Net Revenues securing the subseries of the Bonds related to the Water System and senior to the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues of the Gas System is senior to the lien on Net Revenues securing the subseries of the Bonds related to the Gas System. The 1995 Bonds are also secured by certain net revenues derived from the Storm Drain System, the Sewer System and the Electric System which are not pledged for the payment of the Bonds or the 2009 Bonds. The Bonds will be issued in fully registered form only and, when executed and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Bonds. Beneficial ownership interests in the Bonds may be purchased in book-entry form only. Payments of principal and interest (and premium, if any) will be paid by the Trustee to DTC for subsequent disbursements to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See “THE BONDS—Book-Entry Only System” herein. The Bonds will be issued as fully registered bonds in denominations of $5,000 or any integral multiple of $5,000. Interest is payable on each June 1 and December 1, commencing December 1, 2011. The Bonds are subject to optional and mandatory redemption prior to maturity. See “THE BONDS—Redemption” herein. Additional bonds and other indebtedness payable from the Net Revenues of a System may be issued on a parity with the applicable subseries of the Bonds (and on a parity with the 2009 Bonds with respect to Net Revenues of the Water System), subject to the conditions contained in the Indenture. See “SECURITY FOR THE BONDS— Limitations on Net Revenue Pledges” herein. NEITHER THE GENERAL FUND, THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IS PLEDGED FOR THE PAYMENT OF THE BONDS. MATURITY SCHEDULE CUSIP† Prefix: _______ Maturity Maturity Date Principal Interest Price or CUSIP† Date Principal Interest Price or CUSIP† (June 1) Amount Rate Yield Suffix (June 1) Amount Rate Yield Suffix Bids for the purchase of the Bonds will be received by the City on _________, September __ 2011, until 10:00 A.M., Pacific time, as provided in the Official Notice of Sale. The Bonds will be sold pursuant to the terms of sale set forth in the Official Notice of Sale, dated August __, 2011. This cover page contains information for general reference only. It is not a summary of this issue. Potential purchasers of the Bonds are advised to read the entire Official Statement to obtain information essential to making an informed investment decision. The Bonds will be offered when, as and if issued and received by the Underwriter subject to the approval of legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain disclosure matters will be passed upon for the City by Quint & Thimmig LLP, San Francisco, California, Disclosure Counsel. Certain matters will be passed upon for the City by Molly S. Stump, Esq., the City Attorney. It is expected that the Bonds, in book-entry form, will be available for delivery on or about September __, 2011. Dated: September ___, 2011 *Preliminary, subject to change. † Copyright 2011, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by the CUSIP Service Bureau, operated by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the City and are included solely for the convenience of the registered owners of the Bonds. The City is not responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. No dealer, broker, salesperson or any other person has been authorized to give any information or make any representation with respect to the 2011 Bonds, other than as contained in this Official Statement, and, if given or made, any such information or representation must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer of any securities other than those described on the cover page or an offer to sell or a solicitation of an offer to buy, nor may there be any sale of the 2011 Bonds by any person in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2011 Bonds. The information set forth in this Official Statement has been furnished by the City and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. The information and expressions of opinion in this Official Statement are subject to change without notice and neither the delivery of this Official Statement nor any sale of the 2011 Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the City since the date of this Official Statement. Summaries and references to statutes and documents in this Official Statement do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each such statute or document. This Official Statement is submitted in connection with the sale of the 2011 Bonds and may not be reproduced or be used, as a whole or in part, for any other purpose. In connection with the offering of the 2011 Bonds, the Underwriter may over-allot or effect transactions which stabilize or maintain the market price of the 2011 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the 2011 Bonds to certain dealers and dealer banks and banks acting as agent and others at prices lower than the public offering prices stated on the cover page of this Official Statement, and those public offering prices may be changed from time to time by the Underwriter. The 2011 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in that act. The 2011 Bonds have not been registered or qualified under the securities laws of any state. Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption “THE WATER SYSTEM” and “THE GAS SYSTEM.” The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement. The City maintains a website. Unless specifically indicated otherwise, the information presented on such website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the Bonds. CITY OF PALO ALTO 250 Hamilton Avenue Palo Alto, CA 94301 (650) 329-2100 http://www.cityofpaloalto.org/ CITY COUNCIL MEMBERS Sid Espinosa, Mayor Yiaway Yeh, Vice Mayor Patrick Burt, Council Member Karen Holman, Council Member Larry Klein, Council Member Gail A. Price, Council Member Gregory Scharff, Council Member Greg Schmid, Council Member Nancy Shepherd, Council Member CITY STAFF James Keene, City Manager Pamela Antil, Assistant City Manager/Chief Operation Officer Lalo Perez, Director of Administrative Services Joe Saccio, Assistant Director of Administrative Services Tarun Narayan, Senior Financial Analyst, Administrative Services Molly S. Stump, City Attorney Donna Grider, City Clerk Utilities Department Valerie Fong, Director of Utilities Tom Auzenne, Assistant Director of Utilities, Customer Support Services Tomm Marshall, Assistant Director of Utilities, Engineering Jane Ratchye, Assistant Director of Utilities, Resource Management Dean Batchelor, Assistant Director of Utilities, Operations SPECIAL SERVICES Bond Counsel Jones Hall A Professional Law Corporation San Francisco, California Disclosure Counsel Quint & Thimmig LLP San Francisco, California Financial Advisor Public Financial Management, Inc. San Francisco, California Trustee and Escrow Bank U.S. Bank National Association San Francisco, California TABLE OF CONTENTS INTRODUCTION.........................................................................1 THE 2011 BONDS.......................................................................4 Bond Terms...............................................................................4 Transfer and Exchange.........................................................4 2011 Bonds Mutilated, Destroyed, Stolen or Lost......5 Redemption................................................................................5 Book-Entry-Only System......................................................7 REFUNDING PLAN....................................................................7 Purposes of the Bonds............................................................7 Estimated Sources and Uses of Funds.............................7 Annual Debt Service...............................................................8 SECURITY FOR THE 2011 BONDS......................................9 Pledge of Net Revenues..........................................................9 Limitations on Net Revenue Pledge...............................11 Rate Covenant........................................................................11 Available Reserves...............................................................12 Parity and Subordinate Bonds........................................12 Reserve Account....................................................................14 THE CITY AND CITY UTILITIES......................................14 The City....................................................................................14 City Utilities...........................................................................14 Management of the Utilities Department....................15 Enterprise Staffing and Technology..............................17 Enterprise Management Policy.......................................17 Rates and Billing..................................................................18 Reserve Policies.....................................................................18 Annual Financial Statements and Significant Accounting Policies ...........................................................18 THE WATER SYSTEM...........................................................19 History......................................................................................19 Service Area............................................................................20 Water Storage and Distribution System......................20 Sources of Water Supply....................................................20 Recycled Water Project.......................................................23 Water Conservation Policies and Procedures............24 Historical Production and Deliveries...........................25 Environmental Issues Relating to the Water System ....................................................................................25 Capital Improvement Program Summary..................25 Water Rates, Fees and Charges........................................27 Water Demand and Customer Base..............................29 Management Discussion of Operations.......................31 Balance Sheet..........................................................................32 Historical Operating Results............................................33 Projected Operating Results and Debt Service Coverage................................................................................34 THE GAS SYSTEM ..................................................................35 History......................................................................................35 Service Area............................................................................36 Gas Distribution System....................................................36 Sources of Gas Supply.........................................................36 Gas Conservation Policies and Procedures................37 Historical Production and Deliveries...........................38 Environmental Issues Relating to the Gas System...38 Capital Improvement Program Summary..................39 Gas Rates, Fees and Charges............................................39 Gas Demand and Customer Base...................................40 Management Discussion of Operations.......................42 Balance Sheet..........................................................................43 Income Statements................................................................44 Projected Operating Results and Debt Service Coverage................................................................................45 AVAILABLE RESERVES.......................................................46 The City’s Rate Stabilization Reserves For Its Enterprise Funds ................................................................46 Rate Stabilization Reserve for the Water System.....47 Rate Stabilization Reserves for the Electric System ....................................................................................48 Rate Stabilization Reserves for the Gas System........49 Calaveras-Stranded Costs Reserve................................50 CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES...........................52 Article XIIIA...........................................................................52 Article XIIIB............................................................................53 Articles XIIIC and XIIID.....................................................53 RISK FACTORS RELATING TO THE 2011 BONDS..56 Limited Obligations............................................................56 System Expenses...................................................................56 Limited Recourse on Default............................................56 Limitations on Remedies...................................................57 Balance of the Available Reserves..................................57 Initiatives.................................................................................57 Bankruptcy..............................................................................58 Tax Exemption of the 2011 Bonds.................................58 Additional Obligations.....................................................58 Seismic Considerations......................................................58 Investment of City Funds...................................................59 LEGAL MATTERS..................................................................59 Approval of Legal Proceedings.......................................59 Absence of Litigation..........................................................59 Tax Matters............................................................................59 CONTINUING DISCLOSURE..............................................61 FINANCIAL ADVISOR...........................................................61 RATINGS.....................................................................................61 VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS............................61 UNDERWRITING.....................................................................62 MISCELLANEOUS..................................................................62 APPENDIX A - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE OF TRUST APPENDIX B - GENERAL AND ECONOMIC INFORMATION ABOUT THE CITY APPENDIX C - COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010 APPENDIX D - PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM $__________* CITY OF PALO ALTO Utility Revenue Refunding Bonds 2011 Series A INTRODUCTION The purpose of this Official Statement, which includes the cover page and appendices hereto, is to set forth certain information in connection with the sale by the City of Palo Alto (the “City”) of its $___________* Utility Revenue Refunding Bonds, 2011 Series A (the “2011 Bonds”). Certain capitalized terms used in this Official Statement and not otherwise defined have the meanings set forth under “SECURITY FOR THE 2011 BONDS—Definitions” and APPENDIX A—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE OF TRUST. All references to and summaries of provisions of the Indenture are qualified in their entirety by reference to the full Indenture, copies of which are available for inspection at the offices of the City. Authority for Issuance. The 2011 Bonds are being issued pursuant to (a) the charter of the City and the provisions of Chapter 12.28 (commencing with section 12.28.010), of the Palo Alto Municipal Code, all as in effect on the Closing Date (the “Bond Law”), (b) the terms and conditions of an Indenture of Trust, dated as of September 1, 2011 (the “Indenture”), by and between the City and U.S. Bank National Association, as trustee (the “Trustee”), and (c) a resolution of the City Council, adopted on July 18, 2011, authorizing the issuance of the 2011 Bonds. Payments of Principal and Interest. Principal of the 2011 Bonds is payable on each June 1 in the years set forth on the cover of this Official Statement. Interest on the 2011 Bonds is payable on each June 1 and December 1 each year, beginning on December 1, 2011. See “THE 2011 BONDS—Bond Terms.” Purposes. The 2011 Bonds are being issued to (a) refund, on a current basis, the City’s outstanding City of Palo Alto Utility Revenue Bonds, 2002 Series A, currently outstanding in the principal amount of $18,050,000 (the “2002 Bonds”), (b) establish a debt service reserve account for the 2011 Bonds, and (c) pay certain costs of issuing the 2011 Bonds. See “REFUNDING PLAN.” The 2002 Bonds were issued to finance improvements to the City’s municipal water utility system (the “Water System”) and to finance improvements to the City’s municipal natural gas utility system (the “Gas System”). Pledge of Net Revenues. The 2011 Bonds are special obligations of the City and are secured by amounts held from time to time in the Debt Service Fund established under the Indenture and, subject to certain restrictions set forth in the Indenture, a pledge of and lien on certain net revenues (the “Net Revenues”) generated by the Water System and the Gas System (each, a “System”) securing subseries of the 2011 Bonds related to each System. The subseries of the 2011 Bonds secured by the Net Revenues of the Water System are issued on a parity, as to payment and security, with the City’s outstanding Water Revenue Bonds, 2009 Series A (the “2009 Bonds”), issued to finance certain improvements to the Water System. The City has agreed to advance moneys from certain rate stabilization reserve funds (the “Available Reserves”), if necessary, to pay debt service on the 2011 Bonds. The 2009 Bonds constitute * Preliminary, subject to change. -2- additional claims on the Available Reserves as well as certain other rate stabilization reserve funds. The City’s Utility Revenue Bonds, 1995 Series A (the “1995 Bonds”), are currently outstanding in the principal amount of $4,595,000 (as of June 1, 2011) and are secured by a lien on net revenues of the City’s entire “Enterprise,” which consists of the Water System, the Gas System, the City’s municipal sanitary sewerage and sewage disposal system (the “Sewer System”), the City’s municipal storm and surface water system (the “Storm Drain System”) and the City’s electric utility (the “Electric System”). The lien of the 1995 Bonds on the Net Revenues of the Water System is senior to the lien on Net Revenues securing the subseries of the 2011 Bonds related to the Water System and senior to the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues of the Gas System is senior to the lien on Net Revenues securing the subseries of the 2011 Bonds related to the Gas System. The 1995 Bonds are also secured by certain net revenues derived from the Storm Drain System, the Sewer System and the Electric System which are not pledged for the payment of the 2011 Bonds or the 2009 Bonds. See “SECURITY FOR THE 2011 BONDS.” Covenant to Maintain and Advance From Available Reserves. The City has established utility rate stabilization reserve funds (collectively, the “Available Reserves”) for certain of its utility systems, including the Water System and the Gas System, listed below (collectively, the “Systems”). As additional security for the 2011 Bonds, the City will, if necessary, advance funds to pay debt service on the 2011 Bonds from the Available Reserves, which the City will maintain in an aggregate amount at least equal to five times maximum annual debt service on all outstanding bonded indebtedness secured by net revenues of any of the Systems: (i) Rate Stabilization Reserve for the Water System, (ii) Distribution Rate Stabilization Reserve for the City’s electric utility (the “Electric System”), (iii) Distribution Rate Stabilization Reserve for the Gas System (the “Gas System”), (iv) Supply Rate Stabilization Reserve for the Electric System, (v) Supply Rate Stabilization Reserve for the Gas System, and (vi) the Electric System’s Calaveras-Stranded Costs Reserve (the “Calaveras Reserve”). See “SECURITY FOR THE 2011 BONDS—Available Reserves” and “AVAILABLE RESERVES. Other Claims on Available Reserves. The City has also covenanted to advance funds, if necessary, from the Available Reserves, as well as rate stabilization reserve funds established by the City for its wastewater collection system, its wastewater treatment system and its refuse utility, to pay debt service on the 2009 Bonds and on the City’s Utility Revenue and Refunding Bonds, 1999 Series A (the “1999 Bonds”), which are currently outstanding in the principal amount of $12,715,000 (as of July 1, 2011). The 1999 Bonds are primarily secured by a lien on net revenues of the Wastewater Collection System, the Wastewater Treatment System and the City’s storm and surface water system (the “the Storm Drain System”). The City has also covenanted to advance funds, if necessary, from the Available Reserves, as well as rate stabilization reserve funds established by the City for its wastewater collection system, its wastewater treatment system and its refuse utility, to pay debt service on the 2002 Bonds. The 2002 Bonds are secured by a lien on net revenues of the Water System and the Gas System. See “SECURITY FOR THE 2011 BONDS—Other Claims on Available Reserves.” -3- Limitations on Net Revenue Pledge. The debt service on the 2011 Bonds is payable from Net Revenues generated by the Water System with respect to the subseries of 2011 Bonds relating to the Water System, from Net Revenues generated by the Gas System with respect to the subseries of 2011 Bonds relating to the Gas System and from moneys advanced from the Available Reserves. See “SECURITY FOR THE 2011 BONDS—Limitations on Net Revenue Pledge.” Neither the general fund, the full faith and credit, nor the taxing power of the City, the State of California (the “State”) or any other political subdivision thereof is pledged to the payment of the 2011 Bonds. The 2011 Bonds are not secured by a legal or equitable pledge of or charge, lien or encumbrance upon any property of the City or any of its income or receipts except the Net Revenues of the Water System and the Net Revenues of the Gas System, as described above. Senior Obligations. The 1995 Bonds are secured by a lien on net revenues of all Systems. The lien of the 1995 Bonds on the Net Revenues of the Water System is senior to the lien on Net Revenues securing the subseries of the Bonds related to the Water System and senior to the 2009 Bonds. The lien of the 1995 Bonds on the Net Revenues of the Gas System is senior to the lien on Net Revenues securing the subseries of the Bonds related to the Gas System. See “SECURITY FOR THE 2011 BONDS—Limitations on Net Revenue Pledge.” Parity Bonds. The subseries of the Bonds secured by the Net Revenues of the Water System are issued on a parity, as to payment and security, with the 2009 Bonds. Additional bonds and other indebtedness payable from the Net Revenues of a System may be issued on a parity with the applicable subseries of the Bonds (and on a parity with the 2009 Bonds with respect to Net Revenues of the Water System), subject to the conditions contained in the Indenture. See “SECURITY FOR THE 2011 BONDS—Parity and Subordinate Bonds.” Rate Covenant. The City covenants in the Indenture that it will fix, prescribe, revise and collect Charges for each System during each Fiscal Year which (together with other funds transferred from stabilization reserve funds for such System, and which are lawfully available to the City for payment of any of the following amounts during such Fiscal Year) are at least sufficient, after making allowances for contingencies and error in the estimates, to pay the following amounts in the following order: (a) all Maintenance and Operation Costs of such System estimated by the City to become due and payable in such Fiscal Year; (b) the Debt Service on the Sub-Series of Series A Bonds issued for such System; (c) all other payments required for compliance with this Indenture and the instruments pursuant to which any Parity Bonds relating to such System shall have been issued; and (d) all payments required to meet any other obligations of the City which are charges, liens, encumbrances upon or payable from the Gross Revenues of such System or the Net Revenues of such System. In addition, the City covenants in the Indenture that it will fix, prescribe, revise and collect Charges for such System during each Fiscal Year which, when added to the balance then on hand in Available Reserves for such System, are sufficient to yield Net Revenues of such System at least equal to one hundred twenty-five percent (125%) of the amounts payable under the preceding clause (1)(b) in such Fiscal Year for Bonds which have a lien on such Net Revenues. -4- See “SECURITY FOR THE 2011 BONDS—Rate Covenant.” Reserve Account. To further secure the payment of the principal of and interest on the 2011 Bonds, the Indenture establishes the Reserve Account to be held by the Trustee. The Indenture defines the Reserve Requirement to be equal to the least of (i) Maximum Annual Debt Service on the 2011 Bonds, (ii) 10% of the principal amount of the 2011 Bonds, and (iii) 125% of Average Annual Debt Service on the 2011 Bonds. See APPENDIX A—SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE OF TRUST and “SECURITY FOR THE 2011 BONDS—Reserve Account.” THE 2011 BONDS Bond Terms General. The 2011 Bonds will be dated their date of delivery and are to be issued in the aggregate principal amount, bear interest at the rate per annum and mature on the dates set forth on the cover page of this Official Statement. Interest on the 2011 Bonds is payable on each June 1 and December 1, commencing June 1, 2010. Registered Form. The 2011 Bonds are deliverable in fully registered form in the denomination of $5,000 each or any integral multiple of $5,000, and when issued will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”). Beneficial owners of the 2011 Bonds will not receive physical certificates representing the 2011 Bonds purchased, but will receive a credit balance on the books of the nominees of such beneficial owners. So long as Cede & Co. is the registered holder of the 2011 Bonds, principal of and premium, if any, and interest evidenced and represented by the 2011 Bonds will be paid the Trustee directly to DTC, which will in turn remit such principal, premium, if any, and interest to its participants for subsequent disbursement to the beneficial owners of the 2011 Bonds. See “THE 2011 BONDS—Book-Entry-Only System.” Principal of and premium, if any, on the 2011 Bonds will be payable at maturity or prepayment upon surrender thereof at the principal corporate trust office of the Trustee. Manner of Payment. Interest on the 2011 Bonds is payable on each Interest Payment Date to the person whose name appears on the Bond Registration Books as of the Record Date immediately preceding the applicable Interest Payment Date, such interest to be paid by check or draft of the Trustee mailed by first class mail to the Owner or, at the option of any Owner of at least $1,000,000 aggregate principal amount of the 2011 Bonds with respect to which written instructions have been filed with the Trustee prior to the Record Date, by wire transfer, at the address of the owner as it appears on the Bond Registration Books. Principal of and premium (if any) on any 2011 Bond will be paid upon presentation and surrender thereof at the corporate trust office of the Trustee in San Francisco, California. Both the principal of and interest and premium (if any) on the 2011 Bonds will be payable in lawful money of the United States of America. So long as Cede & Co., is the registered holder of the 2011 Bonds, references to the holders or owners or registered holders or owners of the 2011 Bonds means Cede & Co. and not the beneficial owners of the 2011 Bonds. Transfer and Exchange Any 2011 Bond may, in accordance with its terms, be transferred upon the Bond Registration Books by the person in whose name it is registered, in person or by his duly -5- authorized attorney, upon surrender of the 2011 Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, duly executed. Whenever any 2011 Bond is so surrendered for transfer, the City will execute and the Trustee will authenticate and deliver to the transferee a new 2011 Bond or 2011 Bonds of like tenor, maturity and aggregate principal amount. If a notice of redemption of any 2011 Bonds has been mailed pursuant to the redemption provisions of the Indenture, those 2011 Bonds will not be subject to transfer. The 2011 Bonds may be exchanged at the Trust Office of the Trustee, for 2011 Bonds of the same tenor and maturity and of other authorized denominations. 2011 Bonds Mutilated, Destroyed, Stolen or Lost If any 2011 Bond becomes mutilated, the City, at the expense of the Owner of that 2011 Bond, will execute, and the Trustee will authenticate and deliver, a new 2011 Bond of like maturity and principal amount in exchange and substitution for the 2011 Bonds so mutilated, but only upon surrender to the Trustee of the 2011 Bond so mutilated. The Trustee will cancel every mutilated 2011 Bond so surrendered, and will deliver those canceled 2011 Bonds to, or upon the order of, the City. If any 2011 Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the City and the Trustee. If such evidence is satisfactory to them, and indemnity satisfactory to them is given, the City, at the expense of the Owner, will execute, and the Trustee will authenticate and deliver, a new 2011 Bond of like maturity and principal amount in lieu of and in substitution for the 2011 Bond so lost, destroyed or stolen. (If any such 2011 Bond matures or is called for redemption, instead of issuing a substitute 2011 Bond the Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to the Trustee). The City may require payment of a reasonable fee for each new 2011 Bond issued and the reimbursement of any expenses incurred by the City or the Trustee. Any 2011 Bond issued in lieu of any 2011 Bond alleged to be lost, destroyed or stolen will constitute an original contractual obligation on the part of the City whether or not the 2011 Bond alleged to be lost, destroyed or stolen is at any time enforceable by anyone, and will be equally and proportionately entitled to the benefits of the Indenture with all other 2011 Bonds secured by the Indenture. Redemption Optional Redemption. The 2011 Bonds maturing on or before June 1, 20__, are not subject to optional redemption prior to maturity. The 2011 Bonds maturing on or after June 1, 20__, are subject to redemption prior to their respective maturity dates, at the option of the City, as a whole on any date, or in part in inverse order of maturities and by lot within a maturity on any Interest Payment Date on or after June 1, 20__, from any source of available funds, at the following respective redemption prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Periods Redemption Prices -6- The City shall have the option to redeem one or more subseries of 2011 Bonds, in whole or in part, in which case the Trustee shall select for redemption those 2011 Bonds whose maturities correspond to the Debt Service for the subseries of 2011 Bonds being redeemed. Special Mandatory Redemption from Insurance or Condemnation Proceeds. The 2011 Bonds are subject to redemption as a whole or in part on any date, in inverse order of maturity and by lot within a maturity, to the extent of the Net Proceeds of hazard insurance not used to repair or rebuild the Water System or the Net Proceeds of condemnation awards received with respect to the Water System to be used for such purpose, at a Redemption Price equal to the principal amount of the 2011 Bonds plus interest accrued thereon to the date fixed for redemption, without premium. Notice of Redemption. Unless waived by any Owner of 2011 Bonds to be redeemed, notice of any redemption of Bonds will be given, at the expense of the City, by the Trustee by mailing a copy of a redemption notice by first class mail at least 30 days and not more than 60 days prior to the date fixed for redemption to the Owner of the 2011 Bond or 2011 Bonds to be redeemed at the address shown on the Bond Registration Books; provided, that neither the failure to receive such notice nor any immaterial defect in any notice will affect the sufficiency of the proceedings for the redemption of the 2011 Bonds. All notices of redemption must be dated and state the following: (i) the redemption date, (ii) the Redemption Price, (iii) if fewer than all Outstanding 2011 Bonds are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the 2011 Bonds to be redeemed, (iv) that on the redemption date the Redemption Price will become due and payable with respect to each such 2011 Bond or portion thereof called for redemption, and that interest with respect thereto will cease to accrue from and after the redemption date, and (v) the place or places where such 2011 Bonds are to be surrendered for payment of the Redemption Price, which places of payment may include the corporate trust office of the Trustee. At least 45 days prior to any redemption date, the City must deposit with the Trustee an amount of money sufficient to pay the Redemption Price of all the 2011 Bonds or portions of 2011 Bonds which are to be redeemed on that date. So long as the 2011 Bonds are held only in the book-entry system of DTC, notice of redemption will be sent to Cede & Co., as nominee for DTC, and will not be sent to the beneficial owners of the 2011 Bonds. Purchase in Lieu of Optional Redemption. In lieu of optional redemption, amounts in the Redemption Account of the Debt Service Fund may be used for the purchase of 2011 Bonds at public or private sale as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Debt Service Fund) as the City may determine, but not to exceed the principal amount of such 2011 Bonds plus the redemption premium applicable on the next ensuing optional redemption date. -7- Book-Entry-Only System While the 2011 Bonds are subject to the book-entry system, the principal, interest and any redemption premium with respect to a 2011 Bond will be paid by the Trustee to The Depository Trust Company, New York, New York (“DTC”), which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the 2011 Bonds, as described in APPENDIX F—DTC AND THE BOOK-ENTRY ONLY SYSTEM. REFUNDING PLAN Purposes of the Bonds The 2011 Bonds are being issued to (a) refund, on a current basis, the 2002 Bonds, (b) establish a debt service reserve fund for the 2011 Bonds, and (c) pay certain costs of issuing the 2011 Bonds. A portion of the proceeds from the sale of the Bonds will be deposited into an escrow fund (the “Escrow Fund”) to be created and maintained by U.S. Bank National Association, as escrow bank (the “Escrow Bank”), under an escrow deposit and trust agreement by and between the City and the Escrow Bank. The moneys deposited in the Escrow Fund will be invested in U.S. Treasury Securities so that the interest thereon and the maturing principal thereof will be sufficient to redeem the outstanding 2002 Bonds in full on December 1, 2011, at a redemption price equal to 101% of the principal amount of the 2002 Bonds, together with interest accrued to such redemption date. The mathematical accuracy of the calculation as to the sufficiency of cash and U.S. Treasury Securities in the Escrow Fund to meet the payment and redemption requirements of the 2002 Bonds will be verified by _____________ (the “Verification Agent”). See “VERIFICATION OF MATHEMATICAL COMPUTATIONS.” Estimated Sources and Uses of Funds The following table sets forth the estimated sources and uses of funds for the 2011 Bonds: Sources of Funds: Principal Amount of 2011 Bonds Less: Original Issue Discount Total Sources Uses of Funds: Deposit to Escrow Fund (1) Deposit to Reserve Account Costs of Issuance Fund (2) Total Uses (1) Amounts deposited in the Escrow Fund will be applied to the purchase of U.S. Treasury Securities which will bear interest at such rates and mature on such dates as to provide for the redemption of the 2002 Bonds on December 1, 2011. (2) Represents amounts to pay the Underwriter’s discount, fees of rating agencies, the Trustee, bond counsel, disclosure counsel, the financial advisor, printing and other miscellaneous costs of issuing the 2011 Bonds. -8- Annual Debt Service Set forth below is the annual debt service on the 2011 Bonds based on the interest rates and maturity schedule set forth on the cover of this Official Statement (assuming no optional redemption). Bond Year Ending Total (June 1) Principal Interest Debt Service 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 TOTALS -9- Set forth below is the combined annual debt service on the 2011 Bonds secured by the Net Revenues of the Water System and the debt service on the 2009 Bonds (assuming no optional redemption). Bond Year Ending (June 1) 2009 Bonds 2011 Bonds Total 2012 $ 2,562,430.00 2013 2,562,390.00 2014 2,564,602.50 2015 2,562,521.26 2016 2,565,921.26 2017 2,562,721.26 2018 2,566,883.76 2019 2,566,602.50 2020 2,566,382.50 2021 2,563,272.50 2022 2,562,812.50 2023 2,564,767.50 2024 2,563,902.50 2025 2,565,217.50 2026 2,563,477.50 2027 2,563,682.50 — 2,563,682.50 2028 2,565,597.50 — 2,565,597.50 2029 2,563,502.50 — 2,563,502.50 2030 2,566,322.50 — 2,566,322.50 2031 2,563,492.50 — 2,563,492.50 2032 2,564,252.50 — 2,564,252.50 2033 2,563,170.00 — 2,563,170.00 2034 2,564,947.50 — 2,564,947.50 2035 2,563,990.00 — 2,563,990.00 TOTALS $61,542,862.54 SECURITY FOR THE 2011 BONDS Pledge of Net Revenues General. The 2011 Bonds are special obligations of the City and, pursuant to the Indenture, there is pledged, for the benefit of the Owners of the 2011 Bonds, the Net Revenues of each System which are necessary to pay Debt Service on the Sub-Series of Bonds issued for such System. “Net Revenues” means, with respect to a System, for any period of computation, the amount of the Gross Revenues received from such System during such period, less the amount of Maintenance and Operation Costs of such System becoming payable during such period. “Gross Revenues” means, for any period of computation, all gross charges received for, and all other gross income and revenues derived by the City from, the ownership or operation of a System or otherwise arising from a System during such period, including but not limited to (a) all Charges received by the City for use of such System, (b) all receipts derived from the investment of funds held by the City or the Trustee under this Indenture, (c) transfers from any stabilization reserve funds of a System into the Revenue Fund of such System, and (d) all moneys received by the City from other public entities whose inhabitants are served by such System pursuant to contracts with the City. -10- “Maintenance and Operation Costs” means the reasonable and necessary costs spent or incurred by the City for maintaining and operating a System, calculated in accordance with sound accounting principles, including the cost of supply of water, gas and electric energy under contracts or otherwise, the funding of reasonable operating reserves, and all reasonable and necessary expenses of management and repair and other expenses to maintain and preserve such System in good repair and working order, and including all reasonable and necessary administrative costs of the City attributable to such System and the Bonds, such as salaries and wages and the necessary contribution to retirement of employees, overhead, insurance, taxes (if any), expenses, compensation and indemnification of the Trustee, and fees of auditors, accountants, attorneys or engineers, and including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the Bonds or of this Indenture, but excluding depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature. “Charges” means fees, tolls, assessments, rates and rentals prescribed under the Bond Law or any other law of the State by the Council for the services and facilities of a particular System furnished by the City. Flow of Funds. The City covenants and agrees that all Gross Revenues, when and as received, will be received and held by the City in trust hereunder and will be deposited by the City in the Revenue Fund and will be accounted for through and held in trust in the Revenue Fund, and the City shall only have such beneficial right or interest in any of such money as in this Indenture provided. All Gross Revenues will be transferred, disbursed, allocated and applied solely to the uses and purposes set forth in the Indenture, and will be accounted for separately and apart from all other money, funds, accounts or other resources of the City. All Gross Revenues shall be held in trust by the City in the Revenue Fund and shall be applied, transferred, used and withdrawn only for the purposes hereinafter authorized in this Article. Operating Costs. The City shall first pay from the moneys in the Revenue Fund the budgeted Maintenance and Operation Costs as such Costs become due and payable. Debt Service Fund. On or before the third Business Day prior to each Interest Payment Date, the City shall transfer from the Revenue Fund to the Trustee for deposit in the Debt Service Fund (i) an amount equal to the aggregate amount of interest to become due and payable on all Outstanding Bonds on the next succeeding Interest Payment Date, plus (ii) on or before the third Business Day prior to each Principal Payment Date, an amount equal to the aggregate amount of Principal Installments (including any Sinking Fund Installments) becoming due and payable on all Outstanding Bonds on the next succeeding Principal Installment Date. All interest earnings and profits or losses on the investment of amounts in the Debt Service Fund shall be deposited in or charged to the Debt Service Fund and applied to the purposes thereof. No transfer and deposit need be made into the Debt Service Fund if the amount contained therein, taking into account investment earnings and profits, is at least equal to the Interest Requirement or Principal Installments to become due on the next Interest Payment Date or Principal Installment Date upon all Outstanding Bonds. Reserve Account. After making the payments, allocations and transfers provided for in above, if the balance in the Reserve Account is less than the Reserve Requirement, the deficiency shall be restored by transfers from the first moneys which become available in the Revenue Fund to the Trustee for deposit in the Reserve Account, such transfers to be made from the sources and during the time period specified in the Indenture. -11- Surplus. As long as all of the foregoing payments, allocations and transfers are made at the times and in the manner set forth above, any moneys remaining in the Revenue Fund may at any time be treated as surplus and applied as provided in the Indenture. Limitations on Net Revenue Pledge Limited Obligations of the City. The general fund of the City is not liable and the credit or taxing power of the City is not pledged for the payment of the principal or redemption price of and interest on the 2011 Bonds. The owners of the 2011 Bonds cannot compel the exercise of the taxing power by the City or the forfeiture of its property. The principal or redemption price of and interest on the 2011 Bonds are not a debt of the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of its property, or upon any of its income, receipts, or revenues except the Net Revenues. Senior Lien of 1995 Bonds. The pledge of Net Revenues to the Water System Subseries of 2011 Bonds and to the 2009 Bonds is subordinate to the lien of the 1995 Bonds, which are secured by a lien on net revenues of all Systems. Therefore, the lien of the 1995 Bonds on the Net Revenues of the Water System is senior to the lien on the Net Revenues of the Water System securing the Water System Subseries of 2011 Bonds and to the 2009 Bonds. The pledge of Net Revenues to the Gas System Subseries of 2011 Bonds is subordinate to the lien of the 1995 Bonds, which are secured by a lien on net revenues of all Systems. Therefore, the lien of the 1995 Bonds on the Net Revenues of the Gas System is senior to the lien on the Net Revenues of the Gas System securing the Gas System Subseries of 2011 Bonds. It should be noted, however, that unlike the 2011 Bonds, the 1995 Bonds are also secured by net revenues of the Sewer System, the Storm Drain System and the Electric System. The 1995 Bonds mature by their terms on June 1, 2020. The Indenture provides that no additional bonds can be secured by a pledge of Net Revenues of the Water System that is prior to the lien securing the Water System Subseries of 2011 Bonds. The Indenture provides that no additional bonds can be secured by a pledge of Net Revenues of the Gas System that is prior to the lien securing the Gas System Subseries of 2011 Bonds. Rate Covenant The City has covenanted in the Indenture to fix, prescribe, revise and collect Charges for each System during each Fiscal Year which (together with other funds transferred from stabilization reserve funds for such System, and which are lawfully available to the City for payment of any of the following amounts during such Fiscal Year) are at least sufficient, after making allowances for contingencies and error in the estimates, to pay the following amounts in the following order: (a) all Maintenance and Operation Costs of such System estimated by the City to become due and payable in such Fiscal Year; (b) the Debt Service on the Sub-Series of Series A Bonds issued for such System; (c) all other payments required for compliance with this Indenture and the instruments pursuant to which any Parity Bonds relating to such System shall have been issued; and (d) all payments required to meet any other obligations of the City which are charges, liens, encumbrances upon or payable from the Gross Revenues of such System or the Net Revenues of such System. -12- In addition, the City has covenanted in the Indenture to fix, prescribe, revise and collect Charges for such System during each Fiscal Year which, when added to the balance then on hand in Available Reserves for such System, are sufficient to yield Net Revenues of such System at least equal to one hundred twenty-five percent (125%) of the amounts payable under the preceding clause (1)(b) in such Fiscal Year for Bonds which have a lien on such Net Revenues. See “Available Reserves” below for a discussion of limitations on the treatment of appropriation of funds from or into a System’s related Available Reserve for purposes of satisfying the rate covenant. Available Reserves Covenant to Maintain Aggregate Available Reserves. The City has covenanted in the Indenture to maintain the funds on hand in Available Reserves in an aggregate amount at least equal to five (5.0) times maximum annual debt service on all outstanding bonded indebtedness secured by Net Revenues of any of the Systems (the “Available Reserves Targeted Level”); provided that: (1) any depletion of the Available Reserves which causes the balance therein to fall below the Available Reserves Targeted Level shall be restored from Net Revenues of the System which caused such depletion to take place; (2) the covenant contained above shall not require the City to charge Charges for services provided by any System which exceed the reasonable costs of providing said services, or otherwise violate applicable law; and (3) testing of the amount of Available Reserves shall not be required to occur more frequently than twice in any Fiscal Year. Transfers. In addition, the City has covenanted to transfer from Available Reserves, to the applicable Revenue Fund, as needed, amounts sufficient to enable the City to pay all Maintenance and Operation Costs of the applicable System, and all Debt Service, when and as the same become due and payable. Other Claims on Available Reserves. The City has also covenanted to advance funds, if necessary, from the Available Reserves to pay debt service on the 1999 Bonds. The 1999 Bonds are secured by a lien on net revenues of the Wastewater System, the Wastewater Treatment System and the Storm Drain System. The City has also covenanted to advance funds, if necessary, from the Available Reserves to pay debt service on the 2009 Bonds. Parity and Subordinate Bonds In addition to the 2011 Bonds, the City may issue or incur other loans, advances or indebtedness payable from Net Revenues in a principal amount determined by the City. Parity Bonds. The City may issue or incur any such Parity Bonds subject to the following specific conditions, which are hereby made conditions precedent to the issuance and delivery of such Parity Bonds: (a) The City shall be in compliance with all covenants set forth in this Indenture. -13- (b) The Net Revenues of the System for which such Parity Bonds are being issued, calculated on sound accounting principles, as shown by the books of the City for the latest Fiscal Year or any more recent twelve (12) month period selected by the City ending not more than sixty (60) days prior to the adoption of the Parity Bonds Instrument pursuant to which such Parity Bonds are issued, as shown by the books of the City, less withdrawals, if any, from such System’s rate stabilization fund, plus, at the option of the City, any or all of the amount described in the following paragraph, shall at least equal One Hundred percent (100%) of Maximum Annual Debt Service, with Maximum Annual Debt Service calculated on all Bonds to be Outstanding immediately subsequent to the issuance of such Parity Bonds which have a lien on Net Revenues of such System. The following may be added to Net Revenues for the purpose of issuing or incurring Parity Bonds hereunder: an allowance for earnings arising from any increase in the Charges which has become effective prior to the incurring of such additional indebtedness but which, during all or any part of such Fiscal Year or such twelve (12) month period, was not in effect, in an amount equal to the amount by which the Net Revenues would have been increased if such increase in Charges had been in effect during the whole of such Fiscal Year or such twelve (12) month period, all as shown in the written report of an Independent Consultant engaged by the City. (c) The Net Revenues of the System for which such Parity Bonds are being issued, calculated on sound accounting principles, as shown by the books of the City for the latest Fiscal Year or any more recent twelve (12) month period selected by the City ending not more than sixty (60) days prior to the adoption of the Parity Bonds Instrument pursuant to which such Parity Bonds are issued, as shown by the books of the City, plus, at the option of the City, any or all of the items hereinafter in this paragraph designated (i), (ii) and (iii), shall at least equal One Hundred Twenty-Five percent (125%) of Maximum Annual Debt Service, with Maximum Annual Debt Service calculated on all Bonds to be Outstanding immediately subsequent to the issuance of such Parity Bonds which have a lien on Net Revenues of such System. The items any or all of which may be added to such Net Revenues for the purpose of issuing or incurring Parity Bonds hereunder are the following: (i) An allowance for Net Revenues from any additions to or improvements or extensions of the System to be made with the proceeds of such Parity Bonds, and also for Net Revenues from any such additions, improvements or extensions which have been made from moneys from any source but in any case which, during all or any part of such Fiscal Year or such twelve (12) month period, were not in service, all in an amount equal to ninety percent (90%) of the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first thirty-six (36) month period in which each addition, improvement or extension is respectively to be in operation, all as shown in the written report of an Independent Consultant engaged by the City; (ii) An allowance for earnings arising from any increase in the Charges which has become effective prior to the incurring of such additional indebtedness but which, during all or any part of such Fiscal Year or such twelve (12) month period, was not in effect, in an amount equal to the amount by which the Net Revenues would have been increased if such increase in Charges had been in effect during the whole of such Fiscal Year or such twelve (12) month period, all as shown in the written report of an Independent Consultant engaged by the City; and (iii) Funds then on hand in Available Reserves for the System for which such Parity Bonds are being issued. -14- Reserve Account General. The Indenture provides for establishment of a Reserve Account. On the date of issuance of the 2011 Bonds, the City intends to satisfy the Reserve Requirement with a cash deposit made from a portion of the proceeds of the 2011 Bonds. Use of the Reserve Account. If at any time there are insufficient amounts in the Debt Service Fund to pay principal and redemption price of or interest on the 2011 Bonds, the Trustee will withdraw from the Reserve Account the amount of the deficiency. Any amounts in the Reserve Account in excess of the Reserve Requirement (whether derived from interest or gain on investments or otherwise) will, on June 2 of each year, be paid by the Trustee to the City for deposit in the Revenue Fund. THE CITY AND CITY UTILITIES The City The City is located in northern Santa Clara County (the “County”), approximately 35 miles south of the City of San Francisco. The City has a current population of approximately 64,500. It is part of the San Francisco Bay metropolitan area. Partly due to the presence of Stanford University, which is adjacent to the City, the City is considered the birthplace of the high technology industry that has made the County famous worldwide as Silicon Valley. The 630-acre Stanford Research Park includes prestigious and innovative high-tech leaders such as Hewlett-Packard, SAP America, Varian Medical Systems, VMware, Tesla, Tibco Software, Space Systems Loral, the Electric Power Research Institute and Communications and Power Industries. The City is also a major employment center, including U.S. Department of Veteran Affairs’ Palo Alto Health Care System, Stanford Hospitals and Clinics, Lockheed Martin Missiles and Space, Palo Alto Medical Foundation, Stanford Shopping Center, the law offices of Wilson Sonsini Goodrich and Rosati, and the Xerox Palo Alto Research Center. The City was incorporated in 1894. Its first Charter was granted by the State of California in 1909, and the City continues to operate as a charter city. Municipal operations are conducted under the Council-Manager form of government. The nine City Council Members are elected at large for four-year, staggered terms. The Mayor and Vice Mayor are elected annually at the first City Council meeting in January. The Mayor presides over all City Council meetings. The City Manager is responsible for the operation of all municipal functions, except the offices of the City Attorney, City Clerk, and City Auditor. These officials are appointed by, and report directly to, the City Council. For general, economic and demographic information regarding the City, see APPENDIX B—GENERAL AND ECONOMIC INFORMATION ABOUT THE CITY. City Utilities The City operates the following utility systems: • the Sewer System, • the Electric System, • the Gas System, • the Storm Drain System, • the Refuse System, • the Water System, and • the Fiber Optics System. -15- The City’s Utilities Department is in charge of the operation of the Electric System, the Fiber Optics System, the Gas System, the Water System and the Wastewater Collection System (which comprises a portion of the Sewer System) and the City’s Public Works Department is in charge of the operation of the Storm Drain System, the Refuse System and the Wastewater Treatment System (which comprises the remaining portion of the Sewer System). As described more completely above (see “SECURITY FOR THE 2011 Bonds”), in addition to Net Revenues, the City will, if Net Revenues are insufficient, advance funds from moneys on deposit from time to time in the Available Reserves to pay debt service on the 2011 Bonds, specifically: (i) Rate Stabilization Reserve for the Water System, (ii) Distribution Rate Stabilization Reserve for the Electric System, (iii) Distribution Rate Stabilization Reserve for the Gas System, (iv) Supply Rate Stabilization Reserve for the Electric System, (v) Supply Rate Stabilization Reserve for the Gas System, and (vi) the Electric System’s Calaveras Reserve. The City has covenanted to maintain the aggregate balance of the reserves at an amount at least equal to five times maximum annual debt service on all outstanding bonded indebtedness secured by Net Revenues of any of the Systems. See “THE AVAILABLE RESERVES” below for a discussion of each of the Available Reserves and the City’s current policies with respect to each. However, Proposition 218 may require the City to replenish certain Available Reserves in the event of an advance from an Available Reserve for payment of debt service on the 2011 Bonds. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES—Articles XIIIC and XIIID.” Management of the Utilities Department The Utilities Department is responsible for the operation of five utility systems (the Electric System, the commercial Fiber Optics System, the Gas System, the Water System and the Wastewater Collection System) that serve the City. The City, through its Utilities Department, services customer accounts for all of the City’s utilities (including the Storm Drain System, the Refuse System and the Wastewater Treatment System). The Utilities Department is currently staffed by the following individuals, among others: Valerie Fong, Director of Utilities. On October 16, 2006, the City appointed Valerie Fong as Director of Utilities. Ms. Fong began her career with PG&E working on various gas and electric procurement and regulatory matters of increasing responsibility, including working with customers in the company’s field offices, testifying in regulatory proceedings, negotiating long-term procurement contracts, and overseeing the development and management of the company’s electric and gas core customer procurement portfolios. She was at PG&E for 22 years. Subsequently, she worked for the City of Alameda for over four years, where she was the Utility Services Manager, and later, the General Manager over the utility’s two business lines, the electric and the telecommunications businesses. Ms. Fong earned a Bachelor’s Degree in civil engineering from the University of California, Berkeley and is a registered professional engineer in the State of California Tom Auzenne, Assistant Director of Utilities, Customer Support Services. Tom Auzenne has 19 years of utility experience with PG&E, and 14 years with the City’s Utilities Department. At PG&E he held positions in Gas and Electric Operations, Gas Transmission, Customer Services, -16- Marketing, and Governmental Affairs. At the City, he has been the Utilities Marketing Manager and Assistant Director. The Customer Support Services Division comprises 35 full-time equivalent staff divided into: (a) marketing, which implements efficiency and renewable programs, sells fiber optic connectivity, and provides key account management services; (b) customer service, providing call center services, credit and collection activities, meter reading, and utilities billing; and, (c) utilities collections, which works with customers to ensure proper and timely payment. Mr. Auzenne received a Bachelor’s degree from San Francisco State University. Tomm Marshall, Assistant Director of Utilities, Engineering. Mr. Marshall graduated from Washington State University in 1980 with Bachelors of Science in Electrical Engineering. He began work in distribution engineering with Pacific Gas and Electric Company in 1980. At Pacific Gas and Electric he worked in the Electric Distribution Engineering, System Protection Engineering, Substation and Transmission Regional Operations, working primarily on capital project justification and implementation, and operational and maintenance issues with the electric system. In 1993, he started a job at the consultant firm of Enertech Consultants where he worked on research and operational projects related to Electromagnetic Fields. In 1995, he became the Electric Engineering Manager for the City where he was responsible for the planning design and implementation of the capital improvement projects. Currently, as Assistant Director of Engineering for the City, he is responsible for the planning design and implementation of the capital improvement projects for the Electric, Water, Gas and Wastewater Utilities. Jane Ratchye, Assistant Director of Utilities, Resource Management. Ms. Ratchye first came to the City in 1985 as an account representative advising large customers on how to reduce peak electrical demand and save energy. She then worked on the design and evaluation of efficiency programs and in the supply side resource planning area for water, gas and electricity. She has worked on many areas of supply portfolio management, integration of demand- and supply-side resources, and the initiation of the City’s gas and electric commodity risk management program. As Assistant Director for Resource Management, Ms. Ratchye is responsible for the management and contracting of the electric, gas, and water supplies for the City, legislative advocacy, representation in regulatory proceedings, coordination with joint action agencies, and long-term forecasting, rate setting and financial reserve management for the Utilities Department. Ms. Ratchye holds a Bachelor of Science degree in Mechanical Engineering and a Master of Science degree in Engineering-Economic Systems, both from Stanford University. Dean Batchelor, Assistant Director of Utilities, Operations. Mr. Batchelor has 27 years of experience in utility operations and holds a Bachelors of Arts degree in Business from Long Beach State. He has extensive experience in telecommunications, gas and electrical operations. From 1982 to 1997, he worked for Pacific Gas and Electric in the Gas and Electric distribution systems. He joined TCI/AT&T in 1997 as the operations Manager were he oversaw the installation, construction, maintenance and engineering of many CATV-HSD plants. In 2002, he started with the City of Alameda as the CATV Operational Superintendent including coordinating the work of technicians engaged in construction, maintenance and operation of the plant, head-end and ensuring optimum customer service. In 2005, he became the Operations Manager where he was responsible for electric utility transmission, substations, distribution system and the CATV system. In October of 2008, he joined the City as the Assistant Director of Operations were he is in charge of administrative activities, operations and maintenance planning that include the water, gas, and electric receiving facilities, water transmission facilities, the water, gas and electric distribution systems and the wastewater collection system. -17- Enterprise Staffing and Technology The City employs approximately 251 full-time equivalent employees to operate its utilities. 196 of these employees are represented by Service Employees International Union (“SEIU”) in all matters pertaining to wages, benefits and working conditions. The current one- year agreement with this union, which is in the form of a memorandum of understanding, expires on June 30, 2011. The City and SEIU are negotiating a new one-year agreement. Management employees receive substantially the same fringe benefit package as the SEIU members, and are represented by the newly formed Utilities Management and Professional Association of Palo Alto (“UMPAPA”) and are just initiating negotiations for an agreement. The City’s wage and fringe benefits are generally comparable to those offered by other local public agencies. The City covers all of its permanent employees under the Public Employees’ Retirement System (“PERS”). Pension costs are co-funded by monthly contributions to PERS by the City and its employees. At June 30, 2008 (the most recent actuarial information available), the total pension benefit obligation for all City employees was $702,301, net assets available for plan benefits were $608,720 and the total pension benefit obligation exceeded the City’s net assets available for plan benefits by $93,581. Enterprise Management Policy Treated as enterprise funds, the Electric, Gas, Refuse, Water, Fiber Optics. Sewer and Storm Drain Systems are financed and operated in a manner comparable to private business enterprises. The City utilizes a Strategic Planning process in concert with its annual budget to identify and record progress in meeting benchmark goals and objectives. In addition, business plans are developed on an annual basis for the Water, Gas, Electric and Wastewater Collection Systems. For the Gas and Electric Systems, separate business plans are developed for the supply and distribution business units. The City uses the accrual basis of accounting with respect to the enterprise funds. Revenues are recognized when earned, and expenses are recognized when incurred. Utility revenues are used to pay operating costs, bond debt service, most capital expenditures, and reserve accumulations. In accordance with City policy, the cost of providing utility services to the general public continues to be funded predominately through user charges. Policies for cash reserves and Utilities Transfers to the City’s General Fund (which are transferred from the Gas and Electric Systems only) are established by the City Council in a manner consistent with the voter-approved City Charter. Transfers to the General Fund are based on the approved rate of return for comparable public utilities. The methodology used to calculate the transfers to the General Fund is a “Return on Rate Base” method which requires an annual calculation of the “rate base” for the Electric and Gas Funds. The “rate base” for the Electric and Gas Funds includes (1) the net asset value of the utility assets as of the latest audited fiscal year; (2) working capital for the supply purchases for the upcoming fiscal year; (3) working capital for non-energy supply operating costs for the upcoming fiscal year; (4) additional capital projects budgeted during the current fiscal year less customer-funded improvements; and (5) depreciation for the current fiscal year. The rate base is adjusted by an appropriate return on equity, equal to PG&E’s approved return on equity adjusted downward by 30% to reflect the City’s tax-exempt status, and adjusted again by a 15% “risk” adjustment based on the concept that an investment in a municipal utility is less risky than an investment in an investor-owned utility. The Utilities and Public Works Departments are expected to continue meeting all of their financial obligations while charging retail rates to their customers that are comparable to -18- those charged in neighboring cities. Careful budgeting and sound financial planning have been and will continue to be important factors in maintaining competitive rates. The Utilities Department recognizes the importance of minimizing wholesale commodity costs which is the largest expenditure category. Much time and effort are spent in dealing with the various commodity suppliers, regulatory agencies and commissions to help ensure reasonable and economical wholesale commodity costs. Rates and Billing The City Council has the authority to set utility rates for each utility system. The City sets rates to recover costs consistent with sound financial planning, while promoting efficient resource utilization and customer satisfaction.” To achieve an appropriate balance between these objectives, the City forecasts all financial obligations and funding sources over a five year planning horizon. In this manner, timely rate adjustments for all utilities are coordinated to assure adequate funding, minimize consumer impacts, and promote rate stability. To provide for rate stability and to insure funds are available to cover any unforeseen cost contingencies, Rate Stabilization Reserves are funded from surplus net sales revenues and withdrawn in subsequent periods to supplement retail sales revenue as needed. The City collects utility charges by means of a single monthly bill to each customer, listing charges for each service provided. Uncollectible accounts for all utilities average approximately 0.10% of the amount billed. In 2007, the City Council approved a project to implement a new utilities customer information system using SAP. The system was successfully implemented in May 2009, and it allows for the billing of utilities customers. It also provides customer service staff with secure online access to customer information and gives customers the choice to pay their bill online. Reserve Policies In 1993, 1998, 2001, 2003, 2007 and again in 2009, the City Council established new utility rate stabilization reserve policies and guideline levels. See “AVAILABLE RESERVES” below. On an annual basis, operating reserves are funded, withdrawn, or unchanged depending on the particular circumstances of that utility fund. Annual Financial Statements and Significant Accounting Policies The City’s annual financial statements will be audited by Macias Gini & O’Connell LLP (“MGO”), Sacramento, California, in accordance with generally accepted auditing standards and the standards for financial audits issued by the Comptroller General of the United States. The MGO audit report will contain opinions that the financial statements present fairly the financial position of the various funds maintained by the City. The annual financial statements include certain notes which may not be fully described in this Official Statement, but which constitute an integral part of the audited financial statements. The City’s former external auditor was Maze & Associates, Walnut Creek, California. The prior years annual financial statements up to fiscal year 2010 were audited by Maze and Associates. The City’s most recent annual financial statement is attached as APPENDIX C— COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010. Copies of prior reports are available on the City’s website (http://www.cityofpaloalto.org/depts/asd/financial_reporting.asp) or upon request to the Administrative Services Department, City of Palo Alto, 250 Hamilton Avenue, Palo Alto, CA 94301. -19- Governmental accounting systems are organized and operated on a fund basis. A fund is defined as an independent fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein. Funds are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations and restrictions. As indicated above, the various Systems are accounted for as enterprise funds. Enterprise funds are used to account for operations (i) that are financed and operated in a manner similar to private business enterprises (where the intent of the governing body is that the costs and expenses, including depreciation, of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges), or (ii) where the governing body has decided that periodic determination of revenues earned, expenses incurred or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. The City’s enterprise funds are accounted for using the accrual basis of accounting. Each fund’s revenues are recognized when they are earned, and their expenses are recognized when they are incurred, except for revenues from utility customers, which are recognized based on cycle billings. Revenues for services provided but not billed at the end of a fiscal period are not material and are not accrued. The City has not requested nor did the City obtain permission from Maze & Associates to include the audited financial statements as an appendix to this Official Statement. Accordingly, Maze & Associates has not performed any post-audit review of the financial condition or operations of the City. THE WATER SYSTEM History When the City was incorporated in 1894, the majority of its population was served by private water companies that drew their supply from relatively shallow wells. In 1896, a bond issue was approved for purchase by the City of these private water companies. In succeeding years, additional purchases completed the acquisition of privately owned facilities. Deep wells provided water to the gradually increasing population until 1938, when the decline of the groundwater table necessitated the purchase of imported water. Thereafter, the City’s growing demand was met with increasing water supplies from the Public Utilities Commission of the City and County of San Francisco (the “SFPUC”), through a 36-inch pipeline. In 1962, in order to provide a very high quality of water to its customers, the City began supplying 100% of its water from the SFPUC. Approximately 85% of the SFPUC supply is derived from snowfield run-off to the Hetch Hetchy Reservoir in Yosemite National Park, and the remaining 15% is derived from rainfall run-off stored in San Francisco’s East Bay and Peninsula Reservoirs. Over the years, the City has added three additional SFPUC pipeline connections. As the population grew in the 1930s, 1940s and 1950s, the City issued bonds to finance the necessary water distribution system expansions and improvements. This policy was changed in the 1960s to a “pay as you go” funding approach, whereby current revenues were raised to accommodate capital improvement projects. -20- Service Area The City is the primary provider of water service within its incorporated limits and on other land owned or leased by the City. The City’s service area encompasses approximately 26 square miles. Water Storage and Distribution System The City’s water distribution system distributes potable water throughout the City to meet residential, commercial, industrial, irrigation and other water demands. The City operates five connections or turnouts from the SFPUC’s Hetch-Hetchy system. Pursuant to the City’s Rule and Regulation 3, the distribution system pressures vary between 30 and 125 pounds per square inch; an average of 50 pounds per square inch will be maintained, with the maximum and minimum pressures being experienced at the lower and higher elevations of the distribution system The City’s water system is presently comprised of 214 miles of mains ranging in pipe diameter sizes from 4” to 30” serving nine pressure zones spanning 26 square miles. The City also operates five turnouts with SFPUC, five booster pump stations and six storage reservoirs ranging from 1.0 MG to 4.0 MG (with a total storage capacity of 10.5 MG). City water is distributed to approximately 20,000 metered connections. Sources of Water Supply The City’s current potable water supply consists entirely of purchased water from the SFPUC’s Hetch Hetchy system. The City also maintains interconnections with four neighboring water distribution systems, as well as five deep wells, which are available on an emergency basis. The sources of supply are further described below. SFPUC’s Hetch Hetchy System. The SFPUC’s water supply originates in the Hetch Hetchy reservoir and surrounding watersheds located in and around Yosemite National Park. Water flows by gravity across the California central valley to Sunol, where it is blended with water from local reservoirs, and is then pumped across the Hayward fault and through the Irvington Tunnel. There the SFPUC’s Bay Division pipelines Number 1 and 2 carry water across the San Francisco Bay to Redwood City and to the Palo Alto Pipeline, which carries water south to three of the City’s water turnouts at Sand Hill Road, Lytton Avenue and California Avenue. SFPUC Bay Division Pipelines Number 3 and 4 carry water around and below the southern end of San Francisco Bay to the City’s other two connections to the SFPUC system at Arastradero Road and Page Mill Road. The resulting blend of water represents approximately 85% Hetch Hetchy water and 15% local reservoir water. The City has two 25-year water delivery contracts with the SFPUC, both of which were executed in June 2009: (i) a “Water Supply Agreement,” which is a master agreement between the City and County of San Francisco and the 27 wholesale customers (the “Suburban Purchasers”), and (ii) an Individual “Water Sales Contract.” The contracts contain provisions for adjusting wholesale water rates to match changing wholesale revenue requirements of the SFPUC on a periodic basis. The Water Supply Agreement guarantees a maximum supply of 184 million gallons per day (the “Maximum Supply Assurance”) collectively to all of the SFPUC’s wholesale customers. In 2009, the SFPUC and the wholesale customers agreed to maintain the existing allocation methodology that divides the Maximum Supply Assurance among the individual Suburban Purchasers. The City’s Maximum Supply Assurance share is 17.075 million gallons per day, or 8,333,000 hundred cubic feet (ccf) per year1. In Fiscal Year 2007-08, the SFPUC 1 1 ccf equals 748 gallons -21- delivered an average of approximately 12.72 million gallons per day to the City, or a total of approximately 6,205,790 hundred cubic feet. The Water Supply Agreement provides that the amount of water made available to the Suburban Purchasers is subject to reductions due to water shortage, drought, earthquakes, other acts of God, or rehabilitation or malfunctioning of the SFPUC’s water delivery system. On October 30, 2008, the SFPUC approved the Water System Improvement Program (WSIP), a long-range financial plan and capital improvement plan to address capital improvement needs and priorities for its water enterprise, which are intended to replace old systems or upgrade systems to improve reliability and meet future customer needs. The WSIP will be debt funded. The total estimated cost of the WSIP, which includes the SPPUC infrastructure to serve the City of San Francisco and the 27 wholesale customers, including inflation and contingencies, is approximately $4.5 billion. The new contracts specify the repayment method and the amount that is to be borne by the wholesale customers (including the City). The City’s cost of water purchased from the SFPUC has increased in recent years as a result of rising operations and maintenance costs of the aging water delivery systems that transport SFPUC water. It is anticipated that purchased water costs will continue to increase as the WSIP is implemented. SFPUC wholesale water rates for Fiscal Year 2007-08 were $1.30 per hundred cubic feet. Recent SFPUC wholesale water rate projections indicate that wholesale rates are expected to increase to $3.79 per hundred cubic feet by Fiscal Year 2015-16. The SFPUC adopted a capital program to repair and upgrade the regional water system that serves the City and other Bay Area communities. The SFPUC’s Water System Improvement Program (WSIP) consists of projects that are designed to increase the reliability of the regional system, especially if subjected to a large earthquake. According to the SFPUC, the objectives of the WSIP include: • Improve the system to provide high-quality water that reliably meets all current and foreseeable local, State, and Federal requirements. • Reduce vulnerability of the water system to damage from earthquakes. • Increase system reliability to deliver water by providing the redundancy needed to accommodate outages. • Provide improvements related to water supply/drought protection. • Enhance sustainability through improvements that optimize protection of the natural and human environment. Prior to completion of the WSIP, the SFPUC’s studies showed that the service area could be without water for up to 60-days after a major earthquake. The 50 WSIP projects for the regional system include replacement of some sections of pipeline, replacement of pump stations, upgrades to water treatment plants, new pipelines, dam and reservoir improvements, control system upgrades, large valve replacements, and fisheries enhancements. -22- Wholesale water prices have increased over the past five years as the SFPUC has started the planning, environmental review and design stage for many of the WSIP projects. The wholesale water rates for the past five years are as follows: Fiscal Year Rate per CCF 2006 $1.02 2007 $1.22 2008 $1.30 2009 $1.43 2010 $1.65 The latest forecast of wholesale water prices from the SFPUC incorporate the expected cost and schedule for the WSIP. The price forecast is as follows: Fiscal Year Rate per CCF 2011 $1.90 2012 $2.63 2013 $2.91 2014 $3.12 2015 $3.32 2016 $3.79 2017 $4.04 2018 $4.30 2019 $4.30 2020 $4.38 Interconnections with Neighboring Systems. The City maintains interconnections with four neighboring water distribution systems: Mountain View, the Stanford University campus, Purissima Hills Water District, and East Palo Alto. These interconnections are available for use in cases of water distribution system emergencies. Emergency Wells. The City maintains five existing deep wells, which could supply a portion of the service area’s needs on an emergency basis. It is anticipated that these existing wells, plus the three new wells the City plans to build over the next five years, could provide a near-normal water supply during an extended SFPUC water supply interruption. Water Wells, Regional Storage and Distribution System Study. Due to the critical need to ensure sufficient water supplies are provided under emergency conditions, in accordance with City Council direction, the City has accelerated the construction of the recommendations of the Water Wells, Regional Storage and Distribution System Study, completed in 1999. This study identified system deficiencies and recommended capital improvements to improve the operation and reliability of the City’s water distribution system, particularly during emergency situations. The City’s five existing wells will be rehabilitated or rebuilt by December 2011. Two of the three planned new wells have been completed and a third new well is scheduled for construction. A new reservoir and pump station at El Camino Park as well as an augmentation to an existing pump station at Mayfield will be constructed to allow the City to supply near-normal levels of water supply during SFPUC water supply interruptions. In support of the current projects, five booster pump stations have been rehabilitated in the Foothills to improve water conveyance efficiency and seismic retrofits to existing water storage and supply facilities will occur between January 2012 through June 2015. These completed and planned improvements are projected to ensure reliability and maintain the City’s water supply capacity at nearly normal usage levels on a continuous basis for the duration of many long-term emergency scenarios, some lasting 90 days or longer. In addition, the wells could be -23- used as supplemental supplies in protracted drought conditions when conservation efforts and SFPUC supplies are not sufficient to meet demands. Recycled Water Project The City completed a Water Reclamation Master Plan (Master Plan) for the Palo Alto Regional Water Quality Control Plant (RWQCP) in 1992 and an accompanying Final Program Environmental Impact Report (PEIR) in 1995. The Master Plan and the PEIR evaluated the development of a regional water reuse system that could ultimately provide service to the entire RWQCP service area. Benefits of a regional water reuse system include reduced effluent discharge from the RWQCP into San Francisco Bay and reduced reliance on potable water deliveries from the Hetch Hetchy system. The Master Plan includes a phased approach to the expansion of treatment, distribution, storage and use of recycled water. Phase 1 of the regional recycled water system has been in operation since 1980. It currently serves the Palo Alto Golf Course, Greer Park, the Emily Renzel Marsh, the Duck Pond, and the RWQCP. Construction of Phase 2, the Mountain View Recycled Water project, is almost complete and the project is scheduled to be online in the next few months. The Palo Alto Recycled Water Project, which would expand the recycled water distribution system to serve additional customers in Palo Alto, is Phase 3 of the RWQCP’s ongoing expansion of its regional recycled water system. The City is currently investigating the feasibility of constructing the Phase 3 project. The City completed a market survey in June 2006 to update the cost estimate and potential users for the project. Subsequently, the City completed a Recycled Water Facility Plan in December 2008, which provided further detail regarding potential project cost and potential recycled water use. The project would primarily serve irrigation customers within the City, with an initial yield of approximately 900 acre feet per year of recycled water. The Facility Plan identified a target recycled water use area, the Stanford Research Park, and a pipeline alignment for the project that would connect to the Phase 2 project. The projected capital cost estimate for the Phase 3 project is $33 million. The City is preparing the project level environmental document for the project and has involved stakeholders from the community and the potential end use customers and landowners in the Stanford Research Park. One of the issues identified in the environmental review phase is the salinity of the recycled water, which may negatively impact vegetation that would be irrigated with the recycled water. The Notice of Preparation for the Environment Impact Statement was released on June 16, 2011. Another issue is the high cost of the project. The City is investigating many funding options for the project, including state and federal grant and loan programs. The City is currently seeking federal authorization for a grant award of $8.25 million under the Bureau of Reclamation Wastewater and Groundwater Study and Facilities Act of 1992 (Title 16). The City is also applying for a low interest State Revolving Fund (SRF) loan from the State Water Resources Control Board for the project. Under this program, eligible projects can apply for loans with interest rates that are roughly half of the State general obligation bond rate. If the City is unsuccessful in obtaining an SRF loan, it is possible that the City could finance the Project with a traditional debt issuance. If the City is successful in obtaining an SRF loan, it would be subordinate to the current bond issuance. At this time, the City Council has not decided to go forward with the Phase 3 Recycled Water Project. A decision to proceed could be made as soon as Spring 2012, but many details regarding completion of the environmental document, potential state and federal funding, salinity management, and recycled water rate design remain to be determined. If the project did proceed, potable water sales volumes would decrease and less potable water supplies would be purchased from the SFPUC. Since wholesale water costs are -24- only a portion of the total water utility cost, the remaining water utility costs would be borne by fewer customers resulting in upward pressure on retail potable water rates. Recycled water retail rates have not been developed, but are typically set to an amount equal to about 75% of potable water retail rates. Providing a discount for recycled water users may result in a small upward impact on potable water rates, but this is not expected to be a large impact at this time. Water Conservation Policies and Procedures The City Council adopts an Urban Water Management Plan (UWMP) every five years. The latest update to the 2010 UWMP was adopted in June 2011. The 2010 UWMP contains the Urban Water Shortage Contingency Plan, which describes what the City would do in case of a water supply shortage. The plan describes a set of activities that would need to be undertaken during various stages of a water supply shortage. There are four water shortage stages culminating in Stage IV, which is a critical water shortage where water supplies are reduced by up to 35% to 50%. Actions taken to respond to water shortage stages include outreach campaigns, water audit programs, expanded incentive programs for customers to install water efficient appliances, implementation of water use restrictions, modifications of water rate structures or rationing programs, and the use of groundwater as a supplemental supply. In a water shortage situation, the City would select the appropriate mix of actions to respond to the severity of the water shortage. The 2010 UWMP also includes a plan to meet the requirement to reduce per capita water usage by 20% by 2020 under the Water Conservation Act of 2009 (SBx7-7), including proposed water efficiency measures that are expected to account for approximately 13% of total water demand by 2030. Additionally, the 2010 UWMP describes the 2009 water supply agreement with San Francisco, including the recently adopted allocation formula for water supply shortages such as droughts. The City has had extensive experience implementing programs to reduce customer use of water in water shortage situations. In the last extended water shortage from 1988 through 1992, the City reduced water consumption by over 35% from pre-drought consumption levels. Water consumption has not returned to the levels that existed prior to that water shortage and the City believes that future water reductions are unlikely to be as dramatic in a future drought. Water conservation programs are primarily administered by the Santa Clara Valley Water District. They include indoor and landscape audits for both residents and businesses, rebates and direct install programs for washing machines, toilets and urinals, rebates and workshops for efficient landscape and irrigation equipment, as well as a custom program for businesses to encourage the innovative use of water conservation methods in business processes. Achievements of the water conservation program, compared to the goals set in the UWMP, are shown below. All savings and achievements are shown as a percentage of total sales. Fiscal Year Annual Savings Goal Savings Achieved 2007-08 0.34% 0.72% 2008-09 0.34% 0.98% 2009-10 0.34% 1.35% 2010-11 0.90% Not yet available -25- Historical Production and Deliveries The following table sets forth a five-year history of water purchased from the SFPUC and delivered to customers in the Water System’s service area. Table 1 WATER SYSTEM WATER PURCHASES AND SALES (in hundreds of cubic feet) Fiscal Years 2005-06 through 2009-10 2005-06 2006-07 2007-08 2008-09 2009-10 Wholesale Water Purchases 5,802,911 6,361,100 6,205,790 5,677,018 5,342,257 Retail Water Sales 5,208,903 5,480,603 5,526,644 5,395,080 4,954,950 Source: City of Palo Alto, Utilities Department. Environmental Issues Relating to the Water System The Utilities Department reports that no environmental issues exist that are anticipated to materially affect the Water System. Capital Improvement Program Summary The City currently projects that it will undertake capital improvements to the Water System for the current and the next five fiscal years in the aggregate amount of approximately $80 million. The City currently intends to finance the projects with available Water Fund revenues on a pay-as-you-go basis, except for the Water Recycling Project which expects potential government grant or external funding, and not through the issuance of additional bonds or other debt instruments. The following table displays these projects. -2 6 - Ta b l e 2 WA T E R S Y S T E M TE N Y E A R W A T E R S Y S T E M C A P I T A L I M P R O V E M E N T P R O G R A M S U M M A R Y Pr o j e c t 20 1 0 - 1 1 20 1 1 - 1 2 20 1 2 - 1 3 20 1 3 - 1 4 20 1 4 - 1 5 20 1 5 - 1 6 To t a l El C a m i n o P a r k R e s e r v o i r a n d P u m p S t a t i o n 7 , 3 6 4 , 6 4 3 7 , 3 6 4 , 6 4 3 3 , 6 8 2 , 3 2 1 1 8 , 4 1 1 , 6 0 7 Re s e r v o i r , P u m p S t a t i o n , a n d W e l l L a n d A c q u i s i t i o n a n d E l Ca m i n o P a r k R e l o c a t i o n El C a m i n o P a r k W e l l 4 9 0 , 1 9 1 4 9 0 , 1 9 1 2 4 5 , 0 9 6 1 , 2 2 5 , 4 7 8 Ma y f i e l d P u m p S t a t i o n 2 , 2 0 7 , 7 9 3 2 , 2 0 7 , 7 9 3 1 , 1 0 3 , 8 9 6 5 , 5 1 9 , 4 8 2 El e a n o r P a r d e e P a r k W e l l Co m m u n i t y G a r d e n W e l l Ex i s t i n g W e l l R e h a b i l i t a t i o n 1, 7 1 6 , 2 8 3 1, 7 1 6 , 2 8 3 85 8 , 1 4 2 4, 2 9 0 , 7 0 8 Su b - t o t a l 11 , 7 7 8 , 9 1 0 11 , 7 7 8 , 9 1 0 5, 8 8 9 , 4 5 5 29 , 4 4 7 , 2 7 5 Fi n a n c e d f r o m ( P a y - A s - Y o u - G o ) C a p i t a l I m p r o v e m e n t Project Funds Am o u n t t o b e B o n d F i n a n c e d Va c u u m E x c a v a t i o n E q u i p m e n t 2 7 5 , 0 0 0 2 7 5 , 0 0 0 Em e r g e n c y W a t e r S u p p l y P r o j e c t 3 , 5 0 0 3 , 5 0 0 Re i m b u r s e m e n t b y B o n d s ( 3 , 5 0 0 ) ( 3 , 5 0 0 ) WG W U t i l i t y G I S D a t a 10 0 , 0 0 0 1 0 0 , 0 0 0 1 0 0 , 0 0 0 1 0 0 , 0 0 0 1 0 0 , 0 0 0 5 0 0 , 0 0 0 Re i m b u r s e m e n t b y E n t e r p r i s e F u n d s ( R e v e n u e ) ( 6 7 , 0 0 0 ) ( 6 7 , 0 0 0 ) ( 6 7 , 0 0 0 ) ( 6 7 , 0 0 0 ) ( 6 7 , 0 0 0 ) ( 3 3 5 , 0 0 0 ) Wa t e r M a i n R e p l a c e m e n t s P h a s e 3 0 3 4 4 , 0 0 0 3 4 4 , 0 0 0 Wa t e r M a i n R e p l a c e m e n t s P h a s e 2 9 3 3 4 , 0 0 0 3 3 4 , 0 0 0 Wa t e r M a i n R e p l a c e m e n t s P h a s e 2 8 3 2 4 , 0 0 0 3 , 3 4 5 , 0 0 0 3 , 6 6 9 , 0 0 0 Wa t e r M a i n R e p l a c e m e n t s P h a s e 2 7 3 1 4 , 0 0 0 3 , 2 4 5 , 0 0 0 3 , 5 5 9 , 0 0 0 Wa t e r M a i n R e p l a c e m e n t s P h a s e 2 6 3 0 5 , 0 0 0 3 , 2 4 5 , 0 0 0 3 , 5 5 0 , 0 0 0 Wa t e r M a i n R e p l a c e m e n t s P h a s e 2 5 2 9 2 , 0 0 0 3 , 1 5 2 , 0 0 0 3 , 4 4 4 , 0 0 0 Wa t e r M a i n R e p l a c e m e n t s P h a s e 2 4 2 , 9 5 0 , 0 0 0 2 , 9 5 0 , 0 0 0 Se i s m i c W a t e r S y s t e m U p g r a d e s 2 , 7 0 0 , 0 0 0 3 , 2 0 0 , 0 0 0 3 , 8 2 0 , 0 0 0 9 , 7 2 0 , 0 0 0 Wa t e r R e s e r v o i r C o a t i n g I m p r o v e m e n t s 8 6 0 , 0 0 0 5 9 0 , 0 0 0 1 , 4 5 0 , 0 0 0 Wa t e r D i s t r i b u t i o n S y s t e m I m p r o v e m e n t s 2 0 0 , 0 0 0 2 0 6 , 0 0 0 2 1 2 , 0 0 0 2 1 8 , 0 0 0 2 2 5 , 0 0 0 2 3 2 , 0 0 0 1 , 2 9 3 , 0 0 0 Wa t e r S y s t e m S u p p l y I m p r o v e m e n t s 2 0 0 , 0 0 0 2 0 6 , 0 0 0 2 1 2 , 0 0 0 2 1 8 , 0 0 0 2 2 5 , 0 0 0 2 3 2 , 0 0 0 1 , 2 9 3 , 0 0 0 Wa t e r R e c y c l i n g F a c i l i t i e s 50 0 , 0 0 0 5 0 0 , 0 0 0 5 0 0 , 0 0 0 8 , 0 0 0 , 0 0 0 1 6 , 0 0 0 , 0 0 0 2 5 , 5 0 0 , 0 0 0 Re i m b u r s e m e n t b y F e d e r a l G r a n t ( 8 , 0 0 0 , 0 0 0 ) ( 8 , 0 0 0 , 0 0 0 ) Se r v i c e a n d H y d r a n t R e p l a c e m e n t 2 1 2 , 0 0 0 2 1 7 , 0 0 0 2 2 2 , 0 0 0 2 2 9 , 0 0 0 2 3 6 , 0 0 0 2 4 3 , 0 0 0 1 , 3 5 9 , 0 0 0 Wa t e r M e t e r s 20 9 , 0 0 0 21 5 , 0 0 0 22 2 , 0 0 0 22 9 , 0 0 0 23 6 , 0 0 0 24 3 , 0 0 0 1, 3 5 4 , 0 0 0 Su b - t o t a l D i s t r i b u t i o n S y s t e m 4, 8 7 1 , 0 0 0 3, 8 8 2 , 0 0 0 8, 9 2 7 , 0 0 0 9, 4 0 6 , 0 0 0 12 , 5 3 4 , 0 0 0 12 , 6 3 9 , 0 0 0 52 , 2 5 9 , 0 0 0 Wa t e r S y s t e m E x t e n s i o n s 4 1 0 , 0 0 0 4 2 0 , 0 0 0 4 3 0 , 0 0 0 4 4 0 , 0 0 0 4 5 0 , 0 0 0 4 6 0 , 0 0 0 2 , 6 1 0 , 0 0 0 Re i m b u r s e m e n t b y C u s t o m e r , i n c l u d i n g C a p a c i t y F e e (R e v e n u e s ) (6 9 2 , 0 0 0 ) ( 7 0 0 , 0 0 0 ) ( 7 0 9 , 0 0 0 ) ( 7 1 8 , 0 0 0 ) ( 7 2 8 , 0 0 0 ) ( 7 5 0 , 0 0 0 ) ( 4 , 2 9 7 , 0 0 0 ) ) Su b - t o t a l C u s t o m e r D e s i g n a n d C o n n e c t i o n s (2 8 2 , 0 0 0 ) (2 8 0 , 0 0 0 ) (2 7 9 , 0 0 0 ) (2 7 8 , 0 0 0 ) (2 7 8 , 0 0 0 ) (2 9 0 , 0 0 0 ) (1 , 6 8 7 , 0 0 0 ) To t a l W a t e r P r o j e c t s ( N e t ) $4 , 5 8 9 , 0 0 0 $3 , 6 0 2 , 0 0 0 $8 , 6 4 8 , 0 0 0 $9 , 1 2 8 , 0 0 0 $1 2 , 2 5 6 , 0 0 0 $1 2 , 3 4 9 , 0 0 0 50 , 5 7 2 , 0 0 0 So u r c e : C i t y o f P a l o A l t o U t i l i t i e s D e p a r t m e n t -27- Water Rates, Fees and Charges Rate Setting Process. Water rates are based entirely on the City’s costs of purchased water and operating and maintaining the Water System. Purchased water costs comprise 33% of the Water System’s budget. The City receives annual cost projections from its water wholesaler, SFPUC. To establish retail rates, these supply costs are added to other expense requirements related to operation of the water distribution system, including the payment of any outstanding debt and the funding of reserves. Historical and Current Rate Increases. The City has historically adjusted water rates as necessary for each customer class. The most recent proposed rate increase is planned for implementation on October 1, 2011. The rate change, if approved by Council in September 2011 will increase FY 2012 revenues equivalent to an annual revenue increase of 12.5% over FY 2011 revenues. This is subject to the noticing and public hearing requirements of Proposition 218. The following table sets forth a recent history of water rate increases. Table 3 WATER SYSTEM HISTORIC AND PROPOSED WATER RATE INCREASES FOR ALL CUSTOMER CLASSES Year Increase 2004-05 10.3% 2005-06 0.0% 2006-07 7.0% 2007-08 10.0% 2008-09 8.0% 2009-10 5.0% 2010-11 0.0% 2011-12 12.5% (1) Source: City of Palo Alto, Utilities Department. (1) City Council action on the proposed rate increase of 12.5% has been delayed to September 2011 with an implementation on October 1, 2011. Water Rate Structure. Water rate schedules are established for residential and non- residential (commercial and industrial) users. Both customer classes have both a fixed monthly service charge and a variable water usage charge. During the period of Fiscal Year’s 2003-04 through 2006-07, water rate structures consisted of only a variable (volumetric) water usage charge, but this practice was revised due to revenue instability. The fixed charge is based on the size of the meter serving the customer. The volumetric component of the residential rate schedule consists of rate or usage blocks that ascend in price as consumption increases. -28- The following tables set forth the Water System rates for the past five fiscal years. Water Rate Structure (1) shows the volumetric component, and water rate structure (2) shows the Fixed Charge Component. The rates shown below are per hundred cubic feet (ccf) of water usage. Table 4 WATER SYSTEM WATER RATE STRUCTURE (1) Volumetric Component Fiscal Years 2006-07 through 2011-12 (per ccf) User type and Monthly Rate Block 2006-07 2007-08 2008-09 2009-10 2010-11 Residential: 0-7 ccf $4.04/ccf $3.949/ccf $3.949/ccf $3.949/ccf $3.949/ccf over 7 ccf $4.27/ccf $4.510/ccf $5.164/ccf $5.624/ccf $5.624/ccf Industrial/Commercial: $4.25/ccf $4.341/ccf $4.697/ccf $4.946/ccf $4.946/ccf User type and Monthly Rate Block 2011-12 Proposed Residential: 0-6 ccf $3.60/ccf over 6 ccf $7.64/ccf Industrial/Commercial: $4.93/ccf Source: City of Palo Alto, Utilities Department. Table 5 WATER SYSTEM WATER RATE STRUCTURE (2) Fixed Charge Component In Effect Since Fiscal Year 2007-08 (per meter) Monthly Customer Charge (by Meter Size) Actual 2007-08 through 2010-11 Proposed 2011-12 5/8-inch meter $ 5.00 $ 10.00 3/4 inch meter 5.00 10.00 1 inch meter 6.50 13.00 1 1/2 inch meter 12.27 27.00 2-inch meter 19.37 43.00 3-inch meter 77.65 114.00 4-inch meter 130.60 195.00 6-inch meter 260.43 406.00 8-inch meter 383.67 644.00 10-inch meter 383.67 644.00 Source: City of Palo Alto, Utilities Department. Projected Rates. The City Council is scheduled to act on the planned FY 2011-12 water rate increase in September 2011 with the rate increase to take effect on October 1, 2011. The proposed rate increase will be equivalent to an annual revenue increase of 12.5% in fiscal year 2011-12. Rates are and are projected to increase by 8%, 16%, 8% and 0% per year for each of the following four years, respectively. These projected rate increases could change depending -29- on the future projections, and will largely depend on the future costs of purchased water and the volume of water sales. Comparative Monthly Water Rates. The table below shows comparative monthly residential water bills for a usage rate of 14 hundred cubic feet by water suppliers serving neighboring communities for fiscal year 2010-11. Table 6 WATER SYSTEM COMPARATIVE RATES FOR AVERAGE MONTHLY RESIDENTIAL SERVICE Fiscal Year 2010-11 Water Provider Average Monthly Rate (1) Mountain View $48.04 Redwood City 60.37 Palo Alto 72.01 Menlo Park 76.44 Millbrae 75.82 Burlingame 95.23 Average excluding Palo Alto $71.18 Source: City of Palo Alto, Utilities Department. (1) Represents rate for typical residential users based on consumption of 14 ccf plus a service charge for a 5/8” meter. Water Demand and Customer Base On average, the City’s water customers consume 30.2 million gallons of water per day. However, demand rises and falls depending on the season, with the summer months showing high consumption and the fall and winter months having lower consumption. In fiscal year 2009-10, the Water System sold approximately 495 million cubic feet of water to approximately 20,000 users. (This amount is lower than water purchased from the SFPUC due to water losses in the storage and transmission systems, billing period differences and unmetered water uses.) The following table sets forth a five-year history of the number of accounts for the Water System. Table 7 WATER SYSTEM NUMBER OF ACCOUNTS As of June 30, 2005-06 through 2009-10 Fiscal Year Number of Accounts 2005-06 19,645 2006-07 19,726 2007-08 19,942 2008-09 20,031 2009-10 20,156 Source: City of Palo Alto, Utilities Department. * Estimated -30- The following table shows billing amounts, water consumption in hundred cubic feet by customer type, and water consumption as a percentage of total consumption by type of customer for active water accounts during fiscal year 2009-10. Table 8 WATER SYSTEM SUMMARY OF WATER ACCOUNTS AND USAGE BY USER TYPE Fiscal Year 2009-10* (Dollars in Thousands) User Type Number of Accounts Billings Consumption (in ccf) Consumption as Percent of Total Single Family Residences 15,333 $12,241 2,342,593 47.3 % Apartments 2,299 4,030 767,048 15.5 Commercial/Industrial 2,115 7,406 1,422,715 28.7 Other 409 2,194 422,594 8.5 Total 20,156 $25,871 4,954,950 100% Source: City of Palo Alto, Utilities Department. *Estimated Largest Water Customers. For Fiscal Year 2009-10, total consumption was 4,954,950 ccf, and total operating revenues were $25,850,376. The ten largest customers accounted for approximately 17.4% of total consumption and 17.1% of total operating revenue. The largest customer (other than the City) accounted for 3.9% of total consumption and 3.7% of total operating revenue. The following table lists the ten largest customers of the Water System for fiscal year 2009-10: Table 9 WATER SYSTEM TEN LARGEST CUSTOMERS Fiscal Year 2009-10 Primary Rank Business Activity Name 1 Government City of Palo Alto 2 Medical Stanford Hospital & Clinic 3 Medical Veterans Administration Hospital 4 Education Palo Alto Schools 5 Apartment/Hotel Stanford West Management 6 High Tech Hewlett Packard 7 Recreation Golf & Country Club 8 Education Stanford University 9 High Tech DPIX-Bldg 34 10 High Tech Space Sys Loral Source: City of Palo Alto, Utilities Department. Total consumption of the top ten customers was 4,954,950 ccf and total operating revenue was $25,850,376.26. The ten largest account for approximately 17.4% of total consumption and 17.1% of total operating revenues during fiscal year 2009-10. The largest customer (other than City) accounts for 3.9% of total consumption and 3.7% of total operating revenue. -31- Management Discussion of Operations Utilities Strategic Plan. The City continues to focus on providing a high quality and reliable source of water for its residents. Utilities is in the process of updating the Strategic Plan last approved in 2005. The five key objectives in the 2011 Utilities Strategic Plan which is scheduled for Council approval in the Fall of 2011 are: (1) Superior delivery of service; (2) providing service with respect and concern; (3) productive, effective use of resources; (4) straight-forward, honest and fair relations; (5) excellence in creative thought and implementation. Seventeen strategic initiatives were proposed to achieve one or more objectives and the overall strategic plan. The Utilities Strategic Plan is applicable to Water, Gas, Electric, Wastewater Collection, and Fiber Optics operations. Water Supply. With regard to water supply, the City’s wholesale supplier, the SFPUC, has provided rate projections indicating that the City’s wholesale costs will steadily increase over the next six years. This is due to the construction of seismic upgrades to the SFPUC water delivery system. These costs will be borne by the City and County of San Francisco as well as the SFPUC’s wholesale customers, including the City. Sales Revenues. Water sales revenue during the past five years grew from $20.4 million in fiscal year 2005-06 to $25.7 million in fiscal year 2009-10. This represents a compound annual growth rate of 6.0% over this period. Annual change in water rates is provided in Table 3. In fiscal year 2011-12, water sales revenue is projected to increase 12.5% to recover rising wholesale purchase costs and distribution operating costs, including debt service on the 2011 Bonds. Between fiscal year 2012-13 and fiscal year 2015-16, water rates are projected to increase by 17%, 16%, 8% and 0% annually to offset rising wholesale water purchase costs. Rate Stabilization Reserves. The Water Fund Rate Stabilization Reserve (W-RSR) balance is budgeted to be $10.5 million at the end of Fiscal Year 2009-10. At the end of the five year planning horizon, W-RSR balance is expected to be $12.7 million in Fiscal Year 2015-16. See “AVAILABLE RESERVES” for a discussion of the minimum and maximum guideline levels established for each reserve fund. Capital Improvements. To improve the operation and reliability of the City’s water distribution system, the City’s Capital Improvement Program includes both ongoing maintenance and infrastructure upgrades as well as retrofits for seismic protection. See “THE WATER SYSTEM—Capital Improvement Program Summary” above. The projects identified will ensure that water is available during emergencies and plays a vital role in development of the City’s emergency response plans. Emergency Planning was identified as one of the City Council’s top four priorities for 2006 and 2007. These projects also supports Comprehensive Plan Goal N-10, Protection of Life and Property from Natural Hazards, Including Earthquake, Landslide, Flooding and Fire. -32- Balance Sheet The following table sets forth the balance sheets of the Water System for the last five fiscal years. These numbers are excerpted from the audited financial statements of the City which were prepared in accordance with generally accepted accounting principles. Table 10 WATER SYSTEM BALANCE SHEET Fiscal Years Ended June 30, 2006 through 2010 (Dollars in Thousands) 2005-06 2006-07 2007-08 2008-09 2009-10 ASSETS CURRENT ASSETS: Cash and Investments $18,092 $20,201 $24,424 $24,846 $59,231 Accounts Receivable (Net) 3,191 3,490 4,233 3,886 3,610 Interest Receivable 220 251 272 272 389 TOTAL CURRENT ASSETS 21,503 23,942 28,929 29,004 63,230 NON-CURRENT ASSETS: Property, Plant and Equipment: (net) 52,960 56,636 59,426 63,921 72,621 TOTAL ASSETS 74,463 80,578 88,355 92,925 135,851 LIABILITIES Accounts Payable and Accrued Liabilities 11,601 11,068 11,449 11,074 47,004 Accrued Salaries and Benefits 58 192 81 97 120 TOTAL LIABILITIES 11,659 11,260 11,530 11,171 47,124 FUND EQUITY Investment in capital assets, net of related debt 43,259 47,226 49,599 54,355 56,705 Restricted for Debt Service 780 780 780 780 3,348 Unrestricted 18,765 21,312 26,446 26,619 28,674 TOTAL FUND EQUITY 62,804 69,318 76,825 81,754 88,727 TOTAL LIABILITIES AND FUND EQUITY 74,463 80,578 88,355 92,925 135,851 Source: City of Palo Alto Comprehensive Annual Financial Statements, 2005-2010. -33- Historical Operating Results The following table is a summary of operating results and debt service coverage of the Water System for the last five fiscal years. These results have been derived from the audited financial statements of the City for the four fiscal years ended June 30, 2010. See APPENDIX C—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010. Table 11 WATER SYSTEM SUMMARY STATEMENT OF HISTORICAL REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS Fiscal Years 2005-06 through 2009-10 (Dollars in Thousands) 2005-06 2006-07 2007-08 2008-09 2009-10 OPERATING REVENUES: Sales of Utilities: Customers $19,506 $21,826 $24,558 $25,086 $24,434 City Departments 924 1,088 1,298 1,468 1,311 Service Connection Charge & Miscellaneous 228 315 409 325 270 Other Operating Revenues 179 266 245 241 244 Total Operating Revenues 20,837 23,495 26,510 27,120 26,259 OPERATING EXPENSES: Purchase of Utilities 6,472 7,805 8,363 8,444 9,061 Administration and General 2,776 2,247 2,741 3,065 2,953 Engineering (Operating) 195 262 359 333 263 Resource Management 464 396 350 394 486 Operations and Maintenance 2,875 2,702 3,561 4,040 4,257 Rent 1,506 1,781 1,788 1,919 2,107 Depreciation and Amortization 995 1,132 1,134 1,171 1,411 Total Operating Expenses 15,283 16,325 18,296 19,366 20,538 Operating Income (Loss) 5,554 7,170 8,214 7,754 5,721 NON-OPERATING REVENUES (EXPENSES): Return on Investment 918 909 1,021 1,155 1,129 Unrealized Gain/Loss on Investment (481) 171 606 633 246 Interest Expense (457) (454) (436) (426) (774) Capacity Fees 271 542 951 523 Loss on Disposal of Fixed Assets (148) — — (199) (189) Net Non-operating Revenues (Expenses) 103 1,168 2,142 1,686 412 INCOME (LOSS) BEFORE OPERATING TRANSFERS 5,657 8,338 10,356 9,440 6,133 Operating Transfers In 20 1,153 200 44 1,122 Operating Transfers (Out) (3,987) (2,977) (3,049) (4,555) (282) Net Revenue 1,690 6,514 7,507 4,929 6,973 2002 Bonds (Water System Portion) 775 774 776 776 1,806 Net Revenues Available for Debt Service (1) 3,771 7,929 8,471 6,092 9,101 Debt Service Coverage 4.87x 10.24x 10.92x 7.85x 5.04x Source: City of Palo Alto (1) Depreciation and amortization, unrealized gain and loss on investments, loss on disposal of fixed asset and Interest Expense have been added back. -34- Projected Operating Results and Debt Service Coverage The following table is a summary of the projected operating results of the Water System for the fiscal years ending June 30, 2011, through June 30, 2015. The financial forecast represents the City’s estimate of projected financial results based upon its judgment of the most probable occurrence of certain important future events. The City assessed major cost drivers and expected costs, the short-term risks, reviewed reserve guidelines, and determined the revenue requirements for the next five years. The forecast attains a gradual increase of revenue to fund the expected operating expenses over the next five years. The projected adjustments achieve the goals of ensuring that the balance of the water rate stabilization reserves is adequate and within the Council-approved reserve guidelines in the long-term horizon. In the interim years of 2012-13 and 2013-14, the water rate stabilization reserve is projected to go below the minimum reserve guidelines but recovers to sufficient levels in 2014- 15. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material. -35- Table 12 WATER SYSTEM ACTUAL AND PROJECTED REVENUES, EXPENSES AND NET REVENUES Fiscal Years 2010-11 through 2014-15 (Dollars in Thousands) 2010-11 2011-12 2012-13 2013-14 2014-15 OPERATING REVENUES: Sales of Water $26,926 $30,794 $35,539 $41,013 $44,174 Service Connection Charge & Capacity Fees 692 767 776 785 795 Other Operating Revenues and Transfers In 156 158 159 161 162 Total Operating Revenues 27,774 31,719 36,474 41,959 45,131 NON-OPERATING REVENUES Interest / Return on Investment 1,050 595 665 627 976 Federal Government Interest Subsidy 610 605 598 588 577 Total Non-operating Revenues 1,660 1,200 1,263 1,215 1,553 Total Revenues 29,434 32,919 37,737 43,174 46,684 OPERATING EXPENSES Purchase of Water (1) 10,834 14,790 16,840 17,949 18,986 Administration and General/Engineering/Resource Mgmt/O&M 10,722 10,604 10,709 10,816 10,923 Interest Expense 1,531 1,507 1,478 1,443 1,405 Rent 2,107 2,128 2,150 2,171 2,193 Depreciation and Amortization 1,300 1,350 1,400 1,450 1,450 Total Expenses 26,494 30,379 32,577 33,829 34,957 Net Revenues 2,940 2,540 5,160 9,345 11,727 Net Revenues Available for Debt Service (2) 5,771 5,397 8,038 12,238 14,582 2002 Utility Revenue Bonds (Water System Portion) 775 96 0 0 0 2009 Water Revenue Bonds (3) 2,206 2,562 2,562 2,565 2,563 2011 Bonds (Water System Portion) (4) 0 738 711 712 712 Total Debt Service 2,981 3,396 3,273 3,277 3,275 Debt Service Coverage 1.94x 1.59x 2.46x 3.73x 4.45x Net Revenues After Debt Service 2,790 2,001 4,765 8,961 11,307 Reserve Balance As of Year End Emergency Plant Replacement $ 1,000 $1,000 $1,000 $1,000 $ 1,000 Rate Stabilization 10,978 8,667 3,443 2,927 9,118 Total Reserve Balance $11,978 $9,667 $4,443 $3,927 10,118 Source: City of Palo Alto (1) Purchase cost increasing due system improvement project by San Francisco Public Utilities Commission. (2) Depreciation, amortization and interest expense have been added back. (3) Interest of $360,797 was capitalized for December 1, 2010 and City receives 35% federal government interest subsidy under “Direct Payment Build America Bonds” under the provisions of the American Recovery and Reinvestment Act of 2009. (4) Estimate, subject to change. THE GAS SYSTEM History -36- Municipal ownership of the gas system began on October 1, 1917, when the City purchased the Palo Alto Gas Company with the proceeds of a $40,000 bond issue. The decision to municipalize the Gas System was influenced by controversies related to the rates charged by the Palo Alto Gas Company and the quality of the product. Furthermore, the City had a record of managing its electric system since 1900 at substantial savings to its citizens. In the early years of the Gas Utility, gas was manufactured from coal tar. On October 7, 1929, natural gas, a superior fuel, was introduced into the City’s mains, as Palo Alto began purchasing gas from Pacific Gas and Electric Company” (“PG&E”). PG&E obtained natural gas from the lower San Joaquin oil field and had a superior quality of 1180 Btu per cubic foot. As a consequence, domestic gas consumption began to rise dramatically in the early 1930s. The City relied on PG&E for natural gas until September 1, 1987, whereupon the City contracted with alternative suppliers located in the southwestern United States. At the same time, the City lowered its retail rates below PG&E for the first time in the City’s history. As the City’s population grew in the 1930s, 1940s and 1950s, the City issued bonds to finance the necessary gas distribution system expansions and improvements. This funding policy was changed in the 1960s to a “pay as you go” funding approach, whereby current revenues were raised to accommodate capital improvement projects. This issuance of the 2002 Bonds is the first departure from this long-standing policy. The City plans to reinstate the “pay as you go” funding approach for the Gas System in 2005. Service Area The City is the primary provider of gas service within the incorporated limits of the City of Palo Alto and land owned or leased by the City. The City’s service area encompasses approximately 26 square miles. Gas Distribution System The City operates a gas utility supplying approximately 23,300 customers with high- quality natural gas. Natural gas is delivered to the City’s four gas receiving stations through PG&E’s Bay Area local distribution system gas transmission mains, which the City uses through a contractual arrangement with PG&E. The City distributes gas to its customers through a distribution system consisting of two-inch to twelve-inch gas mains. Historically, the City’s gas distribution system has grown and evolved with the City. The rate and extent of the City’s growth made it necessary to employ an orderly, planned expansion process for the gas distribution system. Since 1992, the City has been pursuing an accelerated Gas Main Replacement Program which has targeted improving the City’s gas distribution system performance by replacing small diameter steel gas mains with larger diameter polyethylene mains and improving the gas distribution valve system, which together have increased gas supply to the entire system. This program has mitigated operational problems caused by past annexations to the system. Sources of Gas Supply Gas Supply Acquisition Strategy. Since April 2001, the City has followed a gas laddering strategy whereby a portion of the City’s gas needs are purchased at fixed- and capped-prices over a 36-month time horizon. The goal of this purchasing strategy is to smooth or stabilize gas supply costs relative to the volatile gas spot market. The gas laddering strategy is used to purchase gas for residential and small commercial customers. Palo Alto’s eight largest customers manage their own gas portfolio costs by electing either a monthly spot-market- based commodity rate, a fixed rate for 12 or 24 months, or a custom rate. The gas laddering -37- strategy is currently under review. Any residual gas needs are purchased on the monthly and daily spot markets. All gas purchases are made through enabling agreements with one of the City’s five approved counterparties: ConocoPhillips Company, JP Morgan Venture Energy Corporation, Shell Energy North America, BP Energy Company, and Powerex Corporation. The City’s Risk Management Policy and contract provisions require that its trading partners be investment grade counterparties with stable financial standing. Performance assurances and other financial enhancements, with the rights to early termination, are contract options should the counterparty fall below investment grade rating or other “events of default.” Gas Transmission Capacity. The City holds a base quantity of intrastate gas transmission capacity on PG&E’s Redwood path under a contract with PG&E that expires in December 2014, as per the provisions of Gas Accord V. The rate for this capacity is equal to the rate PG&E pays for its own distribution-level customers and is discounted relative to the rate available to other shippers. As in the past, the City will continue to monitor and intervene in state and federal proceedings to protect its interests and ensure adequate access to state and national gas transmission facilities to meet its needs. Gas Conservation Policies and Procedures The City Council reviews and adopts natural gas efficiency goals every three years. The goals are developed based on an analysis of the potential for technology upgrades on a technical, economic and customer basis. The goals are developed for the upcoming ten years. The latest Natural Gas Energy Efficiency Potential study was adopted in March 2011. The current ten-year goals are a cumulative reduction in expected gas use of 5.5% by 2020. This reduction must be from the direct intervention of utility programs and above what reductions may result from appliance and building energy standards. In addition, this goal must be achieved on top of the substantial natural reductions that occur when consumers buy more efficient equipment simply because it is what is legally available in the market. The savings are projected to take place primarily from business and residential water heating upgrades, as well as from residential upgrades to space heating and insulation. Efficiency programs are reviewed by a third party agency to ensure that savings are being appropriate evaluated, measured, and verified, as required by State Law (Assembly Bill 2021). A comparison of goals, as a percentage of total sales, with achieved results, for the past four years is shown below. Year Annual Savings Goal Savings Achieved 2007-08 0.25% 0.11% 2008-09 0.28% 0.28% 2009-10 0.32% 0.40% 2010-11 0.40% Not yet available In the Gas utility, there are utility programs for a full suite of implementation services for all customer groups. Residential programs promoting gas efficiency include: • Smart Energy Program (includes rebates for ENERGY STAR® appliances, insulation, furnaces, and other equipment), • Residential Energy Assistance Program (REAP) for low income efficiency installations, • Home Energy Reports, • Green@Home energy audits, -38- • Solar water heating rebates, • Community event sponsorship promoting participation in residential efficiency programs, • Palo Alto Unified School District Grant Program, $50,000 grant for efficiency education, and • New construction incentive program in coordination with the Planning department. Commercial programs promoting efficiency include: • Commercial Advantage Program with rebates for many efficiency equipment installations, • Commercial and Industrial Energy Efficiency Program, which provides focused audit and implementation assistance for larger businesses, • New Construction incentive program, • Meter Links website program to show the customer's prior-day load profile, • Efficiency training for City facilities staff and customers, and • PLUG-In—ultra-clean small-scale distributed generation and cogeneration rebate. Historical Production and Deliveries The following table sets forth historical gas production measured at the City’s gate in the PG&E pipeline in millions of therms. These figures also represent gas deliveries to customers in the Gas System’s service area. Table 13 GAS SYSTEM GAS SUPPLY BY SOURCE AND DELIVERIES (in millions of therms) Fiscal Years 2005-06 through 2009-10 Year Therms (million) Supply Source 2006-07 31.3 Wholesale purchase agreements 2007-08 32.2 Wholesale purchase agreements 2008-09 30.6 Wholesale purchase agreements 2009-10 30.7 Wholesale purchase agreements Environmental Issues Relating to the Gas System The Utilities Department reports that no environmental issues exist that are anticipated to materially affect the Gas System. -39- Capital Improvement Program Summary The City currently projects that it will undertake capital improvements to the Gas System for the current and the next 5 fiscal years in the aggregate amount of approximately $36 million. The City currently intends to finance the remaining projects with available Gas Fund revenues on a pay-as-you-go basis, and not through the issuance of additional bonds or other debt instruments. The following table displays these projects. Table 14 GAS SYSTEM CAPITAL IMPROVEMENT PROGRAM SUMMARY Improvement 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Capital Equipment Purchases $574,000 $306,000 $458,000 $575,000 $439,000 $352,000 Gas System Extensions 862,000 877,000 892,000 908,000 936,000 982,000 Gas System Improvements 632,000 200,000 206,000 212,000 218,000 230,000 Gas Main Replacement 6,257,000 6,438,000 6,632,000 3,692,000 3,842,000 4,035,000 Full Reimbursement by Customer (Revenues) (700,000) (710,000) (720,000) (730,000) (752,000) (790,000) Total $7,625,000 $7,111,000 $7,468,000 $4,657,000 $4,683,000 $4,809,000 Source: City of Palo Alto, Utilities Department. Gas Rates, Fees and Charges Gas rates are based on the City’s costs for purchasing gas and operating and maintaining the Gas System. Purchased natural gas costs make up 48% of the Gas System’s fiscal year 2010-11 budget. The City has executed gas supply contracts at fixed prices. To establish retail rates, these costs are added to other revenue requirements related to operation of the gas distribution system, including the payment of any outstanding debt and the funding of reserves. Historical and Current Rates Adjustments. The City has historically adjusted natural gas rates as needed for each customer class. The most recent rate change occurred in fiscal year 2008-09, which was a decrease of 10 percent. See “THE GAS SYSTEM - Management Discussion of Operations” below. The following table sets forth a five-year history of natural gas rate increases. Table 15 GAS SYSTEM HISTORIC GAS RATE INCREASES FOR ALL CUSTOMER CLASSES Year Increase 2005-06 20.0% 2006-07 9.5% 2007-08 7.1% 2008-09 -10.0% 2009-10 — 2010-11 — 2011-12 — Natural Gas Rate Structure. Natural gas rate schedules are established for residential and non-residential (commercial and industrial) users. The residential rate schedule consists of rate or usage blocks that ascend in price as consumption increases. The rates are seasonal and -40- change between winter and summer. Non-residential users (including public facilities) pay a flat rate. Starting in Fiscal Year 2007-08, all rate schedules have a monthly service charge. The following table sets forth the Gas System rates for the past four fiscal years and the current fiscal year. The current fiscal year’s rate structure was approved on July 1, 2009. The rates shown below are per therm (100,000 Btu) of natural gas usage. Table 16 GAS SYSTEM GAS RATE STRUCTURE Fiscal Years 2006-07 through 2010-11 (per therm) User type and Bi-Monthly Rate Block 2006-07 2007-08 2008-09 2009-10 2010-11 Residential: Summer: 0-20 1.3332 1.4226 1.5561 1.3872 1.3872 Over 20 1.9492 2.0386 2.1721 1.9592 1.9592 Winter: 0-96 1.3332 1.4226 1.5561 1.3872 1.3872 Over 96 1.9492 2.0386 2.1721 1.9592 1.9592 Monthly Service Charge 5.25 5.25 5.25 5.25 Small Non-Residential All therms 1.2936 1.3820 1.5155 1.3541 1.3541 Monthly Service Charge 35.00 35.00 35.00 35.00 Large Non-Residential All therms (1) 1.0290 1.1942 1.0151 0.8086 0.7791 Monthly Service Charge 311.00 311.00 311.00 311.00 (1) G3 commodity rate changes monthly. The therm rate presented is the annual average rate. Projected Rates. To match revenue requirements over the next 5-year period, only one retail gas rate increase is anticipated during the next five years. The City currently projects that retail natural gas rates will increase by 2% in fiscal year 2012-13, and remain flat otherwise for the 5-year horizon. These rate projections could change depending on future estimates, and will largely depend on the future costs of purchased natural gas. Comparative Monthly Natural Gas Rates. The table below shows comparative average residential natural gas bills charged by the City and PG&E, the only other natural gas supplier serving neighboring Santa Clara County communities, for a usage rate of 30 therms per month in the summer (May-October) and 100 therms per month in the winter (November/April). Table 17 GAS SYSTEM COMPARATIVE BILLING FOR AVERAGE MONTHLY RESIDENTIAL SERVICE Calendar Year ____ Supplier Total Bill Monthly Average PG&E $922.48 $76.87 Palo Alto $1,193.06 $99.42 Gas Demand and Customer Base On average, the City provides its customers with 84,000 therms of natural gas per day. However, demand rises and falls depending on the season, with the winter months showing high consumption and the summer months lower consumption. In fiscal year 2009-10, the Gas -41- System supplied approximately 23,700 users with approximately 30.7 million therms of natural gas. The following table sets forth a five-year history of the number of accounts for the Gas System. Table 18 GAS SYSTEM NUMBER OF ACCOUNTS As of June 30, 2006 through 2010 Fiscal Year Number of Accounts 2005-06 23,353 2006-07 23,357 2007-08 23,502 2008-09 23,576 2009-10 23,721 The following table shows billing amounts, gas consumption in therms by customer type, and gas consumption as a percentage of total consumption by type of customer for active gas accounts during fiscal year 2009-10. Table 19 GAS SYSTEM SUMMARY OF GAS ACCOUNTS AND USAGE BY USER TYPE Fiscal Year 2009-10 User Type Number of Accounts Billings ($000s) Consumption (in therms) Consumption as Percent of Total Single Family Residences 15,397 $ 16,121 9,965,292 32.4% Apartments 6,758 6,341 4,064,427 13.2% Commercial/Industrial 1,493 17,490 13,507,881 43.9% Other 73 3,343 3,205,907 10.4% Total 23,721 $ 43,294 30,743,507 100.0% Largest Gas Customers. The following are the ten largest customers for the Gas System for fiscal year 2009-10. In the aggregate, the ten largest customers represent approximately 18% of the annual Gas System service charges received by the City. Table 20 GAS SYSTEM TEN LARGEST CUSTOMERS Fiscal Year 2009-10 Rank Industry Name 1 Medical Veterans Administration Hospital 2 Government City Of Palo Alto 3 Education Stanford University 4 High Tech Syntex 5 High Tech Space Sys Loral 6 Medical Stanford Hospital & Clinic 7 Education Palo Alto Schools 8 Education Stanford University. 9 High Tech CPI 10 Medical Schering-Plough Biopharma Source: City of Palo Alto, Utilities Department. -42- Total consumption of these customers was 30,743,358 therms and total operating revenue was $43,049,787.77. The ten largest customers accounted for approximately 23.3% of total consumption and 17.9% of total operating revenues during fiscal year 2009-10. The largest customer (other than City) accounted for 5.9% of total consumption and 3.5% of total Operating revenue. Management Discussion of Operations Utilities Strategic Plan. Utilities is in the process of updating the Strategic Plan last approved in 2005. The five key objectives in the 2011 Utilities Strategic Plan which is scheduled for Council approval in the Fall of 2011 are: (1) Superior delivery of service; (2) providing service with respect and concern; (3) productive, effective use of resources; (4) straight-forward, honest and fair relations; (5) excellence in creative thought and implementation. Based on these objectives, seventeen strategic initiatives were proposed to achieve one or more objectives and the overall strategic plan. The Utilities Strategic Plan is applicable to Water, Gas, Electric, Wastewater Collection, and Fiber Optics operations. Sales Revenues. Retail sales revenue during the past five-year period grew from $36.4 million in fiscal year 2005-06 to $43.2 million in fiscal year 2009-10. Over this period, this represents a revenue growth rate of 4.4% annually. Rate Stabilization Reserves. The primary goal of the Rate Stabilization reserves is to maintain adequate Rate Stabilization Reserves is to provide rate stability to City residents and businesses. The unprecedented rise in wholesale gas costs during fiscal year 2000-01 presented an opportunity to utilize these reserves to help mitigate the full impact of higher commodity rates. In this regard, the Gas Fund Rate Stabilization Reserves were purposely drawn down during fiscal year 2000-01 as retail rates moved upward. Thus, the financial strategy used during fiscal year 2000-01 consisted of a combination of staggered rate increases, withdrawal of reserves to cushion customer bill impacts, and implementation of a large (67%) rate increase to accelerate restoration of reserve balances. Today, the Gas Fund Rate Stabilization Reserves consist of two parts, the Gas Supply Rate Stabilization Reserve and the Gas Distribution Rate Stabilization Reserves. Combined, Gas Fund Rate Stabilization Reserve balance at the beginning of Fiscal Year 2010-11 is $18.5 million. At the end of the five year planning horizon in Fiscal Year 2015-16, Gas Rate Stabilization Reserve balance is expected to be $10.7 million. (See “AVAILABLE RESERVES” for a discussion of the minimum and maximum guideline levels established for each reserve fund.) Gas Purchase Costs. Gas wholesale market costs have been decreasing over the last two years and they are expected to remain stable for the foreseeable future for planning purposes. As a result gas purchase costs will remain around their budgeted levels of $19.4 million in Fiscal Year 2011-12 throughout the forecast horizon ending in Fiscal Year 2015-16. Capital Improvements. The City has undertaken significant capital improvements to the Gas System . Gas mains have been replaced when leaks present a potential safety hazard or when leak repairs are no longer cost effective. In 1992, the City accelerated the rate of gas main replacements from 7,000 to 20,000 feet per year to replace leaking thin-walled plastic gas mains and corroded steel mains. The Gas Main Replacement Program was again further accelerated to 30,000 feet per year in fiscal year 1999- 00 due to the introduction of new gas main construction methods that lowered gas distribution system construction costs. -43- The City evaluated ways to improve the safety, operational distribution, and supply reliability of the City’s gas distribution system and has included this analysis in its distribution system Capital Improvement Plan project planning. The accelerated Gas Main Replacement Program improves the City’s gas distribution supply capabilities and operational safety by installing larger diameter polyethylene gas mains and control valves. The new polyethylene gas mains will not corrode, thereby reducing the City’s operating costs in the future by eliminating the maintenance expenses for cathodic protection system and leak repairs on the existing steel gas distribution mains. To date, the majority of the gas main replacement projects have been completed. The planned capital improvement expenditures are expected to decrease from their current levels of $8.3 million in FY 2011 to $5.4 million in Fiscal Year 2014, and continue at this level into the foreseeable future. Balance Sheet The following table sets forth the balance sheet of the Gas System for the four most recent fiscal years. These numbers are excerpted from the audited general purpose financial statements of the City which were prepared in accordance with generally accepted accounting principles. Table 21 GAS SYSTEM BALANCE SHEET Fiscal Years Ended June 30, 2006 through June 30, 2010 (in $000s) 2005-06 2006-07 2007-08 2008-09 2009-10 ASSETS CURRENT ASSETS: Cash and Investments $12,251 $16,337 $21,534 $24,024 $29,005 Accounts Receivable (Net) 2,438 2,784 3,714 1,084 3,059 Interest Receivable 153 185 231 4,154 242 TOTAL CURRENT ASSETS 14,842 19,306 25,479 29,262 32,306 NON-CURRENT ASSETS: Property, Plant and Equipment: (net) 61,191 65,471 69,525 75,038 79,246 TOTAL ASSETS 76,033 84,777 95,004 104,300 111,552 LIABILITIES Accounts Payable and Accrued Liabilities 1,560 1,744 3,045 2,271 2,033 Accrued Salaries and Benefits 68 76 79 104 122 Utility revenue bonds 11,471 11,066 10,647 10,214 9,766 TOTAL LIABILITIES 13,099 12,886 13,771 12,589 11,921 FUND EQUITY Investment in capital assets, net of related debt 49,353 53,990 58,449 64,381 69,092 Restricted for Debt Service 952 952 952 952 952 Unrestricted 12,629 16,949 21,832 26,378 29,587 TOTAL FUND EQUITY 62,934 71,891 81,233 91,711 99,631 TOTAL LIABILITIES AND FUND EQUITY 76,033 84,777 95,004 104,300 111,552 Source: City of Palo Alto Audited Financial Statements, 2005-2010. -44- Income Statements The following table sets forth the statement of revenues, expenses and changes in retained earnings of the Gas System for the four most recent fiscal years. These numbers are excerpted from the audited general purpose financial statements of the City which were prepared in accordance with generally accepted accounting principles. Table 22 GAS SYSTEM STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS Fiscal Years Ended June 30, 2006 through June 30, 2010 (in $000s) 2005-06 2006-07 2007-08 2008-09 2009-10 OPERATING REVENUES: Sales of Utilities: Customers $35,392 $40,474 $46,710 $46,059 $41,754 City Departments 1,040 863 1,393 1,194 1,490 Service Connection Charge & Miscellaneous 427 756 817 461 434 Other Operating Revenues 118 129 101 124 772 Total Operating Revenues 36,977 42,222 49,021 47,838 44,450 OPERATING EXPENSES: Purchase of Utilities 21,375 22,250 27,220 25,091 22,529 Administration and General 2,121 2,472 3,309 1,830 2,690 Engineering (Operating) 237 295 341 310 266 Resource Management 807 878 839 1,037 1,124 Operations and Maintenance 2,340 2,467 3,097 3,234 3,943 Rent 143 148 161 205 320 Depreciation and Amortization 1,249 1,623 1,636 1,674 1,728 Total Operating Expenses 28,272 30,133 36,603 33,381 32,600 Operating Income (Loss) 8,705 12,089 12,418 14,457 11,850 NON-OPERATING REVENUES (EXPENSES): Return on Investment 498 804 854 984 972 Unrealized Gain/Loss on Investment (311) (80) 488 631 371 Interest Expense (558) (546) (535) (521) (506) Capacity Fees 1 1 Loss on Disposal of Fixed Assets (278) (14) — (329) (16) Net Non-operating Revenues (Expenses) (649) 165 807 766 821 INCOME (LOSS) BEFORE OPERATING TRANSFERS 8,056 12,254 13,225 15,223 12,671 Operating Transfers In 39 956 Operating Transfers (Out) (4,294) (3,297) (3,883) (4,784) (5,707) Net Revenue 3,762 8,957 9,342 10,478 7,920 2002 Bonds (Water System Portion) 947 947 948 949 947 Net Revenues Available for Debt Service (1) 6,158 11,220 11,025 12,371 9,799 Debt Service Coverage 6.50x 11.85x 11.63x 13.04x 10.35x Source: City of Palo Alto (1) Depreciation and amortization, unrealized gain and loss on investments, loss on disposal of fixed assets, and Interest Expense have been added back. -45- Projected Operating Results and Debt Service Coverage The following table sets forth the City’s actual revenues, expenses and net revenues for the Gas System for the two prior fiscal years and projected revenues, expenses and net revenues for the Gas System for the current and next two fiscal years. Table 23 GAS SYSTEM ACTUAL AND PROJECTED REVENUES, EXPENSES AND NET REVENUES Fiscal Years Ended June 30 (in $000s) 2010-11 2011-12 2012-13 2013-14 2014-15 OPERATING REVENUES: Sales of Gas $41,172 $43,029 $44,060 $44,249 $44,254 Service Connection Charge & Capacity Fees 700 710 720 730 752 Other Operating Revenues and Transfers In 111 96 96 96 96 Total Operating Revenues 41,983 43,835 44,876 45,070 45,102 NON-OPERATING REVENUES Interest/Return on Investment 847 904 577 507 551 Total Revenues 42,830 44,739 45,453 45,582 45,653 OPERATING EXPENSES Purchase of Gas (1) 20,830 19,397 18,627 18,445 19,024 Administration and General/Engineering/Resource Mgmt/O&M 10,988 15,129 11,481 11,695 11,912 Interest Expense 487 470 450 430 408 Rent 215 215 218 221 224 Depreciation and Amortization 1,700 1,750 1,800 1,800 1,800 Total Operating Expenses (2) 34,220 36,961 32,576 32,591 33,368 NON-OPERATING EXPENSES General Fund and Other Transfers 5,918 6,384 6,753 7,353 7,011 Total Non-Operating Expenses 5,918 6,384 6,753 7,353 7,011 Total Expenses 40,138 43,345 39,329 39,944 40,379 Net Revenues 2,692 1,394 6,124 5,638 5,274 Net Revenues Available for Debt Service (3) 4,879 3,614 8,374 7,868 7,482 2002 Utility Revenue Bonds (Gas System Portion) 947 117 0 0 0 2011 Bonds (Gas System Portion) (4) 0 902 869 871 870 Total Debt Service 947 1,019 869 871 870 Debt Service Coverage 5.15x 3.55x 9.64x 9.03x 8.60x Net Revenues After Debt Service 3,932 2,595 7,505 6,997 6,612 Reserve Balance As of Year End Emergency Plant Replacement $ 1,000 $1,000 $1,000 $1,000 $ 1,000 Rate Stabilization 14,152 8,996 8,234 9,767 10,865 Total Reserve Balance $15,152 $9,996 $9,234 $10,767 $11,865 Source: City of Palo Alto (1) Purchase cost decreases from 2010-11 to 2013-14 due to projected lower market prices (2) One time $3.8 million expense in 2011-12 for cross-bore safety program (3) Depreciation and amortization and interest expense have been added back. (4) Estimate, subject to change. -46- AVAILABLE RESERVES Set forth below is information, including historical balances, policies and minimum, maximum and target guidelines with respect to each of the Available Reserves. The City’s Rate Stabilization Reserves For Its Enterprise Funds Utility Reserve Policy. Based upon a comprehensive review of utility reserves, the City Council adopted a utility reserve policy in 1993 that defined the role of reserves, established a rate stabilization reserve for each utility fund, and identified reserve guidelines. Rate stabilization reserves were created to cover a number of contingencies, including the need to supplement rates to cover distribution expenses and commodity supply costs. The 1993 reserve policy declared that reserves should be established to finance “extraordinary one-time contingencies.” The policy further stated that reserves should not be used to solve long-term financial problems; rather, rates should finance current operating, capital and financial obligations which are of an ongoing nature. In addition, reserves should not be funded to cover major catastrophic disasters; the City maintains insurance for that purpose and other governmental resources can be made available in case of disaster. Finally, if current operating costs exceed current revenues, reserves should be used to cover increased operating costs in the short run, while allowing rates to gradually increase over a reasonable period to meet such cost levels. Thus, the underlying goal of the reserves is to provide rate stability. Based upon a City Council-approved methodology, reserve level guidelines (minimum and maximum) are set annually to allow reserves to adjust up or down without unduly falling below the minimum or above the maximum. On occasion, reserves have exceeded the maximum level for a short time. Reserve levels are then adjusted in subsequent years, usually through rate changes. The decision to set aside more or less than the minimum or maximum is based upon an assessment of the uncertainties and financial risk facing the utilities. The City notes that reserve levels in excess of “maximum” levels are considered to be consistent with its reserve guidelines. The City Council is notified in the Midyear Financial Report, as well as in the Fourth Quarter Financial Report, of any existing or potential issues known at that time with respect to the reserves. In the absence of direction from the City Council to immediately address disposition of a reserve surplus, the disposition will be addressed in the following year’s budget cycle. Disposition may include a rate reduction, customer rebate, application of the surplus in satisfaction of a financial obligation or, if justified, maintenance of the reserve in its surplus position for a specific period of time. The City’s policy is to require City Council action to use the reserve; as a result, utility management is held accountable for operating efficiently and the City Council makes the decisions regarding the use of reserves. Since 1993, deregulation of the electric and gas industries has progressed rapidly. In 1997, the City Council approved several policies related to electric deregulation, including recovery of stranded costs and providing customer choice of supplier and marketing sales to customers residing outside the City’s service territory. See “AVAILABLE RESERVES— Calaveras-Stranded Costs Reserve” below. In 1998, the City Council split the Gas and Electric Fund Rate Stabilization Reserves (RSRs) into Supply and Distribution RSRs when the retail rates in those funds were unbundled into supply and distribution components of the rate. In 1999, the City took similar action by approving a Direct Access Plan for the Gas System. In -47- 2001, 2003, 2007, and in 2009, the City Council made various revisions to the guidelines for the Electric and Gas Supply and Distribution RSRs and Water and Wastewater RSRs. Available Reserve Balances History. The table below sets forth a summary of the amounts on hand in the Available Reserves for the prior five fiscal years, debt service of the outstanding bonds with a claim on Available Reserves, and resulting debt service coverage ratios. Table 24 AVAILABLE RESERVE BALANCES Fiscal Years 2006-2010 (Dollars in Thousands) Rate Stabilization Reserve Fund 2005-06 2006-07 2007-08 2008-09 2009-10 Water System $ 4,143 $ 16,276 $ 13,111 $ 5,400 $ 17,037 Electric System (Supply) 64,542 60,594 47,309 41,442 44,855 Electric System (Distribution) 12,281 7,787 8,109 6,341 9,484 Gas System (Supply) 2,801 6,668 7,399 8,733 12,339 Gas System (Distribution) 3,868 1,738 4,734 4,449 6,209 Calaveras Reserve (Electric) 73,163 71,810 70,397 64,535 59,865 Total: $160,798 $164,873 $151,059 $130,900 149,789 Debt Service 3,613 3,612 3,713 3,715 Debt Service Coverage Ratio 44.51x 45.65x 40.68x 35.24.x Source: City of Palo Alto. Rate Stabilization Reserve for the Water System The Water System rate stabilization reserve fund is maintained on the basis of the following guidelines: Minimum Guideline Level: 15 percent of budgeted sales revenue for that year Maximum Guideline Level: twice the minimum level The table below sets forth actual sales revenue, policy guidelines and actual levels of the Water System rate stabilization reserve as of June 30 for the last five fiscal years: Table 25 RATE STABILIZATION RESERVE FOR THE WATER SYSTEM Fiscal Years 2006-2010 (Dollars in Thousands) 2005-06 2006-07 2007-08 2008-09 2009-10 Actual Sales Revenue $20,430 $22,914 $25,856 $26,554 $25,745 Minimum Level 7,435 7,108 4,942 5,303 4,317 Maximum Level 14,869 14,215 12,356 13,258 8,634 Actual Reserve Level 4,143 16,276 13,111 5,400 17,037 Source: City of Palo Alto. See also APPENDIX C—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010. -48- Rate Stabilization Reserves for the Electric System Beginning in 1993, the Electric System had a single Rate Stabilization Reserve that was funded from rate revenues. Following electric deregulation in 1997, the City Council unbundled electric rates into the four cost components of Distribution, Power Supply, Transition Cost Recovery and Public Benefits. The unbundling of rate charges addressed, among other things, a need for the Electric System to account for its distribution business separately from its supply business in a competitive environment. Because of this need to recover costs and capture revenues for specific business activities, the rate stabilization reserve for the Electric System was replaced with separate reserves for distribution services and supply services. The City Council also established a Public Benefits Reserve in the Electric Fund to reserve revenues collected but unspent for Public Benefit programs; however, the Public Benefits Reserve is not pledged as an Available Reserve pursuant to the Indenture. At the time the City Council created the Electric Supply Rate Stabilization Reserves (E- SRSR) in 1998, the minimum reserve level guideline was set at 30 percent of the budgeted commodity sales revenue. The maximum guideline level was twice the minimum and the target was the midpoint between the minimum and maximum. In 2001, the City Council revised the guidelines for the E-RSR so that the minimum reserve level guideline was set at 40 percent of the budgeted supply purchase cost. The maximum guideline level was twice the minimum and the target was the midpoint between the minimum and maximum. In 2003, the City Council revised the guidelines so that the maximum reserve level guideline was set at 103 percent of the supply purchases costs for Electric Supply. As before, the minimum guideline level was half the maximum guideline level. In 2007, the City Council again revised the guidelines so that the minimum reserve level guideline was set at 50 percent of the supply purchase cost for the E-SRSR. The maximum guideline level was twice the minimum guideline level. Similarly for the Electric Distribution Rate Stabilization Reserves, (E-DRSR) the minimum reserve level guideline was set at 15 percent of the distribution sales revenue in 1998. The maximum guideline level was twice the minimum and the target was the midpoint between the minimum and maximum. In 2003, the City Council revised the guidelines of the E-DRSR so that the minimum reserve level guideline was set at 19 percent of the distribution sales revenue. As before, the maximum guideline level was twice the minimum and the target was the midpoint between the minimum and maximum. In 2007, the City Council again revised the guidelines for the E-DRSR setting the minimum guideline level to 20% of sales revenue and the maximum guideline level to 50% of sales revenue. And finally in 2009, in the City Council’s most recent revision to the guidelines, E-DRSR minimum and maximum guidelines were set at 15% and 30% of sales respectively for Fiscal Year 2009-10 and beyond. The current target guidelines for the Electric System Supply Rate Stabilization Reserve are set forth below: Minimum Guideline Level: 50% of budgeted purchase costs Maximum Guideline Level: twice the minimum level The current target guidelines for the Electric System Distribution Rate Stabilization Reserve are set forth below: Minimum Guideline Level: 15% of budgeted distribution sales revenue Maximum Guideline Level: twice the minimum level -49- The table below sets forth actual sales revenue, policy guidelines and actual levels of the Electric System Distribution Rate Stabilization Reserve and Supply Rate Stabilization Reserve as of June 30 for the past five years: Table 26 RATE STABILIZATION RESERVE FOR THE ELECTRIC FUND Fiscal Years 2006 through 2010 (Dollars in Thousands) 2005-06 2006-07 2007-08 2008-09 2009-10 Actual Sales Revenue $84,961 $85,417 $90,833 $104,809 $112,280 Minimum Level 32,669 33,900 35,913 47,834 45,721 Maximum Level 65,338 67,799 75,147 99,292 91,442 Actual Reserve Level 75,866 68,381 55,418 7,783 54,339 Source: City of Palo Alto. See also APPENDIX C—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010. Rate Stabilization Reserves for the Gas System In 1998, the City Council separated its single rate stabilization reserve for the Gas System into two separate reserves as Supply and Distribution for the same deregulation- related reasons as it had done with the Electrical System. At the time, the City Council created the Gas Supply Rate Stabilization Reserves (G- SRSR) in 1998, the minimum reserve level guideline was set at 20 percent of the budgeted commodity sales revenue. The maximum guideline level was twice the minimum and the target was the midpoint between the minimum and maximum. In 2001, the City Council revised the guidelines for the G-SRSR so that the minimum reserve level guideline was set at 20 percent of the budgeted supply purchase cost. The maximum guideline level was twice the minimum and the target was the midpoint between the minimum and maximum. In 2003, the City Council revised the guidelines so that the maximum reserve level guideline was set at 75 percent of the supply purchases costs for Gas Supply. As before, the minimum guideline level was half the maximum guideline level. In 2007, the City Council again revised the guidelines so that the minimum reserve level guideline was set at 35 percent of the supply purchase cost for the G-SRSR. The maximum guideline level was twice the minimum guideline level. And finally in 2009, in the City Council’s most recent revision to the guidelines, G-SRSR minimum and maximum guidelines were set at 25 percent and 50 percent of gas supply purchase costs respectively. Similarly for the Gas Distribution Rate Stabilization Reserves, (G-DRSR) the minimum reserve level guideline was set at 20 percent of the distribution sales revenue in 1998. The maximum guideline level was twice the minimum and the target was the midpoint between the minimum and maximum. In 2007, the City Council again revised the guidelines for the G- DRSR setting the minimum guideline level to 20 percent of sales revenue and the maximum guideline level to 50 percent of sales revenue. And finally in 2009, in the City Council’s final revision to the guidelines, G-DRSR minimum and maximum guidelines were set at 15 percent and 30 percent of sales respectively. -50- The current (2009-10) target guidelines for the Gas System Supply Rate Stabilization Reserve are set forth below: Minimum Guideline Level: 25% of budgeted purchase costs Maximum Guideline Level: twice the minimum level The current target guidelines for the Gas System Distribution Rate Stabilization Reserve are set forth below: Minimum Guideline Level: 15% of budgeted sales revenue Maximum Guideline Level: twice the minimum level Based on the guidelines applicable in the previous fiscal years, the Gas System guidelines and actual reserve levels are set forth below: Table 27 RATE STABILIZATION RESERVE FOR THE GAS SYSTEM Fiscal Years 2006 through 2010 (Dollars in Thousands) 2005-06 2006-07 2007-08 2008-09 2009-10 Actual Sales Revenue $36,433 $41,457 $48,100 $47,253 $43,244 Minimum Level 10,572 13,145 13,150 13,839 9,399 Maximum Level 21,145 26,289 29,606 31,111 18,798 Actual Reserve Level 6,669 8,406 12,133 13,182 18,548 Source: City of Palo Alto. See also APPENDIX C—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010. Calaveras-Stranded Costs Reserve In 1983, the City Council established the Calaveras Reserve in the Electric Fund to help defray a portion of the annual debt service costs associated with the Calaveras Hydroelectric Project, which was put in service at that time. As originally established, the Calaveras Reserve policy did not provide for a target balance and depletion of the reserve was anticipated by 2002. California Assembly Bill 1890 was adopted in 1996, which provided for the deregulation of California’s electric industry effective January 1, 1998. A key element of deregulation was the provision for Direct Access, which would allow electric customers to choose their electric commodity supplier. The City, along with other California utilities, were faced with the prospect of losing customers and load to Direct Access and being saddled with expensive generation assets purchased or built to serve these customers. In response to such risk, Pacific Gas and Electric Company and other investor- and municipally-owned utilities established stranded cost surcharges to collect funds from ratepayers to cover the amount that these uneconomic assets were projected to cost above their market value in the future (i.e., “stranded cost”). The City Council changed the purpose of the Calaveras Reserve in 1996 and authorized collections from electric ratepayers to cover the amount that certain electric assets’ costs were projected to be higher than their market value in the future (i.e., stranded cost). In addition, the City Council approved a new Calaveras Reserve policy linking the reserve balance to an amount sufficient to cover potential stranded costs. The assets identified as stranded included -51- the Seattle City Light Exchange contract, the Calaveras Hydroelectric Project, and the California-Oregon Transmission Project (COTP). In 1999, the City Council ceased collecting funds for these stranded costs and established the Calaveras Reserve Target and Guidelines with a schedule to draw down the funds and manage electric rates through the end of FY 2032-33. In 1997, the City Council revised the reserve target level to cover above-market, or “stranded,” costs to $93 million by December 31, 2001 to be collected from a stranded cost surcharge imposed on electric rates. When the Calaveras Reserve balance reached $71 million in 1999, stranded costs were deemed fully collected. At that time, the City Council authorized the cessation of the collection of the stranded cost surcharge and established the Calaveras Reserve Target and Guidelines with a schedule to drawdown the funds and manage electric rates through transfers from the Calaveras Reserve to the Electric Supply Rate Stabilization Reserve (E-SRSR) through the end of Fiscal Year (FY) 2032-33, when the Calaveras Reserve would be exhausted. In 2001, the California electric industry faced an energy crisis triggering wholesale power price spikes and rolling blackouts throughout the state. The crisis was blamed on poor deregulation market design and market manipulation by energy suppliers. As a result, Direct Access was suspended in California for the investor-owned utilities and subsequently, the City suspended its Direct Access program. Further, as a result of changing market conditions and the assignment of certain electric assets, the estimate of the City’s stranded cost is lower now than when stranded cost collections stopped in 1999. Since then, electric market prices have increased significantly, reducing the stranded cost associated with the Calaveras Hydroelectric Project. On June 15, 2009, the City Council adopted new guidelines to manage the Calaveras Reserve through changes to the existing Calaveras Reserve Target and Guidelines as follows: • Eliminate the existing Calaveras Reserve drawdown schedule; • Require the calculation of the stranded costs for the electric supply portfolio during the annual budget process for the upcoming budget year(s) and set the minimum transfer from the Calaveras Reserve to the Electric Supply Operating Budget equal to this amount; • Require the calculation of the stranded costs for the long-term (until 2032 when Calaveras debt is paid off) of the electric supply portfolio during the annual budget process and ensure that the Calaveras Reserve balance will be sufficient to cover this amount; • Calculate stranded cost based on the above market cost of the Calaveras Hydroelectric Project and the California Oregon Transmission Project; and • To the extent that there are funds available in excess of long-term stranded cost needs, staff will work with the UAC to identify and recommend projects for City Council consideration and approval. Such projects shall be to the benefit of electric ratepayers. The guidelines are once again under review and may be revised in Fiscal Year 2011-12. -52- The approximate balance of the Calaveras Reserve for the last five fiscal years is set forth below: Table 28 CALAVERAS-STRANDED COSTS RESERVE Fiscal Years 2006 through 2010 (Dollars in Thousands) 2005-06 2006-07 2007-08 2008-09 2009-10 Balance $73,163 $71,180 $70,397 $64,535 $59,865 Source: City of Palo Alto Audited Financial Statements. See also APPENDIX C—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010. CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES Article XIIIA Article XIIIA of the State Constitution provides that the maximum ad valorem tax on real property cannot exceed 1% of the “full cash value,” which is defined as “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under ‘full cash value’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment,” subject to exceptions for certain circumstances of transfer or reconstruction and except with respect to certain voter approved debt. The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reduction in property value caused by damage, destruction or other factors. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes, while generally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. As amended, Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service on certain voter-approved general obligation bonds for the acquisition or improvement of real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues. Under California law, any fee which exceeds the reasonable cost of providing the service for which the fee is charged is a “special tax,” which under Article XIIIA must be authorized by a two-thirds vote of the electorate. Accordingly, if a portion of the District’s water or wastewater user rates or Capacity Fees were determined by a court to exceed the reasonable cost of providing service, the District would not be permitted to continue to collect that portion unless it were authorized to do so by a two-thirds majority of the votes cast in an election to authorize the collection of that portion of the rates or fees. The reasonable cost of providing wastewater services has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. In addition, the California courts have determined that fees such as capacity fees will not be special taxes if they approximate the reasonable cost of constructing the water or wastewater capital improvements contemplated by the local agency imposing the fee. See “THE WATER SYSTEM—Water Rates, Fees and Charges.” -53- Article XIIIB Article XIIIB of the California Constitution limits the annual appropriations of proceeds of taxes by State and local government entities to the amount of appropriations of the entity for the prior fiscal year, as adjusted for changes in the cost of living, changes in population and changes in services rendered by the entity. User fees and charges are considered proceeds of taxes only to the extent they exceed the reasonable costs incurred by a governmental entity in supplying the goods and services for which such fees and charges are imposed. To the extent that assessments, fee and charges collected by the City are used to pay the costs of maintaining and operating the Water System and payments due on the 2011 Bonds (including the funding of the Reserve Account), the City believes that such moneys are not subject to the annual appropriations limit of Article XIIIB. Articles XIIIC and XIIID On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative, entitled the “Right to Vote on Taxes Act” (“Proposition 218”). Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contained a number of interrelated provisions affecting the ability of local governments, including the City, to levy and collect both existing and future taxes, assessments, fees and charges. Section 1 of Article XIIIC requires majority voter approval for the imposition, extension or increase of general taxes and Section 2 thereof requires two thirds voter approval for the imposition, extension or increase of special taxes. These voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues by the levy of general or special taxes and, given such voter approval requirements, no assurance can be given that the City will be able to enact, impose, extend or increase any such taxes in the future to meet increased expenditure requirements. Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to reduce or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments, fees and charges, which had previously been considered administrative rather than legislative matters and therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent other legal authority could result in the reduction in any existing taxes, assessments or fees and charges imposed prior to November 6, 1996. “Fees” and “charges” are not expressly defined in Article XIIIC or in SB 919, the Proposition 218 Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local jurisdictions in complying with Article XIIIC and Article XIIID (“SB 919”). However, on July 24, 2006, the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Virjil (Kelley) (the “Bighorn Decision”) that charges for ongoing water delivery are property-related fees and charges within the meaning of Article XIIID and are also fees or charges within the meaning of Section 3 of Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC. In the Bighorn Decision, the Supreme Court did state that nothing in Section 3 of Article XIIIC authorizes initiative measures that impose voter-approval requirements for future increases in fees or charges for water delivery. The Supreme Court stated that water providers -54- may determine rates and charges upon proper action of the governing body and that the governing body may increase a charge which was not affected by a prior initiative or impose an entirely new charge. The Supreme Court further stated in the Bighorn Decision that it was not holding that the initiative power is free of all limitations and was not determining whether the initiative power is subject to the statutory provision requiring that water service charges be set at a level that will pay debt service on bonded debt and operating expenses. Such initiative power could be subject to the limitations imposed on the impairment of contracts under the contract clause of the United States Constitution. Additionally, SB 919 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after [the effective date of Proposition 218] assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. No assurance can be given that the voters of the City will not, in the future, approve initiatives which repeal, reduce or prohibit the future imposition or increase of assessments, fees or charges, including the City’s water service fees and charges, which are the source of Net Revenues pledged to the payment of debt service on the 2011 Bonds, the applicable potion of the 2002 or any additional Parity Bonds. Notwithstanding the fact that water service charges may be subject to reduction or repeal by voter initiative undertaken pursuant to Section 3 of Article XIIIC, the City has covenanted to levy and charge rates which meet the requirements of the Indenture in accordance with applicable law. Article XIIID defines a “fee” or “charge” as any levy other than an ad valorem tax, special tax, or assessment imposed upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property-related service. A “property-related service” is defined as “a public service having a direct relationship to a property ownership.” In the Bighorn Decision, the California Supreme Court held that a public water agency’s charges for ongoing water delivery are fees and charges within the meaning of Article XIIID. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, the local government’s ability to increase such fee or charge may be limited by a majority protest. The City’s water charge is a commodity charge based on the volume of water consumed. The City has ratified prior water rate measures and otherwise complied with the applicable notice and protest procedures of Article XIIID for its current water rates and charges. There has not been nor is there any pending challenge to any of the City’s water fees and charges approved since the effective date of Proposition 218. While the City Attorney is of the opinion, based upon the judicial precedent in place during the period of these rate increases, that a reviewing court could reasonably uphold the validity of those increases, neither the City nor the City Attorney can predict with certainty the outcome of a challenge to the increases in the City’s water rates and charges that were not approved in accordance with the notice and hearing requirements of Article XIIID if one were brought. In addition, Article XIIID also includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service; (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident -55- of property ownership shall not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property- related fees or charges based on potential or future use of a service are not permitted. Article XIIID establishes procedural requirements for the imposition of assessments, which are defined as any charge upon real property for a special benefit conferred upon the real property. Standby charges are classified as assessments. Procedural requirements for assessments under Article XIIID include conducting a public hearing and mailed protest procedure, with notice to the record owner of each parcel subject to the assessment. The assessment may not be imposed if a majority of the ballots returned oppose the assessment, with each ballot weighted according to the proportional financial obligation of the affected parcel. To provide guidance to City staff regarding the conduct of Proposition 218 “property- related fee” protest proceedings, the City Council adopted Resolution No. 4930 on January 16, 2007, establishing additional procedures for submitting protests against proposed increases to water rates, including the provision of notice of a proposed change in water fees to all owners of record on each identified parcel and all water customers of the City as reflected in the billing records of the City at the time the notice is given, and additional procedures for the tabulation of protests against proposed increases to water rates, including guidelines for determining when a valid protest has been submitted. Existing, new or increased assessments are subject to the procedural provisions of Proposition 218. However, certain assessments existing on November 6, 1996, are classified as exempt from the procedures and approval process of Article XIIID. Expressly exempt assessments include (i) an assessment imposed exclusively to finance capital costs or maintenance and operation expenses for sewers, water, flood control and drainage systems, but subsequent increases are subject to the procedures and approval requirements; (ii) an assessment imposed pursuant to a petition signed by all affected landowners (but subsequent increases are subject to the procedural and approval requirements); (iii) assessments, the proceeds of which are used exclusively to pay bonded indebtedness, where failure to pay would violate the U.S. Constitution’s prohibition against the impairment of contracts; and (iv) any assessment which has previously received approval by a majority vote of the voters (but subsequent increases are subject to the procedural and approval requirements). On July 14, 2008, the California Supreme Court ruled in Silicon Valley Taxpayers Association, Inc. v. Santa Clara County Open Space Authority (the “SCCOSA Decision”) that the Santa Clara County Open Space Authority’s county-wide assessment which was designed to fund the acquisition and maintenance of unspecified open-space lands in the County was invalid under Proposition 218. The Court held that deference should not be accorded to local agencies when Proposition 218 legislative acts are challenged. Under Proposition 218, courts must make an independent review of whether the assessment and formation of an assessment district meet the “special benefit” and proportionality requirements of Article XIIID. Further, while an assessment will not be invalidated because it confers a benefit upon the public at large, the “special benefit” must affect the assessed property in a distinct and particular manner not shared by other parcels and the public at large. Specifically, in the SCCOSA Decision the assessment did not meet the requirements of a “special benefit” and the assessment was not proportional to the special benefits conferred. Finally, the Court held that the Santa Clara Open Space Authority did not meet the proportionality requirement of Article XIIID because it did not specifically identify the improvements to be financed by the assessment and failed to sufficiently connect any costs of and benefits received from the open space assessment to the specific assessed parcels. The City is of the opinion that current water fees and charges that are subject to Proposition 218 comply with the provisions thereof and that the City will continue to comply -56- with the rate covenant set forth in the Installment Purchase Agreement in conformity with the provisions of Article XIIID of the California State Constitution. The City is also of the opinion that current water capacity fees are not subject to Proposition 218. Should it become necessary to increase the water fees and charges above current levels, the City would be required to comply with the requirements of Article XIIID in connection with such proposed increase. To date, there have been no legal challenges to water rate increases implemented by the City pursuant to Proposition 218 or otherwise. It is unclear whether under existing standards, rates and charges may be established at levels which would permit deposits to a Rate Stabilization Fund or maintenance of uncommitted cash reserves. The interpretation and application of Proposition 218 will ultimately be determined by the courts or through implementing legislation with respect to a number of the matters described above, and it is not possible at this time to predict with certainty the outcome of such determination or the nature or scope of any such legislation. RISK FACTORS RELATING TO THE 2011 BONDS Payment of principal of and interest on the 2011 Bonds depends primarily upon the revenues derived from operation of the Water System and, if necessary, from moneys on deposit in the Available Reserves. Some of the events which could affect the revenues received by the Water System, as well as issues that could affect the availability of moneys in the Available Reserves, are set forth below. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the 2011 Bonds and the order in which the risks are discussed does not necessarily reflect the relative importance of the various risks. Limited Obligations The 2011 Bonds are limited obligations of the City and are not secured by a legal or equitable pledge or charge or lien upon any property of the City or any of its income or receipts, except the Net Revenues. The obligation of the City to pay debt service on the 2011 Bonds from Net Revenues does not constitute an obligation of the City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The City is obligated under the Indenture to make debt service payments solely from Net Revenues or from moneys on deposit in the Available Reserves. There is no assurance that the City can succeed in operating the Systems such that the Net Revenues in the future will be sufficient for that purpose. See also “Balance of the Available Reserves” and “Right to Vote on Taxes Act” below. System Expenses There can be no assurance that the City’s expenses for the Systems will be consistent with the descriptions in this Official Statement. Changes in technology, changes in quality standards, loss of large customers, increased or decreased development, increases in the cost of operation, or other expenses could require increases in rates or charges in order to comply with the City’s rate covenant in the Indenture. Limited Recourse on Default Failure by the City to pay debt service on the 2011 Bonds constitutes an event of default under the Indenture and the Trustee is permitted to pursue remedies at law or in equity to enforce the City’s obligation to make such payments. Although the Trustee has the -57- right to accelerate the total unpaid principal amount of the debt service on the 2011 Bonds, there is no assurance that the City would have sufficient funds to pay the accelerated amounts. See also “Proposition 218” below. Limitations on Remedies The ability of the City to comply with its covenants under the Indenture and to generate Net Revenues sufficient to pay principal of and interest with respect to the 2011 Bonds may be adversely affected by actions and events outside of the control of the City and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay assessments, fees and charges. See “Proposition 218” below. Furthermore, the remedies available to the owners of the 2011 Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on remedies contained in the Indenture, the rights and obligations under the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against cities in the State of California. The opinion to be delivered by Bond Counsel concurrently with the issuance of the 2011 Bonds will be subject to such limitations and the various other legal opinions to be delivered concurrently with the issuance of the 2011 Bonds will be similarly qualified. See APPENDIX D—PROPOSED FORM OF BOND COUNSEL OPINION. If the City fails to comply with its covenants in the Indenture or fails to pay principal of and interest due on the 2011 Bonds, there can be no assurance of the availability of remedies adequate to protect the interest of the holders of the 2011 Bonds. Balance of the Available Reserves Although the City has covenanted to maintain the Available Reserves at an aggregate balance equal to five times maximum annual debt service on all outstanding bonded indebtedness secured by Net Revenues of any of the Systems, each Available Reserve is primarily intended as a rate stabilization reserve for the applicable City utility System. As a result, extraordinary circumstances may arise that would cause the City to diminish Available Reserves below “minimum” guideline levels or, in the aggregate, below five times Maximum Annual Debt Service. Although the City has covenanted in the Indenture to replenish the Available Reserves to required levels, it will do so only from rates and charges paid by the customers of the various utility systems, which may adversely affect the City’s ability to replenish the Available Reserves in a timely fashion. In addition, certain provisions of the California Constitution may require the City to repay any advance from an Available Reserve that is not directly related to the System which the advance benefits. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES—Articles XIIIC and XIIID.” Initiatives In recent years several initiative measures have been proposed or adopted which affect the ability of local governments to increase taxes and rates. There is no assurance that the electorate or the State legislature will not at some future time approve additional limitations which could affect the ability of the City to implement rate increases which could reduce Net Revenues and adversely affect the security for the 2011 Bonds. See “Proposition 218” below. -58- Bankruptcy The rights and remedies provided in the Indenture may be limited by and are subject to the provisions of federal bankruptcy laws, to other laws or equitable principles that may affect the enforcement of creditors’ rights, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to the 2011 Bonds and the Indenture, including the opinion of Bond Counsel, will be similarly qualified. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the 2011 Bonds and the City could be prohibited from taking any steps to enforce their rights under the Indenture. Tax Exemption of the 2011 Bonds The City has covenanted in the Indenture that it will take all actions necessary to assure the exclusion of interest with respect to the 2011 Bonds from the gross income of the Owners of the 2011 Bonds to the same extent as such interest is permitted to be excluded from gross income under the Internal Revenue Code of 1986. If the City fails to comply with the foregoing tax covenant, the interest component of the Installment Payments evidenced by the 2011 Bonds may be includable in the gross income of the Owners thereof for federal tax purposes. See “LEGAL MATTERS—Tax Matters.” Additional Obligations The Indenture permits the issuance of Bonds secured by Net Revenues on a parity basis or a subordinate basis to the 2011 Bonds. Such additional Bonds would increase debt service payable from Net Revenues and could adversely affect debt service coverage with respect to the 2011 Bonds. In such event, however, the Rate Covenant will remain in effect. See “SECURITY FOR THE 2011 BONDS—Rate Covenant.” Seismic Considerations The City, like much of California, is subject to seismic activity that could result in interference with operation of the Systems. There are several major active fault zones transecting the County that could cause “strong ground motion” at the site of the various facilities constituting the Systems during their useful life. Those major fault zones, listed in order of proximity to the City, are the San Andreas, Hayward, Calaveras and San Gregorio faults. If there were to be an occurrence of severe seismic activity in the area of the City, there could be an interruption in the service provided by the Systems resulting in a temporary reduction in the amount of Net Revenues available to pay the principal of and interest on the 2011 Bonds when due. Relevance to Available Reserves. Because Proposition 218 declares that revenues derived from a “fee” or “charge” may not exceed the funds required to provide the “property-related service” and may not be used for any purpose other than that for which the fee or charge was imposed, the City may be required to repay any advance from an Available Reserve that is not directly related to the System which the advance benefits. For example, if the City requires an advance from the Rate Stabilization Reserve for the Sewer System to pay the portion of debt service on the 2011 Bonds attributable to the Water System, the City may be required to repay the Sewer System reserve. Proposition 218 expressly does not apply to revenues of the Electric System or the Gas System and, therefore, does not apply to their Available Reserves. -59- Investment of City Funds Gross Revenues collected by the City will be held and invested by the City in accordance with the provisions of the Indenture. Otherwise, however, moneys held by the City, including Enterprise moneys, will be invested in accordance with the City’s adopted investment policies. For more information about the City’s investment policy as well as information about recent investment performance of the City’s pooled investment funds, see APPENDIX B—GENERAL AND ECONOMIC INFORMATION ABOUT THE CITY. LEGAL MATTERS Approval of Legal Proceedings The legality of the sale, execution and delivery of the 2011 Bonds is subject to the approval of Jones Hall, A Professional Law Corporation, San Francisco, California, acting as Bond Counsel. A proposed form of such legal opinion is attached hereto as Appendix D. Quint & Thimmig LLP, San Francisco, California, is acting as disclosure counsel to the City in connection with the issuance of the 2011 Bonds. Payment of the fees and expenses of Jones Hall and of Quint & Thimmig LLP are contingent upon issuance of the 2011 Bonds. Absence of Litigation At the time of delivery of and payment for the 2011 Bonds, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the City affecting the existence of the City or the titles of its officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the 2011 Bonds, the application of the proceeds thereof in accordance with the Indenture, or the collection or application of any Net Revenues provided for the payment of the 2011 Bonds, or in any way contesting or affecting the validity or enforceability of the 2011 Bonds, the Indenture, any action of the City contemplated by any of the said documents, or the collection or application of any revenues provided for the payment of the 2011 Bonds, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the 2011 Bonds or any action of the City contemplated by any of those documents. Tax Matters In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the Community comply with all requirements of the Internal Revenue Code of 1986 (the “Code”) that must be satisfied subsequent to the issuance of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Community -60- has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. If the initial offering price to the public (excluding bond houses and brokers) at which a 2011 Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which 2011 Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount is disregarded. Under the Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the 2011 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straightline interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bonds. The Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Under the Code, original issue premium is amortized on an annual basis over the term of the Bonds (said term being the shorter of the 2011 Bond’s maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bonds for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a 2011 Bond is amortized each year over the term to maturity of the 2011 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straightline interpolations between compounding dates). Amortized 2011 Bond premium is not deductible for federal income tax purposes. Owners of Premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. A copy of the proposed form of opinion of Bond Counsel is attached hereto APPENDIX D—PROPOSED FORM OF BOND COUNSEL OPINION. -61- CONTINUING DISCLOSURE The City has covenanted for the benefit of the holders and beneficial owners of the 2011 Bonds to provide certain financial information and operating data relating to the City (the “Annual Report”) by no later than each March 1 following the end of the City’s fiscal year (which fiscal year currently ends on June 30), commencing March 1, 2012, with the Annual Report for the 2010-11 Fiscal Year, and to provide notices of the occurrence of certain enumerated events. The City will file, or cause to be filed, the Annual Report with the Municipal Securities Rulemaking Board (the “MSRB”) with a copy to the Underwriter. The City will file, or cause to be filed, the notices of enumerated events with the MSRB. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is set forth in APPENDIX E—FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). The City has never failed to comply, in all material respects, with an undertaking under the Rule. FINANCIAL ADVISOR The City has retained Public Financial Management, Inc., San Francisco, California, as financial advisor (the “Financial Advisor”) in connection with the authorization and delivery of the Bonds. The fees of the Financial Advisor are contingent upon the sale and delivery of the Bonds. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. RATINGS Moody’s Investors Service, Inc. (“Moody’s”) has assigned its municipal bond rating of “____” to the 2011 Bonds, and Standard & Poor’s Ratings Services, A Division of the McGraw-Hill Companies (“Standard & Poor’s”), has assigned its municipal bond rating of “____” to the 2011 Bonds. Such ratings reflect only the views of such organizations and an explanation of the significance of such ratings may be obtained from Moody’s and Standard & Poor’s. There is no assurance that such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by such organizations, if in their judgment circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2011 Bonds. VERIFICATION OF ARITHMETICAL AND MATHEMATICAL COMPUTATIONS Upon delivery of the Bonds, the arithmetical accuracy of certain computations included in the schedules provided by the Financial Advisor on behalf of the City relating to the computation of (a) the adequacy of forecasted receipts of principal and interest on the U.S. Treasury Securities and cash to be held in the Escrow Fund to pay, when due, the principal and interest on the 2002 Bonds, (b) the forecasted payments of principal and interest due on the 2002 Bonds on and prior to their maturity date, and (c) the yield with respect to the Bonds and the securities to be deposited in the Escrow Fund upon the delivery of the Bonds., will be verified by the Verification Agent. Such verification of the accuracy of the mathematical computations shall be based solely upon information and assumptions supplied to such accountants by the Financial Advisor. Such accountants have restricted their procedures to examining the arithmetical accuracy of certain computations and have not made a study or evaluation of the information and assumptions on which the computations are based, and -62- accordingly, have not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. UNDERWRITING The 2011 Bonds were sold pursuant to competitive sale held on __________, 2011, and were awarded to __________ (the “Underwriter”). The 2011 Bonds are being purchased by the Underwriter at a purchase price of $__________, which represents the aggregate principal amount of the 2011 Bonds, less an original issue discount of $__________ and less an Underwriter’s discount of $__________. MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of the statements will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the owners of the 2011 Bonds. During the initial offering period for the 2011 Bonds, copies of the Indenture may be obtained, upon written request, from the City. After issuance of the 2011 Bonds, copies of such documents may be obtained from the Trustee. The execution and delivery of this Official Statement have been duly authorized by the City Council of the City. CITY OF PALO ALTO By Director of Administrative Services Appendix A APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE [TO COME] THIS PAGE INTENTIONALLY LEFT BLANK Appendix B Page 1 APPENDIX B GENERAL AND ECONOMIC INFORMATION ABOUT THE CITY General The City is located in northern Santa Clara County (the “County”), approximately 35 miles south of the City of San Francisco. The City has a current population of approximately 64,943. It is part of the San Francisco Bay metropolitan area. Partly due to the presence of Stanford University, which is adjacent to the City, the City is considered the birthplace of the high technology industry that has made the County famous worldwide as Silicon Valley. The 630-acre Stanford Research Park includes prestigious and innovative high-tech leaders such as Hewlett-Packard, SAP America, Varian Medical Systems, VMware, Tibco Software, Space Systems Loral, the Electric Power Research Institute and Communications and Power Industries. The City is also a major employment center, including U.S. Department of Veteran Affairs’ Palo Alto Health Care System, Stanford Hospitals and Clinics, Lockheed Martin Missiles and Space, Palo Alto Medical Foundation, Stanford Shopping Center, the law offices of Wilson Sonsini Goodrich and Rosati, and the Xerox Palo Alto Research Center. The City was incorporated in 1894. Its first Charter was granted by the State of California in 1909, and the City continues to operate as a charter city. Municipal operations are conducted under the Council- Manager form of government. The nine City Council Members are elected at large for four-year, staggered terms. The Mayor and Vice Mayor are elected annually at the first City Council meeting in January. The Mayor presides over all City Council meetings. The City Manager is responsible for the operation of all municipal functions, except the offices of the City Attorney, City Clerk, and City Auditor. These officials are appointed by, and report directly to, the City Council. Population The following table shows a historical comparison of the respective populations of the City, the County and the State of California since 1970. CITY OF PALO ALTO, SANTA CLARA COUNTY, AND STATE OF CALIFORNIA Population Comparison Year City of Palo Alto Percent Change Santa Clara County Percent Change State of California Percent Change 1970 56,040 - 1,064,714 - 19,953,134 - 1980 55,225 -1.5% 1,295,071 2.2% 23,667,902 1.9% 1990 55,900 1.2 1,497,577 15.6 29,758,213 25.7 2000 58,598 4.8 1,682,585 12.4 33,873,086 13.8 2001 60,269 2.8 1,701,362 1.1 34,430,970 1.6 2002 60,325 0.1 1,715,295 0.8 35,063,959 1.8 2003 60,320 0.0 1,726,081 0.6 35,652,700 1.7 2004 60,480 0.2 1,738,435 0.7 36,199,342 1.5 2005 61,451 1.6 1,752,696 0.8 36,676,931 1.3 2006 62,096 1.0 1,771,291 1.0 37,087,005 1.1 2007 62,245 0.2 1,797,623 1.5 37,463,609 1.0 2008 63,080 1.3 1,828,977 1.7 37,871,509 1.1 2009 64,480 2.2 1,857,516 1.6 38,255,508 1.0 2010 65,408 1.4 1,880,876 1.2 38,648,090 1.0 Sources: U.S. Department of Commerce, Bureau of the Census (1980, 1990 and 2000); State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and the State, 2001-2010, with 2000 Benchmark. Sacramento, California, May 2010. Appendix B Page 2 History The earliest record of settlement in Palo Alto was dated 1769. The City is named for the tree by the banks of the San Francisquito Creek bordering Menlo Park. Many of the Spanish names in the Palo Alto area represent the local heritage and descriptive terms and former residents. In 1895, Leland Stanford came to the town of Mayfield (in what is now south Palo Alto), interested in founding his university there, and creating a train stop near his school. However, he had one condition: alcohol be banned from the town. Mayfield rejected his requests for reform. This prompted Stanford to drive the formation of Palo Alto in 1895. Stanford set up his university, Stanford University, and train stop. On July 2, 1925, Palo Alto voters approved the annexation of Mayfield and the two communities were officially consolidated on July 6, 1925. Budgetary Policies and Processes The City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted to obtain public comments. The adopted budget is legally enacted through passage of a budget ordinance for all funds except for agency funds. The City Manager is authorized to reallocate funds from a contingent account maintained in the General Fund in conformance with the adopted policies set by the City Council. Additional appropriations to departments in the General Fund, or to total appropriations for all other budgeted funds, or transfers of appropriations between funds, require approval by the City Council. Expenditures may not legally exceed budgeted appropriations at the department level for the General Fund, and at the fund level for special revenue and debt service funds. Formal budgetary integration is employed as a management control device during the year in all funds except agency funds and certain debt service funds. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles for all funds, except that General Fund encumbrances are treated as budgetary expenditures when incurred and stores (materials, parts and supplies) transactions included in the General Fund are not budgeted. Expenditures for the City’s Capital Projects Fund are budgeted and managed on a project length basis and budget to actual comparisons for these expenditures have been excluded from the accompanying financial statements. Ad Valorem Property Taxes Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County of Santa Clara as of the preceding March 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed property and property the taxes on which are a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Assessed Valuations The valuation of property in the City is established by the Santa Clara County Assessor. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. Prior to 1981-82, assessed valuations were reported at 25% of the full value of property. The California State Legislature adopted two types of State-reimbursed exemptions beginning in the tax years 1969-1970. The first currently provides a credit of $7,000 of the full value of an owner-occupied dwelling for which application has been made to the County Assessor. Revenue estimated to be lost to local taxing agencies due to the above exemptions has in the past been reimbursed from State sources. Reimbursement is based upon total taxes due upon such exemption values and therefore is not reduced by any estimated amount of actual delinquencies. Pursuant to legislation adopted in 1979 (Statutes of 1979, Chapter 1150), business inventories are entirely exempt from taxation in fiscal year 1980-81, and each fiscal year thereafter. This law further provides a formula for reimbursement by the State to cities, counties, special districts and school districts for the amount of tax revenues lost by reason of such exemption, as adjusted for percentage changes in the population and the cost of living. Under prior State law, the State paid 50% of the taxes that were levied against business inventories. Under Chapter 1150, the State pays, as a subvention, an amount equal to 100% Appendix B Page 3 of taxes that would otherwise be due (excluding taxes to pay for voter approved indebtedness) from business inventories commencing with the 1980-81 fiscal year. To compute amounts payable by the State, 1979-80 was established as the base year for business inventory subventions; thereafter, the subventions due are increased based upon increases in population and inflation rather than expanded business inventories. In addition, certain classes of property such as churches, colleges, not-for-profit hospitals and charitable institutions are exempt from property taxation and do not appear on the tax rolls. No reimbursement is made by the State for such exemptions. The following table provides a five-year record of assessed valuations for the City. CITY OF PALO ALTO ASSESSED VALUATIONS OF TAXABLE PROPERTY 2005-06 through 2009-10 (In Thousands) Fiscal Year Secured Valuation (Net of Exemptions) Public Utility Unsecured Valuation Total Assessed Value 2005-06 $14,884,944 $4,084 $1,361,117 $16,250,145 2006-07 16,214,406 3,923 1,391,284 17,609,613 2007-08 17,382,730 3,174 1,536,584 18,922,488 2008-09 19,211,744 2,573 1,871,292 21,085,609 2009-10 20,068,667 2,573 1,809,119 21,880,359 Source: City of Palo Alto, Comprehensive Annual Financial Report 2009-10 The following two tables set out the amounts of property tax collected in the City and the ten largest property-taxpayers in the City, respectively. CITY OF PALO ALTO PROPERTY TAX LEVIES AND COLLECTIONS 2005-06 through 2009-10 (In Thousands) Fiscal Year Gross Tax Levy Current Tax Collections Percentage of Current Levy Collected Delinquent Tax Collections Total Collections 2005-06 $18,731 $18,731 100% — $18,731 2006-07 21,466 21,466 100 — 21,466 2007-08 23,084 23,084 100 — 23,084 2008-09 25,432 25,432 100 — 25,432 2009-10 25,981 25,981 100 — 25,981 Source: County of Santa Clara Assessor’s Office, as published in the City of Palo Alto, Comprehensive Annual Financial Report 2009-10 Appendix B Page 4 CITY OF PALO ALTO TEN LARGEST PROPERTY OWNERS Fiscal Year ending June 30, 2010 (In Thousands) Company Type of Business Assessed Property Valuation Leland Stanford Jr University Education $3,339,922 Space System /Loral, Inc. 210,132 Arden Realty Limited Partnership 111,897 Whisman Ventures, LLC 104,529 ECI 2 Bayshore LLC / ECI Hamilton LLC 73,523 Blackhawk Parent LLC 49,939 Pacific Hotel Dev Venture LP 43,686 300 / 400 Hamilton Associates 41,221 Ronald & Ann Williams Charitable Foundation 40,346 505 Hamilton Avenue Partners LP 40,142 Source: City of Palo Alto, Comprehensive Annual Financial Report 2009-10 Employment The City is home to a strong mix of large, medium and small firms. The City employment opportunities are much sought after and include: education at Stanford University, high technology at the Stanford Research Park, and health care at two medical facilities of national stature. The largest employers in the City of Palo Alto as of June 30, 2010, are as follows: CITY OF PALO ALTO TEN LARGEST EMPLOYERS Fiscal Year ending June 30, 2010 Employer Number of Employees Stanford University 10,101 Stanford University Medical Center/Hospital 5,569 Lucile Packard Children's Hospital 3,549 Veteran's Affairs Palo Alto Health Care System 3,500 Hewlett-Packard Company 2,001 Palo Alto Medical Foundation 2,000 Space Systems Loral 1,700 Wilson Sonsini Goodrich Rosati 1,500 City of Palo Alto 1,336 Roche Bioscience 1,100 Source: www.ReferenceUSA.com & Palo Alto Weekly, as published in City of Palo Alto Comprehensive Annual Financial Report 2009-10 Due to the nature of local industry, with its heavy emphasis on electronics, aerospace and research, Santa Clara has attracted many professional people and industrial workers possessing skills well above the average. The Santa Clara Labor Market, as defined by the State Employment Development Department, includes all cities within Santa Clara County. This area is a highly developed industrial, research, and educational center of employment for a labor force that ranks well above the average in educational attainment and income. The following table presents the annual average wage and salary employment figures by industry classification for the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area for the years 2006 through 2010. Appendix B Page 5 According to the California Employment Development Department, the County’s unemployment rate was 11.3% in 2010, up from 10.9% in 2009. The following table sets forth certain information regarding employment in the City from calendar year 2006 through 2010. SAN JOSE-SUNNYVALE-SANTA CLARA MSA (San Benito and Santa Clara Counties) INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE March 2010 Benchmark 2006 2007 2008 2009 2010 Civilian Labor Force 847,800 869,100 894,600 899,700 899,700 Civilian Employment 809,200 827,900 840,500 801,200 797,800 Civilian Unemployment 38,600 41,200 54,100 98,500 102,000 Unemployment Rate 4.6% 4.7% 6.1% 10.9% 11.3% Agricultural 6,200 6,700 6,100 5,600 5,200 Natural Resources and Mining 891,200 911,200 914,900 856,400 852,400 Construction 300 300 300 200 200 Manufacturing 46,800 47,200 44,200 34,400 32,300 Trade, Transportation and Utilities 163,700 166,700 168,000 155,800 153,000 Information 137,100 139,700 137,600 126,400 125,300 Financial Activities 36,900 36,900 34,300 31,500 30,800 Professional and Business Services 172,000 178,300 178,900 161,400 162,300 Educational and Health Services 100,600 103,500 108,200 109,300 111,400 Leisure and Hospitality 75,200 76,800 78,100 74,900 74,300 Other Services 24,800 25,100 25,400 24,500 25,500 Government 96,400 97,200 97,800 96,500 93,600 Total All Industries (1) 897,400 917,900 921,000 862,000 857,600 Source: California Employment Development Department, Labor Market Information Division. (1) Totals may not add due to independent rounding. CITY OF PALO ALTO AVERAGE ANNUAL CIVILIAN LABOR FORCE EMPLOYMENT AND UNEMPLOYMENT Calendar Years 2002-2008 Year Labor Force Unemployment Number Rate 2006 30,200 700 2.3% 2007 20,900 800 2.5% 2008 31,600 1,000 3.2% 2009 31,000 1,800 5.9 2010 not available Source: California Employment Development Department Construction Activity “Single Family Housing” includes detached, semi-detached, rowhouse and townhouse units. Rowhouses and townhouses are included when each unit is separated from the adjacent unit by an unbroken ground-to-roof party or fire wall. Condominiums are included in single-family when they are of zero-lot-line or zero-property-line construction; when units are separated by an air space; or, when units are separated by an unbroken ground-to-roof party or fire wall. “Multi-Family Housing” includes duplexes, 3- 4-unit structures and apartment-type structures with five units or more. Multi-family housing also includes condominium units in structures of more than one living unit that do not meet the above single-family housing definition. “Residential Alterations and Additions” means alterations, additions, and conversions Appendix B Page 6 to residential structures, excluding special installation permits for electrical, plumbing, heating, air- conditioning, or similar mechanical work, or installation of fire escapes, elevators, signs, etc. “New Commercial” includes new hotels and motels, office and bank buildings, stores and other mercantile buildings, parking garages, service stations, and amusement and recreational buildings. “New Industrial” includes manufacturing plants and affiliated buildings. “Other New Nonresidential” includes churches and religious buildings, hospitals and institutional buildings, schools and educational buildings, residential garages, public works and utilities buildings, and miscellaneous nonresidential structures. “Nonresidential Alterations and Additions” means alterations, additions, and conversions to nonresidential structures, excluding special installation permits for electrical, plumbing, heating, air conditioning, or similar mechanical work, or installation of fire escapes, elevators and signs, etc. CITY OF PALO ALTO BUILDING PERMITS AND VALUATION (Dollars in Thousands) 2006 2007 2008 2009 2010 Permit Valuation: New Single-family $ 78,044 $ 82,769 $ 50,213 $ 30,683 $ 50,946 New Multi-family 28,338 81,679 27,827 7,306 5,000 Res. Alterations/Additions 30,770 34,756 33,897 26,902 33,336 Total Residential 137,152 199,204 111,937 64,891 89,282 Total Nonresidential 168,817 133,547 90,019 83,922 83,394 Total All Building $303,969 $332,751 $201,956 $148,813 $172,676 New Dwelling Units: Single Family 147 195 102 58 144 Multiple Family 117 294 125 27 35 Total 264 489 227 85 179 Sources: Construction Industry Research Board: “Building Permit Summary.” Note: Totals may not add due to independent rounding. Income The following table, based on data reported in the annual publication “Survey of Buying Power” published by Sales and Marketing Management, summarizes the median household effective buying income for the City, the County of Santa Clara, the State of California and the nation for the years 2006 through 2010. Appendix B Page 7 CITY, COUNTY, STATE AND UNITED STATES EFFECTIVE BUYING INCOME Year Area Total Effective Buying Income (000s Omitted) Median Household Effective Buying Income 2006 City of Palo Alto $ 2,839,023 $77,184 County of Santa Clara 49,261,000 65,458 California 764,120,962 46,275 United States 6,107,092,244 41,255 2007 City of Palo Alto $ 3,000,778 $79,273 County of Santa Clara 52,377,985 67,498 California 814,894,438 48,203 United States 6,300,794,040 41,792 2008 City of Palo Alto $ 3,088,305 $80,515 County of Santa Clara 53,987,635 68,929 California 832,531,445 48,952 United States 6,443,994,426 42,303 2009 City of Palo Alto $ 3,002,678 $81,855 County of Santa Clara 55,561,405 71,077 California 84,482,319 49,736 United States 6,571,536,768 43,252 2010 City of Palo Alto $ 3,142,000 82,448 County of Santa Clara 53,692,143 68,047 California 801,393,028 47,177 United States 6,365,020,076 41,368 Source: Nielsen Claritas, Inc. Commercial Activity Taxable sales in the City of Palo Alto exceed $1.6 billion annually. The County Planning Department reports that taxable sales per capita in Santa Clara are the highest of any city in Santa Clara County. The following summary shows the annual volume of taxable sales within the City since 2005. During 2009, retail sales totaled $1,075,044 and total taxable sales reached $1,621,264. Appendix B Page 8 The following table shows annual sales tax revenues for the City for the last five years. The latest full-year data available from the State is for calendar year 2009. In early 2007 the Board of Equalization began a process of converting business codes of sales and use tax permit holders to North American Industry Classification System (NAICS) codes. This process is now complete; over one million permit holders were converted from the previous business coding system to the NAICS codes. Beginning in 2009, reports summarize taxable sales and permits using the NAICS codes. As a result of the coding change, however, industry-level data for 2009 are not comparable to that of prior years. CITY OF PALO ALTO TAXABLE TRANSACTIONS ($000s) 2005 2006 2007 2008 Apparel stores $ 127,235 $ 129,903 $ 134,920 $ 173,360 General merchandise 284,186 289,288 301,192 230,521 Foods stores 33,726 33,495 31,781 28,328 Eating and drinking places 208,128 224,276 234,084 239,517 Home furnishings and appliances 64,308 68,273 75,510 103,878 Building materials 23,619 26,258 24,437 24,142 Automotive Group 203,998 202,441 187,342 149,857 Service stations 56,548 60,078 63,418 66,214 All other retail stores 248,882 250,153 224,463 197,029 Total Retail Outlets 1,250,630 1,284,165 1,277,147 1,212,846 All other outlets 458,491 551,068 629,859 587,667 Total All Outlets $1,709,121 $1,835,233 $1,907,006 $1,800,513 2009 (1) Retail and Food Services Motor Vehicles and Parts Dealers $ 128,399 Home Furnishings and Appliance Stores 145,348 Bldg Mtrl. and Garden Equip. and Supplies 24,317 Food and Beverage Stores 31,489 Gasoline Stations 52,025 Clothing and Clothing Accessories Stores 224,507 General Merchandise Stores 147,243 Food Services and Drinking Places 224,651 Other Retail Group 97,064 Total Retail and Food Services 1,075,044 All Other Outlets 546,220 Totals All Outlets $1,621,264 Source: California State Board of Equalization, Taxable Sales in California Reports 2005-2009. (1) Latest available full-year data. Education The Palo Alto Unified School District provides public schooling from kindergarten through high school. The Stanford University is the second largest university campus in the world. The University comprises the Schools of Engineering, Law, Medicine, Education, Business, Earth Sciences and Humanities and Science. Stanford University’s teaching hospital and clinics are known for excellence. Community Facilities The City has some of the most outstanding healthcare facilities in California. Most prominent in the community is Stanford Hospital & Clinics, which is part of Stanford University Medical Center. With 611 Appendix B Page 9 beds for in-patient treatment, emergency care and major surgeries, Stanford Hospital is well known for its cancer treatment, oncology and transplant services. Medical groups affiliated with Stanford Hospital & Clinics are Stanford Family Practice, Stanford Medical Group and Menlo Medical Clinic, and also includes the Stanford University School of Medicine and the Lucile Packard Children’s Hospital. The Veterans Affairs Palo Alto Health Care System provides the main campus in Palo Alto, a second campus in Menlo Park and a third campus in Livermore. The Palo Alto Health Care System has 913 operating beds including three nursing homes and a 100-bed homeless domiciliary on the Menlo Park campus. The Health Care System is affiliated with the Stanford University School of Medicine. The Palo Alto Medical Foundation is a full-service health-care clinic and research institute. Nearly 250 physicians provide a range of diagnostic and treatment services in primary care and most medical specialties. The City’s Parks and Recreation Department oversees 34 parks and playgrounds covering nearly one-third of its 26 square miles open space. The City’s San Francisco Bay location and natural environment offer the opportunity to enjoy bird and aquatic life in a natural habitat. There is one golf course located in the City, a recently renovated 18-hole championship length course. Transportation The City is served by the Bayshore Freeway (U.S. Highway 101), which runs southeast from San Francisco to Los Angeles and is the major freeway connecting San Francisco and San Jose; Highway 84 - the Dumbarton Bridge and Highway 92, the Hayward-San Mateo Bridge; and Interstate 280, which runs north/south to San Francisco and State Highway 82. These freeways link the City to all parts of northern California. Air transportation is available at both the San Francisco International Airport, approximately 40 miles to the north, and the San Jose Airport, approximately 20 miles to the south. Rail service is provided by Union Pacific Railroad, on a north/south track linking San Jose and San Francisco, and Cal Train commuter service to Gilroy and San Francisco. Within the City, commuter rail transportation is conveniently located and the Palo Alto stop is one of the most used in the CalTrain system. Alternative transportation options include numerous bike paths throughout the City and an internal shuttle service is also available. Utilities and Water Supply The City is the only municipal utility in California that operates city-owned utility services that include electric, fiber optic, natural gas, water and wastewater services. Since 1896, the City has been providing quality services to the citizens and businesses of the City. Agriculture The City still supports a thriving agriculture industry, ranging from crops and wine to Leland Stanford’s horse farm and training facilities, the Dixon Stables, Portola Valley Training Center, and Webb Ranch are just a few of the equestrian facilities that live up to the area’s rich history. Just a few miles away off Highway 280, traditional ranches such as Hidden Villa continue to grow and distribute quality products. Organic grocery stores, such as Whole Foods Market, Piazza’s Market and Trader Joe’s share the market place with traditional grocery outlets and fresh fruit and vegetable stands. Local greenhouses and florists provide a diverse selection to help residents and business beautify their yards and homes. The area also features a number of machinery and equipment outlets to make agriculture related job feasible. Appendix B Page 10 Government and Services The City was incorporated in 1894. Its first Charter was granted by the State of California in 1909, and the City continues to operate as a charter city. Municipal operations are conducted under the Council- Manager form of government. The nine City Council Members are elected at large for four-year, staggered terms. The Mayor and Vice Mayor are elected annually at the first City Council meeting in January. The Mayor presides over all City Council meetings. The City Manager is responsible for the operation of all municipal functions, except the offices of the City Attorney, City Clerk, and City Auditor. These officials are appointed by, and report directly to, the City Council. The City provides a full range of municipal services and maintains municipal electric, water, gas, wastewater collection, wastewater treatment, storm drainage, and refuse utilities for the benefit of City residents and businesses. The City’s parks, recreation and cultural facilities are numerous, and include 35 parks, a golf course, four community centers, a Cultural Center, a Community Theater, a Children’s Theater, and a Junior Museum. The City offers a wide array of social, recreational and cultural events, including human services for seniors and youth, subsidized child care, classes, concerts, exhibits, team sports and special events. The City and the Palo Alto Unified School District have an agreement to jointly fund the costs of maintaining and rehabilitating school athletic fields, recognizing the significant recreational use of these facilities by the community. In addition, the City offers a high level of library and public safety services. The City has six libraries and eight fire stations providing services throughout the community. Appendix C APPENDIX C COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2010 THIS PAGE INTENTIONALLY LEFT BLANK Appendix D Page 1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION [Letterhead of Jones Hall, A Professional Law Corporation] [Closing Date] City of Palo Alto 250 Hamilton Avenue Palo Alto, California 94301 OPINION: $_________* City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A Members of the Council: We have acted as bond counsel in connection with the issuance by the City of Palo Alto (the "City") of the $________* City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A (the "Series A Bonds"), pursuant to the charter of the City and the provisions of Chapter 12.28 (commencing with Section 12.28.010) of the Palo Alto Municipal Code (the “Bond Law”), an Indenture of Trust, dated as of September 1, 2011, by and between the City and U.S. Bank National Association, as trustee (the "Indenture"), and a resolution of the City (the "Resolution") of the City Council of the City adopted on July 18, 2011. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Indenture and in the certified proceedings and certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is duly created and validly existing as a municipal corporation and chartered city, with the power to enter into the Indenture, perform the agreements on its part contained therein, and issue the Series A Bonds. 2. The Indenture has been duly approved by the City, and constitutes a valid and binding obligation of the City, enforceable against the City in accordance with its terms. 3. Pursuant to the Bond Law, the Indenture creates a valid lien on the Net Revenues of the City’s Water System and Gas System (as defined in the Indenture) pledged by the Indenture for the security of the Series A Bonds. 4. The Series A Bonds have been duly authorized, executed and delivered by the City, and are valid and binding special obligations of the City, payable solely from the sources provided therefor in the Indenture. 5. The interest on the Series A Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Series A Bonds in order that * Preliminary, subject to change. Appendix D Page 2 interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Indenture to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series A Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Series A Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Series A Bonds. 6. The interest on the Series A Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Series A Bonds and the enforceability of the Series A Bonds and the Indenture, may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases. Respectfully submitted, A Professional Law Corporation Appendix E Page 1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and delivered by the CITY OF PALO ALTO (the “City”) in connection with the issuance of by the City of its $_________* City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of September 1, 2011 (the “Indenture”), by and between the City and U.S. bank National Association, as trustee (the “Trustee”). The Bonds shall be secured by a pledge, charge and lien upon Net Revenues (as such term is defined in the Indenture). Pursuant to Section 5.206 of the Indenture, the City covenants and agrees as follows: Section 1. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate, unless otherwise defined in this Section 1, the following capitalized terms shall have the following meanings when used in this Disclosure Certificate: “Annual Report” shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Beneficial Owner” shall mean any person who (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Dissemination Agent” shall mean the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. In the absence of such a designation, the City shall act as the Dissemination Agent. “EMMA” or “Electronic Municipal Market Access” means the centralized on-line repository for documents to be filed with the MSRB, such as official statements and disclosure information relating to municipal bonds, notes and other securities as issued by state and local governments. “Listed Events” shall mean any of the events listed in Section 5(a) or 5(b) of this Disclosure Certificate. “MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information which may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. “Participating Underwriter” shall mean any original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Rule” shall mean Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Section 3. Provision of Annual Reports. (a) Delivery of Annual Report. The City shall, or shall cause the Dissemination Agent to, not later than eight months after the end of the City’s fiscal year (which currently ends on June 30), commencing with the report for the 2010-11 Fiscal Year, which is due not later than March 1, 2012, file with EMMA, in a readable * Preliminary, subject to change. Appendix E Page 2 PDF or other electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. (b) Change of Fiscal Year. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c), and subsequent Annual Report filings shall be made no later than nine months after the end of such new fiscal year end. (c) Delivery of Annual Report to Dissemination Agent. Not later than fifteen (15) Business Days prior to the date specified in subsection (a) (or, if applicable, subsection (b)) of this Section 3 for providing the Annual Report to EMMA, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the City. (d) Report of Non-Compliance. If the City is the Dissemination Agent and is unable to file an Annual Report by the date required in subsection (a) (or, if applicable, subsection (b)) of this Section 3, the City shall send a notice to EMMA substantially in the form attached hereto as Exhibit A. If the City is not the Dissemination Agent and is unable to provide an Annual Report to the Dissemination Agent by the date required in subsection (c) of this Section 3, the Dissemination Agent shall send a notice to EMMA in substantially the form attached hereto as Exhibit A. (e) Annual Compliance Certification. The Dissemination Agent shall, if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been filed with EMMA pursuant to Section 3 of this Disclosure Certificate, stating the date it was so provided and filed. Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) Financial Statements. Audited financial statements of the City for the preceding fiscal year, prepared in accordance generally accepted accounting principles. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Other Annual Information. To the extent not included in the audited final statements of the City, the Annual Report shall also include financial and operating data with respect to the City for preceding fiscal year, as follows: Appendix E Page 3 (i) Discussion of any changes in the rate and fee structure with respect to the Water System in the most recently completed fiscal year which could have a material affect on the Net Revenues of the Water System; (ii) Description of any Parity Bonds or subordinate debt issued with respect to the Water System during the most recently completed fiscal year; (iii) Total actual Gross Revenues and Net Revenues generated by the Water System in the most recently completed fiscal year, the total debt service on the subseries of the Bonds related to the Water System for such fiscal year and the respective debt service coverage ratio; (iv) Updated information on the collective total billings of the top ten customers of the Water System in the most recently completed fiscal year, and the percentage of the total Water System billings represented thereby; (v) Discussion of any changes in the rate and fee structure with respect to the Gas System in the most recently completed fiscal year which could have a material affect on the Net Revenues of the Gas System; (vi) Description of any Parity Bonds or subordinate debt issued with respect to the Gas System during the most recently completed fiscal year; (vii) Total actual Gross Revenues and Net Revenues generated by the Gas System in the most recently completed fiscal year, the total debt service on the subseries of the Bonds related to the Gas System for such fiscal year and the respective debt service coverage ratio; (viii) Updated information on the collective total billings of the top ten customers of the Gas System in the most recently completed fiscal year, and the percentage of the total Gas System billings represented thereby; (ix) Identification of any withdrawals by the City from the Available Reserves during the most recently completed fiscal year for the purpose of paying debt service on the Bonds; and (x) Identification with respect to each of the Available Reserves (A) the balance as of the end of the most recently completed fiscal year, and (B) any material changes in the applicable reserve policy. (c) Cross References. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on EMMA. The City shall clearly identify each such other document so included by reference. If the document included by reference is a final official statement, it must be available from EMMA. (d) Further Information. In addition to any of the information expressly required to be provided under paragraph (b) of this Section 4, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Section 5. Reporting of Listed Events. (a) Reportable Events. The City shall, or shall cause the Dissemination Agent (if not the City) to, give notice of the occurrence of any of the following events with respect to the Bonds: (1) Principal and interest payment delinquencies. (2) Unscheduled draws on debt service reserves reflecting financial difficulties. (3) Unscheduled draws on credit enhancements reflecting financial difficulties. (4) Substitution of credit or liquidity providers, or their failure to perform. (5) Defeasances. Appendix E Page 4 (6) Rating changes. (7) Tender offers. (8) Bankruptcy, insolvency, receivership or similar event of the obligated person. (9) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security. (b) Material Reportable Events. The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (1) Non-payment related defaults. (2) Modifications to rights of security holders. (3) Bond calls. (4) The release, substitution, or sale of property securing repayment of the securities. (5) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms. (6) Appointment of a successor or additional trustee, or the change of name of a trustee. (c) Time to Disclose. The City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with EMMA, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of any Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(5) and (b)(3) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected Bonds under the Indenture. Section 6. Identifying Information for Filings with EMMA. All documents provided to EMMA under this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 8. Dissemination Agent. (a) Appointment of Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate and may discharge any such agent, with or without appointing a successor Dissemination Agent. If the Dissemination Agent is not the City, the Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. It is understood and agreed that any information that the Dissemination Agent may be instructed to file with EMMA shall be prepared and provided to it by the City. The Dissemination Agent has undertaken no responsibility with respect to the content of any reports, notices or disclosures provided to it under this Disclosure Certificate and has no liability to any person, including any Bond owner, with respect to any Appendix E Page 5 such reports, notices or disclosures. The fact that the Dissemination Agent or any affiliate thereof may have any fiduciary or banking relationship with the City shall not be construed to mean that the Dissemination Agent has actual knowledge of any event or condition, except as may be provided by written notice from the City. (b) Compensation of Dissemination Agent. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as agreed to between the Dissemination Agent and the City from time to time and all expenses, legal fees and expenses and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, owners or Beneficial Owners, or any other party. The Dissemination Agent may rely, and shall be protected in acting or refraining from acting, upon any direction from the City or an opinion of nationally recognized bond counsel. The Dissemination Agent may at any time resign by giving written notice of such resignation to the City. The Dissemination Agent shall not be liable hereunder except for its negligence or willful misconduct. (c) Responsibilities of Dissemination Agent. In addition of the filing obligations of the Dissemination Agent set forth in Sections 3(e) and 5, the Dissemination Agent shall be obligated, and hereby agrees, to provide a request to the City to compile the information required for its Annual Report at least 30 days prior to the date such information is to be provided to the Dissemination Agent pursuant to subsection (c) of Section 3. The failure to provide or receive any such request shall not affect the obligations of the City under Section 3. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment so requested by the City that does not impose any greater duties or risk of liability on the Dissemination Agent), and any provision of this Disclosure Certificate may be waived, provided that all of the following conditions are satisfied: (a) Change in Circumstances. If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a) or (b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or the type of business conducted. (b) Compliance as of Issue Date. The undertaking, as amended or taking into account such waiver, would, in the opinion of a nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances. (c) Consent of Holders; Non-impairment Opinion. The amendment or waiver either (i) is approved by the Bond owners in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Bond owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bond owners or Beneficial Owners. If this Disclosure Certificate is amended or any provision of this Disclosure Certificate is waived, the City shall describe such amendment or waiver in the next following Annual Report and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Appendix E Page 6 Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Certificate owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. The sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and no implied covenants or obligations shall be read into this Disclosure Certificate against the Dissemination Agent, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees and expenses) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall have the same rights, privileges and immunities hereunder as are afforded to the Trustee under the Indenture. The obligations of the City under this Section 12 shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] CITY OF PALO ALTO By Name Title Appendix E Page 7 EXHIBIT A NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Palo Alto Name of Issue: City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A Date of Issuance: [Closing Date] NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above- named Issue as required by the Continuing Disclosure Certificate, dated September, 2011, furnished by the Obligor in connection with the Issue. The Issuer anticipates that the Annual Report will be filed by _________________. Date: ________________ CITY OF PALO ALTO, Dissemination Agent By Authorized Officer THIS PAGE INTENTIONALLY LEFT BLANK Appendix F Page 1 APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2011 Bonds, payment of principal, redemption premium, if any, and interest with respect to the 2011 Bonds to DTC, its Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2011 Bonds and other related transactions by and between DTC, its Participants and the Beneficial Owners is based solely on the understanding of the City of such procedures and record keeping from information provided by DTC. Accordingly, no representations can be made concerning these matters and neither DTC, its Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or its Participants, as the case may be. The City, the Trustee and the Underwriter understand that the current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and that the current “Procedures” of DTC to be followed in dealing with Participants are on file with DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTTC is owned by users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has Appendix F Page 2 no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Trust Agreement. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC, if less than all of the Bonds within a maturity are being redeemed. DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in each issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of, premium, if any, and interest on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City, the Authority or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, the City or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payments of principal of, premium, if any, and interest on the Bonds by Cede & Co (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City, the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City, the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The foregoing information concerning DTC and DTC’s book-entry system has been provided by DTC, and neither the Authority nor the Trustee takes any responsibility for the accuracy thereof. NEITHER THE AUTHORITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION. Neither the Authority nor the Trustee can give any assurances that DTC, DTC Participants, Indirect Participants or others will distribute payments of principal of, premium, if any, and interest on the Bonds paid to DTC or its nominee, as the registered Owner, or any redemption or other notice, to the Beneficial Appendix F Page 3 Owners or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement. In the event that the book-entry system is discontinued as described above, the requirements of the Trust Agreement will apply. The City, the Authority and the Trustee cannot and do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium, if any, evidenced by the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the Authority nor the Trustee are responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or an error or delay relating thereto. THIS PAGE INTENTIONALLY LEFT BLANK -1- OFFICIAL NOTICE OF SALE $___________* CITY OF PALO ALTO (SANTA CLARA COUNTY, CALIFORNIA) UTILITY REVENUE REFUNDING BONDS 2011 SERIES A NOTICE IS HEREBY GIVEN by the City of Palo Alto (the “City”) that bids will be received by the City for the purchase of $___________* City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A (the “Bonds”). Only electronic bids will be accepted. The bids will be received in the manner and up to the time and date specified below: DATE AND TIME: 9:30 A.M. Pacific Daylight Time on __________, September __, 2011 (subject to postponement or cancellation in accordance with this Official Notice of Sale). ELECTRONIC BIDS: Bid proposals may only be submitted electronically, via PARITY®, as provided below. See “TERMS OF SALE - Warnings Regarding Electronic Bids” herein. The City may postpone the date or change the time of the sale to any subsequent date or any other time by providing notification via Bloomberg Financial Markets or Thomson Municipal Market Monitor (www.tm3.com) at least 24 hours prior to the scheduled date and time of sale. The actual principal amount of the Bonds may vary, higher or lower, as a function of how the actual interest rates affect the refunding of the City’s 2002 Bonds (defined below), amount of costs of issuance and the size of the reserve fund and as a function of the actual discount taken by the successful bidder. The definitive principal amount will be determined on the date of sale, after adjustment, as provided herein. Bidders should refer to the preliminary Official Statement for definitions of terms and credit information regarding the Bonds. The City further reserves the right to modify or amend this Official Notice of Sale in any respect, including, without limitation, the principal amount of the Bonds being offered, upon notice given as described above. As an accommodation to bidders, telephonic, electronic or faxed notice of any postponement of the sale date and of the new sale date and time or any amendment or modification of this Official Notice of Sale will be given to any bidder requesting such notice from the City’s Financial Advisor: PUBLIC FINANCIAL MANAGEMENT, INC., 50 California Street, 23rd Floor, San Francisco, California 94111, Attention: Bob Gamble, email: gambler@pfm.com, telephone: (415) 982-5544, fax: (415) 982-4513. Failure of any bidder to receive such supplemental notice shall not affect the sufficiency of any required notice or the legality of the sale. Notice of any change to the principal payment schedule for the Bonds to be utilized for the bidding process will be given via PARITY® not later than 1:00 p.m. (California time) on the * Preliminary, subject to change, as provided herein. -2- day prior to the date prescribed for the receipt of bids. Potential bidders must obtain any such revised principal payment schedule before bidding on the Bonds. See “TERMS RELATING TO THE BONDS - Principal Payments” and “- Adjustment of Principal Payments” below. TERMS OF THE BONDS ISSUE. The Bonds will be issued under an Indenture of Trust, dated as of September 1, 2011, between U.S. Bank National Association (the “Trustee”) and the City (the “Indenture”), in the aggregate principal amount of approximately $___________* designated "City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A (the “Bonds”) consisting of fully-registered bonds, without coupons, executed and delivered in book-entry only form and registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"), in the denomination of five thousand dollars ($5,000) each or any integral multiple thereof. DATE, MATURITIES AND AMOUNTS. The Bonds will be dated their date of delivery, with interest from such date at the rate or rates fixed upon the sale thereof and will mature serially or be paid as Mandatory Sinking Fund Installments on June 1 in each year as set forth in the following table: The principal amount in each maturity is subject to change as provided herein and will not change by more than 15% in each maturity. Maturity Date (June 1) Principal Amount * Maturity Date (June 1) Principal Amount * ADJUSTMENT OF PRINCIPAL AMOUNTS. The City reserves the right to increase or decrease the principal amount of any maturity of the Bonds as the City deems advisable in order to accomplish the optimal sizing of the Bond issue; provided, however, that the total principal amount will not exceed $__________. The principal amount of each maturity (set forth above) will not change by more than fifteen per cent. Notice of such increase or decrease shall be given to the successful bidder within 24 hours of bid opening. No such adjustment will have the effect of altering the basis upon which the best bid is determined; provided, however, that any such increase or decrease shall result in a pro rata increase or decrease, as the case may be, in the amount of discount or premium on the purchase of the Bonds. In the event of any such adjustment, no re-bidding or re-calculation of the bids submitted will be required or permitted, * Preliminary, subject to change, as provided herein. -3- and the successful bid or bids may not be withdrawn, and the successful bidder will not be permitted to change the interest rate(s) in its bid for the Bonds. The purchaser may elect to combine any number of consecutive maturities of Bonds for which an identical interest rate has been specified to comprise term bonds by indicating such an election on the bid form. The election to create term bonds in such manner will require the creation of a mandatory sinking fund so that the sinking fund redemption payments shall equal the corresponding serial bond amounts. REDEMPTION. (a) Optional Redemption. The Bonds maturing on or before June 1, 20__ are not subject to optional redemption prior to maturity. The Bonds maturing on or after June 1, 20__ are subject to redemption prior to their respective maturity dates, at the option of the City, pro rata among maturities, and by lot within a maturity, in whole or in part, on any date occurring on or after June 1, 20__, from any source of available funds, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. (b) Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Bonds are also subject to redemption as a whole or in part on any date prior to maturity, in inverse order of maturity and by lot within a maturity, to the extent of the net proceeds of hazard insurance not used to repair or rebuild the City’s Water System or Gas System (as defined in the Indenture, described below) or the net proceeds of condemnation awards received with respect to the Water System or Gas System to be used for such purpose, at a redemption price equal to the principal amount of the Bonds plus interest accrued thereon to the date fixed for redemption, without premium. (c) Mandatory Sinking Fund Redemption. The Bonds which mature in the years which are checked in the Bid Form as being Term Bonds are also subject to mandatory redemption in part by lot, on June 1 in each of the years checked under the heading “Term Bonds” in the Bid Form, from Mandatory Sinking Fund Installments, at a Redemption Price equal to the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and in the respective years as set forth in the Bid Form (as adjusted according to the provisions of "ADJUSTMENT OF PRINCIPAL AMOUNTS" above). PAYMENT. Interest on the Bonds is payable semiannually on each June 1 and December 1 (each, and "Interest Payment Date" or "Payment Date"), commencing December 1, 2011. So long as Cede & Co. is the registered holder of the Bonds, principal of and premium, if any, and interest evidenced and represented by the Bonds will be paid by the Trustee at its principal corporate trust office directly to DTC, which will in turn remit such principal, premium, if any, and interest to its participants for subsequent disbursement to the beneficial owners of the Bonds. PURPOSE OF ISSUE. The Bonds are to be issued by the City and are authorized pursuant to the charter of the City and the provisions of Chapter 12.28 (commencing with Section 12.28.010), of the Palo Alto Municipal Code, to (i) refund, on a current basis, the City’s outstanding City of Palo Alto Utility Revenue Bonds, 2002 Series A (the “2002 Bonds”), -4- currently outstanding in the principal amount of $18,050,000 (ii) establish a debt service reserve fund for the Bonds and (iii) pay certain costs of issuing the Bonds. SECURITY. The City has transferred, placed a charge upon, assigned and set over to the Trustee, for the benefit of the Owners, the Net Revenues of the Water System and the Gas System of the City, as more particularly provided for in the Indenture, which is necessary to pay the principal or redemption price of and interest on the Bonds in any Fiscal Year, together with all moneys on deposit in the Debt Service Fund, and such Net Revenues have been irrevocably pledged to the punctual payment of the principal or redemption price of and interest on the Bonds. Such Net Revenues cannot be used for any other purpose while any of the Bonds remain Outstanding, except that out of Net Revenues there may be apportioned and paid such sums for such purposes, as are expressly permitted by the Indenture. Said pledge constitutes a direct charge and lien on such Net Revenues for the payment of the principal or redemption price of and interest on the Bonds and any bonds outstanding or issued on a parity therewith, including the City’s outstanding Water Revenue Bonds, 2009 Series A, issued to finance certain improvements to the Water System, of which $12,715,000 are presently outstanding and which are secured by a pledge the Net Revenues of the Water System, all in accordance with the terms thereof. However, the City’s Utility Revenue Bonds, 1995 Series A (the "1995 Bonds") are currently outstanding in the principal amount of $4,595,000, and are secured by a lien on Net Revenues of the City’s entire enterprise system, which collectively consists of the Sewer System, the Storm Drain System, the Gas System, the Electric System and the Water System. The lien of the 1995 Bonds on the Net Revenues of the Water System and the Gas System is senior to the lien on those Net Revenues securing the Bonds. The Net Revenues constitute a trust fund for the security and payment of the principal or redemption price of and interest on the Bonds. The general fund of the City is not liable and the credit or taxing power of the City is not pledged for the payment of the principal or redemption price of and interest on the Bonds. The owners of the Bonds cannot compel the exercise of the taxing power by the City or the forfeiture of its property. The principal or redemption price of and interest on the Bonds are not a debt of the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of its property, or upon any of its income, receipts, or revenues except the Net Revenues of the Water System and the Gas System. Neither the faith and credit nor the taxing power of the City, the State of California, or any political subdivision thereof is pledged to the payment of the Bonds. The Bonds are not general obligations of the City, but are limited obligations payable solely from certain funds held pursuant to the Indenture. Neither the City of Palo Alto nor the State of California shall be obligated to pay the principal of the Bonds, or the interest thereon and neither the faith and credit nor the taxing power of the City of Palo Alto, the State of California or any of its political subdivisions thereof is pledged to the payment of the principal of or the interest on the Bonds. TAX-EXEMPT STATUS. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. -5- In the event that, prior to the delivery of the Bonds (a) the interest on other obligations of the same type and character shall be declared to be subject to taxation (either at the time of such declaration or at any future date) under any federal income tax laws, either by the terms of such laws or by ruling of a federal income tax authority or official which is followed by the Internal Revenue Service, or by decision of any federal court, or (b) any federal income tax law is enacted which will have a substantial adverse effect upon the owners of the Bonds as such, the successful bidder may, at its option, prior to the tender of the Bonds, be relieved of its obligation to purchase the Bonds, and in such case the deposit accompanying its bid will be returned. EXEMPTION FROM CALIFORNIA INCOME TAX. In the opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. LEGAL OPINION. The legal opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, approving the validity of the Bonds and regarding "TAX-EXEMPT STATUS" above will be furnished to the successful bidder without cost. FURTHER INFORMATION. A copy of the Preliminary Official Statement describing the Bonds will be furnished upon request to the financial advisor to the City: Public Financial Management, Inc., 50 California Street, Suite 2300, San Francisco, California 94111 (the “Financial Advisor”). Facsimile: (415) 982-4513. RATING. The City has applied for and received ratings from Moody's Investor's Service and Standard & Poor's Ratings Services. Information on such ratings may be obtained from the Financial Advisor. The City will pay the fees for such ratings. Any additional ratings desired by the purchaser of the Bonds, as well as any fees associated with such additional ratings, will be the sole responsibility of the purchaser. TERMS OF SALE FORM OF BID: All bids must be for not less than all of the Bonds hereby offered for sale. The purchase price to be paid for the Bonds may not be less than 98.5% of the par value thereof. Bidders may submit only one bid, electronically through PARITY®. All bids must comply with the requirement for a good faith deposit. See “GOOD FAITH DEPOSIT” herein. ELECTRONIC BIDS. Electronic bids must conform with the procedures established by PARITY®. Electronic bids will be received exclusively through PARITY® in accordance with this Official Notice of Sale until 9:30 a.m. California time on the sale date, but no bid will be received after the time specified for receiving bids. To the extent any instructions or directions set forth in PARITY® conflict with this Official Notice of Sale, the terms of this Official Notice of Sale shall control. For further information about PARITY®, including any fees charged by PARITY®, potential bidders may contact PARITY®, 40 W. 23rd Street, 5th Floor, New York, NY 10010 (Eric Washington), telephone (212) 812-0971. THE CITY RETAINS ABSOLUTE DISCRETION TO DETERMINE WHETHER ANY BID IS TIMELY, LEGIBLE AND COMPLETE. THE CITY TAKES NO RESPONSIBILITY FOR -6- INFORMING ANY BIDDER PRIOR TO THE TIME FOR RECEIVING BIDS THAT ITS BID IS INCOMPLETE, ILLEGIBLE OR NOT RECEIVED. WARNING REGARDING ELECTRONIC BIDS: THE CITY WILL ACCEPT BIDS IN ELECTRONIC FORM SOLELY THROUGH PARITY®. EACH BIDDER SUBMITTING AN ELECTRONIC BID UNDERSTANDS AND AGREES BY DOING SO THAT IT IS SOLELY RESPONSIBLE FOR ALL ARRANGEMENTS WITH PARITY®, AND THAT PARITY® IS NOT ACTING AS AN AGENT OF THE CITY. INSTRUCTIONS FOR SUBMITTING ELECTRONIC BIDS MUST BE OBTAINED FROM PARITY®, AND THE CITY ASSUMES NO RESPONSIBILITY FOR ENSURING OR VERIFYING BIDDER COMPLIANCE WITH THE PROCEDURES OF PARITY®. THE CITY SHALL ASSUME THAT ANY BID RECEIVED THROUGH PARITY® HAS BEEN MADE BY A DULY AUTHORIZED AGENT OF THE BIDDER. THE CITY, THE FINANCIAL ADVISOR AND BOND COUNSEL ASSUME NO RESPONSIBILITY FOR ANY ERROR CONTAINED IN ANY BID SUBMITTED ELECTRONICALLY, OR FOR FAILURE OF ANY BID TO BE TRANSMITTED, RECEIVED OR OPENED AT THE OFFICIAL TIME FOR RECEIPT OF BIDS. THE OFFICIAL TIME FOR RECEIPT OF BIDS WILL BE DETERMINED BY THE CITY AT THE PLACE OF BID OPENING, AND THE CITY SHALL NOT BE REQUIRED TO ACCEPT THE TIME KEPT BY PARITY® AS THE OFFICIAL TIME. INTEREST RATE: Bidders must specify the rate or rates of interest which shall be payable on the Bonds. The maximum rate bid may not exceed __________ percent (__%) per annum. Interest on the Bonds is payable semiannually on each Interest Payment Date. Bidders will be permitted to bid different rates of interest but (a) each interest rate specified in any bid must be in a multiple of one-twentieth (1/20) or one-eighth (1/8) of one percent; (b) interest on each Bond shall be computed from the closing date (expected to be September __, 2011), to its stated maturity date, at the interest rate specified in the bid, payable semiannually as set forth above; (c) interest on all Bonds maturing at any one time shall be payable at the same rate of interest; and no bid will be accepted which contemplates the waiver of any interest or other concession by the bidder as a substitute for payment in full of the purchase price. BEST BID: The Bonds will be awarded to the best responsible bidder therefor, considering the interest rate or rates specified and the premium offered, if any, or discount taken, if any, and the best bid will be determined on the basis of the lowest true interest cost. The true interest cost will be that nominal annual discount rate which, when discounted semiannually and when used to discount all payments of principal and interest on the Bonds at the rate or rates specified in the bid to the date of the Bonds results in the amount equal to the purchase price, which is the principal amount of the Bonds plus the amount of any premium, less the amount of any discount. In the event two or more bids setting forth identical interest rates are received, the City reserves the right to allow its authorized representative to exercise his or her own discretion and judgment in making the award and may award the Bonds on a pro rata basis in such denominations as he or she shall determine. ADJUSTMENT OF PRINCIPAL AMOUNTS: Following the receipt of bids, the City reserves the right to increase or to decrease the principal amount of any maturity of the Bonds as the City deems advisable, based on the actual rates of interest to be borne by the Bonds. Any -7- such increase or decrease shall be allocated among the various maturities of the Bonds on such basis as the City deems advisable, and shall result in a proportionate increase or decrease (as the case may be) in the amount of any premium or discount bid. Notice of such increase or decrease shall be given to the successful bidder as soon as practicable following the notification of award, as described below. No such adjustment will have the effect of altering the basis upon which the best bid is determined. RIGHT TO MODIFY OR AMEND: The City reserves the right, in its sole discretion, to modify or amend this Official Notice of Sale including, but not limited to, the right to adjust and change the principal amount and principal amortization schedule of the Bonds being offered, however, such modifications or amendments shall be made not later than 1:00 P.M., California time, on the business day prior to the bid opening and communicated through PARITY®. RIGHT TO POSTPONEMENT OR CANCELLATION: The City may postpone or cancel the sale prior to the time bids are to be received as provided on page one hereof, provided that notice is communicated to prospective bidders through PARITY® prior to the time then scheduled for the receipt of such bids. Notice of a new time, or of a new date and time, if any, will be given through PARITY®, telephone or facsimile as soon as practicable following a postponement. In the event of a postponement of the sale only, any subsequent bid submitted by the bidder will supersede any prior bid made. Failure of any bidder to receive notice of any postponement or cancellation shall not invalidate the sufficiency of any such notice. RIGHT OF REJECTION: The City reserves the right, in its sole discretion, to reject any and all bids and to waive any irregularity or informality in any bid except that no bids will be accepted later than 9:30 A.M. on the date set for receipt of bids. PROMPT AWARD: An authorized representative of the City will take action awarding the sale of the Bonds or reject all bids not later than twenty-six (26) hours after the expiration of time herein prescribed for the receipt of bids and until such expiration of time all bids received shall be irrevocable. Unless such time of award is waived by the successful bidder, the award may be made after the expiration of the specified time if the bidder shall not have given to the City notice in writing of the withdrawal of such proposal. Notice of the award will be given promptly to the successful bidder. DELIVERY AND PAYMENT: Delivery of the Bonds will be made to the successful bidder in New York, New York, as soon as the Bonds can be prepared, which is estimated to be September __, 2011 (the “Closing Date”). The Bonds will be delivered in full book-entry form through the facilities of DTC. Payment for the Bonds must be made in immediately available funds to the Paying Agent. Any expense in providing immediately available funds shall be borne by the purchaser. RIGHT OF CANCELLATION: The successful bidder shall have the right, at its option, to cancel its purchase of the Bonds if the City shall fail to cause the execution and delivery of the Bonds and tender the same for delivery within 30 days from the date of sale thereof and in such event the successful bidder shall be entitled to the return of the deposit accompanying its bid. GOOD FAITH DEPOSIT. A financial surety bond or cashier’s check drawn on a bank or trust company transacting business in the State of California and payable to the order of the -8- City of Palo Alto, in the amount equal to $________ (the “Good Faith Deposit”), must be submitted with each bid to protect the City against any loss resulting from the failure of the bidder to comply with the terms of its bid. If the apparent winning bidder on the Bonds is determined to be a bidder who has not submitted a Good Faith Deposit in the form of a cashier’s check or financial surety bond, as provided above, the Financial Advisor will request the apparent winning bidder to immediately wire the Good Faith Deposit and provide the Federal wire reference number of such Good Faith Deposit to the Financial Advisor within 90 minutes of such request by the Financial Advisor. The Bonds will not be officially awarded to a bidder who has not submitted a Good Faith Deposit in the form of a cashier’s check or a financial surety bond, as provided above, until such time as such bidder has provided a Federal wire reference number for the Good Faith Deposit to the Financial Advisor. No interest will be paid upon the Good Faith Deposit made by any bidder. Checks of the unsuccessful bidders will be returned by the City promptly after the award of the Bonds or the rejection of all bids. The Good Faith Deposit of the winning bidder will, immediately upon acceptance of its bid, become the property of the City, and if in the form of a check, will be cashed. The Good Faith Deposit will be held and invested for the exclusive benefit of the City. The Good Faith Deposit, without interest thereon, will be credited against the purchase price of the Bonds purchased by the winning bidder at the time of delivery thereof. If the purchase price is not paid in full upon tender of the Bonds, the City shall retain the Good Faith Deposit and the winning bidder will have no right in or to the Bonds or to the recovery of its Good Faith Deposit, or to any allowance or credit by reason of such deposit, unless it shall appear that the Bonds would not be validly delivered if delivered to the winning bidder in the form and manner proposed, except pursuant to a right of cancellation. In the event of nonpayment for the Bonds by the winning bidder, the City reserves any and all rights granted by law to recover the full purchase price of the Bonds and, in addition, any damages suffered by the City. ESTIMATE OF TRUE INTEREST COST: Each bidder is requested, but not required, to state in its bid the true interest cost, as described under the caption “BEST BID” herein, which shall be considered as informative only and not binding on either the bidder or the City. CERTIFICATION OF REOFFERING PRICE. The successful bidder will, as of the date the Bonds are sold pursuant to this Notice of Sale, certify to the City the prices at which it reasonably expects to initially offer each maturity of the Bonds to the general public (the “Initial Offering Prices”). For this purpose, the general public does not include bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers. The successful bidder agrees that, on or prior to the Closing Date, it will actually offer 100% of each maturity of the Bonds to the general public in a bona fide public offering for prices equal to or less than the Initial Offering Prices. The successful bidder agrees that, on or prior to the Closing Date, it will deliver a certificate regarding the reoffering prices of the Bonds, dated as of the Closing Date, in form and substance satisfactory to Bond Counsel. -9- NO LITIGATION: There is no litigation pending concerning the validity of the Bonds, the corporate existence of the City or the entitlement of the officers thereof to their respective offices, and the purchaser will be furnished a no-litigation certificate certifying to the foregoing as of and at the time of delivery of the Bonds. CUSIP NUMBERS AND OTHER FEES: It is anticipated that CUSIP numbers will be printed on the Bonds, but neither the failure to print such numbers on any Bonds nor any error with respect thereto will constitute cause for a failure or refusal by the purchaser to accept delivery of and pay for the Bonds in accordance with the terms hereof. All expenses in relation to the printing of CUSIP numbers on the Bonds will be paid for by the City; provided, however, that the CUSIP Service Bureau charge for the assignment of said numbers will be the responsibility of and will be paid for by the purchaser. The successful bidder will also be required to pay all fees required by the Depository Trust Company, Securities Industry and Financial Markets Association, Municipal Securities Rulemaking Board, and other similar entity imposing a fee in connection with the issuance of the Bonds (including the California Debt and Investment Advisory Commission as described below). CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION FEES: All fees payable to the California Debt and Investment Advisory Commission in connection with the issuance of the Bonds will be the responsibility of the purchaser of the Bonds. OFFICIAL STATEMENT: The City has approved a preliminary Official Statement relating to the Bonds. Copies of such preliminary Official Statement will be distributed to any bidder, upon request, prior to the sale in a form “deemed final” by the City for purposes of Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”). Within seven business days from the sale date, the City will deliver to the purchaser copies of the final Official Statement, executed by an authorized representative of the City and dated the date of delivery thereof to the purchaser, in sufficient number to allow the purchaser to comply with paragraph (b)(4) of the Rule and to satisfy the Municipal Securities Rulemaking Board (the “MSRB”) Rule G-32 or any other rules adopted by the MSRB, including information permitted to be omitted by paragraph (b)(1) of the Rule and such other amendments or supplements as are approved by the City (the “Final Official Statement”). The purchaser agrees that it will not confirm the sale of any Bonds unless the confirmation of sale is accompanied or preceded by the delivery of a copy of the Final Official Statement. The City will furnish to the successful bidder, at no charge, not in excess of 100 copies of the Official Statement for use in connection with any resale of the Bonds. CERTIFICATE REGARDING OFFICIAL STATEMENT: A responsible officer of the City will certify to the original purchaser of the Bonds, as a condition of closing, that based on such officer’s participation in the preparation of the Official Statement, nothing has come to his or her attention to lead him or her to believe that the Official Statement (except for certain financial statements, statistical data and other information) contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. CONTINUING DISCLOSURE. In order to assist bidders in complying with S.E.C. Rule 15c2-12(b)(5), the City has committed to undertake, pursuant to the Resolution and a Continuing Disclosure Certificate, to provide certain annual financial information and notices of -10- the occurrence of certain events, if material. A description of this undertaking is set forth in the preliminary Official Statement and will also be set forth in the final Official Statement. Such Continuing Disclosure Certificate will be a document required to be delivered at closing by the City, and the failure by the City to deliver such document in form and substance acceptable to Bond Counsel and the successful bidder will relieve the successful bidder of its obligation to purchase the Bonds GIVEN pursuant to resolution of the Council of the City of Palo Alto adopted July 18, 2011. Dated: September __, 2011 By: /s/ Lalo Perez Administrative Services Director City of Palo Alto NOTICE OF INTENTION TO SELL CITY OF PALO ALTO (Santa Clara County, California) $__________ UTILITY REVENUE REFUNDING BONDS, 2011 SERIES A NOTICE IS HEREBY GIVEN by the City of Palo Alto (the “City”) that bids will be received via facsimile, on TUESDAY, SEPTEMBER __, 2011 At 10:00 a.m. Pacific Daylight Time for the purchase of approximately $33,000,000 principal amount of Utility Revenue Refunding Bonds, 2011 Series A (the “Bonds”) payable under an Indenture of Trust, dated as of September 1, 2011, between the City and U.S. Bank National Association. Bidders are directed to the Notice of Sale (described below) for information on the City, the City’s Water System and Gas System, the Bonds, the security for the Bonds, and details on bidding on the Bonds. The principal amount of the Bonds offered for sale is subject to adjustment, as provided in the Official Notice of Sale for the Bonds. The City may postpone the date or change the time of the sale to any subsequent date or any other time by providing notification via Bloomberg Financial Markets or Thomson Municipal Market Monitor (www.tm3.com) at least 24 hours prior to the scheduled date and time of sale. The sale of the Bonds will be conducted upon the terms and conditions set forth in the Official Notice of Sale for the Bonds. Such Official Notice of Sale and the preliminary form of the Official Statement describing the Bonds may be obtained from the financial advisor to the City, Public Financial Management, Inc., 50 California Street, Suite 2300, San Francisco, California 94111, telephone (415) 982-5544, attention: Bob Gamble. Dated: September __, 2011 26005-64 JH:WHM 5/25/11 6/17/11 6/29/11 INDENTURE OF TRUST by and between the CITY OF PALO ALTO and U.S. BANK NATIONAL ASSOCIATION as Trustee Dated as of September 1, 2011 Relating to City of Palo Alto $[Principal Amount] Utility Revenue Refunding Bonds 2011 Series A - i - 3 13 13 13 14 15 17 18 18 18 18 19 19 19 22 22 22 22 22 24 24 25 25 25 26 27 27 27 27 28 29 TABLE OF CONTENTS ARTICLE I DEFINITIONS; AUTHORIZATION AND PURPOSE OF BONDS; EQUAL SECURITY SECTION 1.01. Definitions............................................................................................................................... SECTION 1.02. Rules of Construction.......................................................................................................... SECTION 1.03. Authorization and Purpose of Series A Bonds................................................................ SECTION 1.04. Equal Security....................................................................................................................... ARTICLE II ISSUANCE OF SERIES A BONDS SECTION 2.01. Terms of Series A Bonds. .................................................................................................... SECTION 2.02. Redemption of Series A Bonds........................................................................................... SECTION 2.03. Form of Series A Bonds....................................................................................................... SECTION 2.04. Execution of Series A Bonds............................................................................................... SECTION 2.05. Transfer of Series A Bonds.................................................................................................. SECTION 2.06. Exchange of Series A Bonds. .............................................................................................. SECTION 2.07. Temporary Series A Bonds................................................................................................. SECTION 2.08. Bond Registration Books..................................................................................................... SECTION 2.09. Series A Bonds Mutilated, Lost, Destroyed or Stolen..................................................... SECTION 2.10. Book Entry System................................................................................................................ ARTICLE III ISSUE OF SERIES A BONDS; PARITY BONDS SECTION 3.01. Issuance of Series A Bonds ................................................................................................. SECTION 3.02. Application of Proceeds of Sale of Series A Bonds.......................................................... SECTION 3.03. Reserve Account................................................................................................................... SECTION 3.04. Cost of Issuance Fund. ........................................................................................................ SECTION 3.05. Issuance of Parity Bonds..................................................................................................... SECTION 3.06. No Prior Lien Bonds............................................................................................................ SECTION 3.07. Validity of Bonds.................................................................................................................. ARTICLE IV PLEDGE OF NET REVENUES; FUNDS AND ACCOUNTS SECTION 4.01. Pledge of Net Revenues, Revenue Fund........................................................................... SECTION 4.02. Receipt and Deposit of Revenues. ..................................................................................... SECTION 4.03. Establishment of Funds and Accounts and Allocation of Revenues Thereto.............. SECTION 4.04. Application of Debt Service Fund...................................................................................... SECTION 4.05. Application of Reserve Account. ....................................................................................... SECTION 4.06. Application of Redemption Account. ............................................................................... SECTION 4.07. Surplus................................................................................................................................... SECTION 4.08. Investments........................................................................................................................... SECTION 4.09. Valuation; Replenishment of Reserve Account; Investments........................................ ARTICLE V COVENANTS OF THE CITY; SPECIAL TAX COVENANTS SECTION 5.01. Punctual Payment; Compliance With Documents.......................................................... - ii - 29 29 29 29 30 31 31 31 31 31 32 32 33 33 34 35 35 37 37 38 38 38 38 38 38 39 39 41 41 41 42 42 43 44 44 44 45 45 45 46 SECTION 5.02. Against Encumbrances........................................................................................................ SECTION 5.03. Discharge of Claims............................................................................................................. SECTION 5.04. Maintenance and Operation of Systems in Efficient and Economical Manner........... SECTION 5.05. Against Sale, Eminent Domain. ......................................................................................... SECTION 5.06. Insurance............................................................................................................................... SECTION 5.07. Records and Accounts......................................................................................................... SECTION 5.08. Protection of Security and Rights of Owners................................................................... SECTION 5.09. Against Competitive Facilities........................................................................................... SECTION 5.10. Payment of Taxes, Etc.......................................................................................................... SECTION 5.11. Rates and Charges................................................................................................................ SECTION 5.12. Maintenance of Available Reserves; Transfers Therefrom ............................................ SECTION 5.13. No Priority for Additional Obligations............................................................................. SECTION 5.14. Tax Covenants Relating to Series A Bonds....................................................................... SECTION 5.15. Continuing Disclosure......................................................................................................... SECTION 5.16. Further Assurances.............................................................................................................. ARTICLE VI THE TRUSTEE SECTION 6.01. Appointment of Trustee...................................................................................................... SECTION 6.02. Acceptance of Trusts............................................................................................................ SECTION 6.03. Fees, Charges and Expenses of Trustee. ........................................................................... SECTION 6.04. Notice to Bond Owners of Default. ................................................................................... SECTION 6.05. Intervention by Trustee....................................................................................................... SECTION 6.06. Removal of Trustee.............................................................................................................. SECTION 6.07. Resignation by Trustee........................................................................................................ SECTION 6.08. Appointment of Successor Trustee.................................................................................... SECTION 6.09. Merger or Consolidation..................................................................................................... SECTION 6.10. Concerning any Successor Trustee.................................................................................... SECTION 6.11. Appointment of Co-Trustee................................................................................................ SECTION 6.12. Indemnification; Limited Liability of Trustee.................................................................. ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE SECTION 7.01. Amendment by Consent of Bond Owners........................................................................ SECTION 7.02. Amendment Without Consent of Bondholders............................................................... SECTION 7.03. Disqualified Bonds............................................................................................................... SECTION 7.04. Endorsement or Replacement of Bonds After Amendment. ......................................... SECTION 7.05. Amendment by Mutual Consent....................................................................................... ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS SECTION 8.01. Events of Default and Acceleration of Maturities........................................................... SECTION 8.02. Application of Funds Upon Acceleration......................................................................... SECTION 8.03. Other Remedies; Rights of Bond Owners......................................................................... SECTION 8.04. Power of Trustee to Control Proceedings......................................................................... SECTION 8.05. Appointment of Receivers.................................................................................................. SECTION 8.06. Non-Waiver. ......................................................................................................................... SECTION 8.07. Rights and Remedies of Bond Owners. ............................................................................ SECTION 8.08. Termination of Proceedings................................................................................................ ARTICLE IX - iii - 47 47 47 48 48 49 49 49 50 50 50 50 MISCELLANEOUS SECTION 9.01. Limited Liability of City...................................................................................................... SECTION 9.02. Benefits of Indenture Limited to Parties........................................................................... SECTION 9.03. Discharge of Indenture........................................................................................................ SECTION 9.04. Successor Is Deemed Included in All References to Predecessor.................................. SECTION 9.05. Content of Certificates......................................................................................................... SECTION 9.06. Execution of Documents by Bond Owners....................................................................... SECTION 9.07. Waiver of Personal Liability............................................................................................... SECTION 9.08. Partial Invalidity. ................................................................................................................. SECTION 9.09. Destruction of Cancelled Series A Bonds ......................................................................... SECTION 9.10. Funds and Accounts............................................................................................................ SECTION 9.11. Notices................................................................................................................................... SECTION 9.12. Unclaimed Moneys.............................................................................................................. EXHIBIT A: Form of Series A Bond EXHIBIT B: Debt Service on 2011 Water System Bonds & Debt Service on 2011 Gas System Bonds INDENTURE OF TRUST THIS INDENTURE OF TRUST, dated as of September 1. 2011, by and between the CITY OF PALO ALTO, a chartered city and municipal corporation organized and existing under the constitution and laws of the State of California (the "City"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, with a corporate trust office in San Francisco, California, and being qualified to accept and administer the trusts hereby created, as trustee (the "Trustee"); WITNESSETH: WHEREAS, the City is authorized pursuant to the provisions of Chapter 12.28 (commencing with Section 12.28.010) of the Palo Alto Municipal Code, enacted pursuant to the charter of the City, to issue its revenue bonds for the purposes of financing and refinancing improvements to an enterprise of the City; WHEREAS, the City has heretofore authorized, issued and sold (i) $8,640,000 principal amount of its City of Palo Alto Utility Revenue Bonds, 1995 Series A (the “1995 Bonds”) pursuant to an Indenture of Trust dated as of August 1, 1990 (the “1990 Indenture”), and a Second Supplemental Indenture of Trust (the “Second Supplemental Indenture of Trust”), both by and between the City and the Trustee (as successor trustee to Security Pacific National Bank and Bank of America National Trust Savings Association), and (ii) $26,055,000 principal amount of its City of Palo Alto Utility Revenue Bonds, 2002 Series A (the “2002 Bonds”) pursuant to an Indenture of Trust, dated as of January 1, 2002 (the “2002 Indenture”); WHEREAS, as provided in the 1990 Indenture and Second Supplemental Indenture of Trust, the 1995 Bonds are secured by a pledge of the City’s Enterprise (the “Enterprise”) as that term is defined in the 1990 Indenture, consisting generally of the City’s water, gas, electric, wastewater and storm water systems; WHEREAS, the City has heretofore authorized, issued and sold $35,015,000 principal amount of its City of Palo Alto Water Revenue Bonds, 2009 Series A (Taxable Direct Payment Build America Bonds) (the “2009 Bonds”) pursuant to an Indenture of Trust, dated as of October 1, 2009, by and between the City and the Trustee; WHEREAS, the City, after due investigation and deliberation, has determined that it is in the interests of the City at this time to provide for the issuance of its revenue refunding bonds under this Indenture for the purpose of refunding the 2002 Bonds for such purpose; WHEREAS, to that end the City Council of the City (the “Council”) has heretofore adopted its Resolution No. ____, approving and authorizing the issuance of its City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A (the “Series A Bonds”) for such purpose; WHEREAS, in order to provide for the authentication and delivery of the Series A Bonds and any bonds issued on a parity therewith, as herein provided (together, the “Bonds”), to establish and declare the terms and conditions upon which the Series A Bonds are to be issued and secured, and to secure the payment of the principal thereof and of the interest and -1- premium, if any, thereon, the Council has authorized the execution and delivery of this Indenture; WHEREAS, subject to the prior lien of the 1995 Bonds, the Bonds will be secured by a pledge of the Net Revenues, as defined herein, and certain other moneys and securities held by the City and the Trustee hereunder; and WHEREAS, the 2011 Water System Bonds (as herein defined) will be issued on a parity with the 2009 Bonds; and WHEREAS, all acts and proceedings required by law necessary to make the Series A Bonds, when executed by the City, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special obligations of the City, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth, in accordance with its terms, have been done and taken; and the execution and delivery of this Indenture have been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of and the interest and premium (if any) on all Series A Bonds at any time issued and Outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Series A Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Series A Bonds by the Owners thereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, the City does hereby covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the Series A Bonds, as follows: -2- ARTICLE I DEFINITIONS; AUTHORIZATION AND PURPOSE OF BONDS; EQUAL SECURITY SECTION 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Indenture and of any Parity Bonds Instrument and of the Bonds and of any certificate, opinion, request or other documents herein mentioned have the meanings herein specified. “Allocable Share” means, in any Fiscal Year, with respect to a particular System, Debt Service due in that Fiscal Year on the Sub-Series of Series A Bonds issued for such System, divided by Debt Service due in the same Fiscal Year. "Authorized Investments" means any of the following, but only to the extent that the same are acquired at Fair Market Value, which at the time of investment are legal investments under the laws of the State and permitted under the City’s investment policy for the moneys proposed to be invested therein: (a) direct obligations of (including obligations issued or held in book entry form on the books of) the Department of the Treasury of the United States of America; (b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: (i) Export- Import Bank; (ii) Farm Credit System Financial Assistance Corporation, (iii) Farmers Home Administration; (iv) General Services Administration; (v) U.S. Maritime Administration; (vi) Small Business Administration; (vii) Government National Mortgage Association (GNMA); (viii) U.S. Department of Housing & Urban Development (PHA’s); (ix) Federal Housing Administration and (x) Federal Financing Bank; (c) senior debt obligations rated "Aaa" by Moody’s and "AAA" by S&P issued by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, and obligations of the Resolution Funding Corporation (REFCORP); (d) U.S. dollar denominated deposit accounts, federal funds and banker’s acceptances with domestic commercial banks (including the Trustee and its affiliates) which have a rating on their short term certificates of deposit on the date of purchase of "P-1" by Moody’s and "A-1" or "A-1+" by S&P and maturing no more than 360 days after the date of purchase, provided that ratings on holding companies are not considered as the rating of the bank; (e) commercial paper which is rated at the time of purchase in the single highest classification, "P-1" by Moody’s and "A-1+" by S&P, and which matures not more than 270 days after the date of purchase; -3- (f) investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P, including any such money market fund from which the Trustee or its affiliates receive fees for services to such fund; (g) pre-refunded municipal obligations defined as follows: Any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based upon an irrevocable escrow account or fund (the "escrow"), in the highest rating category of Moody’s and S&P or any successors thereto; or (ii)(A) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (a) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate; (h) general obligations of states with a rating of at least "A2/A" or higher by both Moody’s and S&P; (i) investment agreements: (1) with financial institutions whose long-term general credit rating is A or better from the Rating Agencies, by the terms of which the Trustee may withdraw funds from the provider of such investment agreement if such rating falls below “A”; or (2) which are fully collateralized by Authorized Investments described in (a), (b) or (c) of this definition in an amount at least equal to 105% of the amount being invested in such investment agreement, by the terms of which such collateral is valued at least quarterly, and the Trustee may withdraw funds from the provider of such investment agreement if the market value of such collateral falls below 105% of the amount invested in such investment agreement; (j) the Local Agency Investment Fund maintained by the State, to the extent any investments of moneys held by the Trustee may be made and withdrawn directly by, and in the name of , the Trustee; and (k) the California Asset Management Program (CAMP). “Authorized Official” means the City Manager, Director of Administrative Services or Assistant City Manager of the City, or any other officer of the City duly authorized by the Council for that purpose. “Available Reserves” means funds held in the City’s: -4- (i) Rate Stabilization Reserve for the Water System, (ii) Distribution Rate Stabilization Reserve for the Electric System, (iii) Distribution Rate Stabilization Reserve for the Gas System, (iv) Supply Rate Stabilization Reserve for the Electric System, (v) Supply Rate Stabilization Reserve for the Gas System, and (vi) the Electric System’s Calaveras-Stranded Costs Reserve. “Available Reserves” includes the above numerated funds, even though given a different name by the City Council of the City, as well as newly created funds of the City which create reserves for the Systems listed above, and into which monies have been transferred from the above Funds. "Average Annual Debt Service" means the total aggregate Debt Service for the entire period during which the Series A Bonds are Outstanding, divided by the number of Fiscal Years or portions thereof during which the Series A Bonds are Outstanding. "Bond Counsel" means any attorney at law or firm of attorneys, of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America. "Bond Law" means the charter of the City and the provisions of Chapter 12.28 (commencing with Section 12.28.010), of the Palo Alto Municipal Code, all as in effect on the Closing Date. "Bond Registration Books" means the books maintained by the Trustee pursuant to Section 2.08 for the registration and transfer of ownership of the Series A Bonds. "Bonds" means, collectively, the Series A Bonds and any Parity Bonds issued and at any time Outstanding hereunder and under a Parity Bonds Instrument. "Bond Year" means the twelve-month period beginning on the anniversary of the Closing Date in each year and ending on the day prior to the anniversary date of the Closing Date in the following year except that (i) the first Bond Year shall begin on the Closing Date, and (ii) the last Bond Year may end on a redemption date prior to maturity of the Series A Bonds. "Business Day" means any day other than a Saturday, Sunday or a day on which the Trustee is authorized by law to remain closed. "Certificate of the City" means a certificate in writing signed by the City Manager, Director of Administrative Services or Assistant City Manager of the City, or by any other officer of the City duly authorized by the Council for that purpose. "Charges" means fees, tolls, assessments, rates and rentals prescribed under the Bond Law or any other law of the State by the Council for the services and facilities of a particular System furnished by the City. -5- "City" means the City of Palo Alto, a chartered city and municipal corporation organized and existing under the Constitution and laws of the State, and any successor thereto. "Closing Date" means the date upon which there is an exchange of the Series A Bonds for the proceeds representing the purchase of the Series A Bonds by the Original Purchaser thereof. "Cost of Issuance Fund" means the Fund by that name established pursuant to Section 3.04. "Costs of Issuance" means all expenses incurred in connection with the authorization, issuance, sale and delivery of the Series A Bonds, including but not limited to compensation, fees and expenses of the City and the Trustee and their respective counsel, compensation to any financial consultants and underwriters, legal fees and expenses, filing and recording costs, rating agency fees, costs of preparation and reproduction of documents and costs of printing. "Council" means the City Council of the City or any other legislative body of the City hereafter provided for pursuant to law. "Debt Service" means, during any period of computation, the amount obtained for such period by totaling the following amounts: (a) The principal amount of all Outstanding Serial Bonds payable by their terms in such period; (b) The principal amount of all Outstanding Term Bonds scheduled to be paid or redeemed by operation of mandatory Sinking Fund Installments in such period; and (c) The interest which would be due during such period on the aggregate principal amount of Series A Bonds which would be Outstanding in such period if the Series A Bonds are paid or redeemed as scheduled. "Debt Service Fund" means the fund by that name established and held by the Trustee pursuant to Section 4.03. "Defeasance Obligations" means (a) cash, (b) non-callable direct obligations of the United States of America ("Treasuries"), (c) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated or (d) pre-refunded municipal obligations rated "AAA" and "Aaa" by S&P and Moody’s, respectively (or any combination thereof). "Depository" means (a) initially, DTC, and (b) any other Securities Depositories acting as Depository pursuant to Section 2.10. "Depository System Participant" means any participant in the Depository's book-entry system. -6- "DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. “Electric System” means the existing electrical system of the City, comprising all facilities for the transmission and distribution of electric energy. “Escrow Agreement” means the Escrow Deposit and Trust Agreement, dated as of September 1, 2011, by and between the City and the Escrow Bank, with respect to the establishment and administration of the Escrow Fund for the purpose of providing for the refunding of the 2002 Bonds. “Escrow Bank” means U.S. Bank National Association, a national banking association organized and existing under and pursuant to the laws of the United States of America. “Escrow Fund” means the Escrow Fund established and held by the Escrow Bank pursuant to the Escrow Agreement. "Event of Default" means any of the events described in Section 8.01. "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Tax Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment. "Federal Securities" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America); and (b) obligations of any department, agency or instrumentality of the United States of America the timely payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America. "Fiscal Year" means the period commencing on July 1 of each year and terminating on the next succeeding June 30. -7- “Gas System” means the existing gas system of the City, comprising all facilities for the storage, transmission and distribution of gas for public or private uses. "Gross Revenues" means, for any period of computation, all gross charges received for, and all other gross income and revenues derived by the City from, the ownership or operation of a System or otherwise arising from a System during such period, including but not limited to (a) all Charges received by the City for use of such System, (b) all receipts derived from the investment of funds held by the City or the Trustee under this Indenture, (c) transfers from any stabilization reserve funds of a System into the Revenue Fund of such System, and (d) all moneys received by the City from other public entities whose inhabitants are served by such System pursuant to contracts with the City. "Improvement" means any addition, extension, improvement, equipment, machinery or other facilities to or for any System. "Indenture" means this Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Parity Bonds Instrument pursuant to the provisions hereof. "Independent Certified Public Accountant" means any certified public accountant or firm of such accountants appointed and paid by the City, and who, or each of whom- (a) is in fact independent and not under domination of the City; (b) does not have any substantial identity of interest, direct or indirect, with the City; and (c) is not and no member of which is connected with the City as an officer or employee of the City, but who may be regularly retained to make annual or other audits of the books of or reports to the City. "Independent Consultant" means any financial or engineering consultant (including without limitation any Independent Certified Public Accountant) with an established reputation in the field of municipal finance or firm of such consultants appointed and paid by the City, and who, or each of whom- (a) is in fact independent and not under domination of the City; (b) does not have any substantial identity of interest, direct or indirect, with the City; and (c) is not and no member of which is connected with the City as an officer or employee of the City, but who may be regularly retained to make annual or other audits of the books of or reports to the City. "Information Services" means the Municipal Securities Rulemaking Board Electronic Municipal Market Access (EMMA) system accessible at the emma.msrb.org website. -8- "Interest Payment Date" means, with respect to the Series A Bonds, June 1 and December 1 in each year, beginning December 1, 2011, and with respect to any Parity Bonds, any date on which interest is due and payable thereon, and continuing so long as any Bonds or Parity Bonds remain Outstanding. "Interest Requirement" means, as of any particular date of calculation, the amount equal to any unpaid interest then due and payable on the Series A Bonds, plus an amount which will on the next succeeding Interest Payment Date be equal to the interest to become due and payable on the Series A Bonds on such next succeeding Interest Payment Date. "Maintenance and Operation Costs" means the reasonable and necessary costs spent or incurred by the City for maintaining and operating a System, calculated in accordance with sound accounting principles, including the cost of supply of water, gas and electric energy under contracts or otherwise, the funding of reasonable operating reserves, and all reasonable and necessary expenses of management and repair and other expenses to maintain and preserve such System in good repair and working order, and including all reasonable and necessary administrative costs of the City attributable to such System and the Bonds, such as salaries and wages and the necessary contribution to retirement of employees, overhead, insurance, taxes (if any), expenses, compensation and indemnification of the Trustee, and fees of auditors, accountants, attorneys or engineers, and including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the Bonds or of this Indenture, but excluding depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of a similar nature. "Maximum Annual Debt Service" means, as of the date of calculation, the maximum amount of Debt Service for the current or any future Fiscal Year. "Moody's" means Moody's Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors or assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Net Proceeds", when used with reference to any insurance or condemnation award or sale of property, means the gross proceeds from the sale of property or insurance or condemnation award with respect to which that term is used remaining after payment of all expenses (including attorneys' fees and any extraordinary expenses of the Trustee) incurred in the collection of such gross proceeds. "Net Revenues" means, with respect to a System, for any period of computation, the amount of the Gross Revenues received from such System during such period, less the amount of Maintenance and Operation Costs of such System becoming payable during such period. "1990 Indenture" means that Indenture of Trust dated as of August 1, 1990, by and between the City and the Trustee, as successor to Security Pacific National Bank, as trustee, as supplemented by the Second Supplemental Indenture of Trust. -9- "1995 Bonds" means the $8,640,000 original principal amount of the City of Palo Alto Utility Revenue Refunding Bonds, 1995 Series A issued by the City pursuant to the 1990 Indenture and the Second Supplement to 1990 Indenture of Trust. "Original Purchaser" means the first purchaser of the Series A Bonds from the City. "Outstanding", when used as of any particular time with reference to Series A Bonds, means (subject to the provisions of Section 7.03) all Series A Bonds theretofore executed, issued and delivered by the City under this Indenture except - (a) Series A Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) Series A Bonds paid or deemed to have been paid within the meaning of Section 9.03; and (c) Series A Bonds in lieu of or in substitution for which other Series A Bonds shall have been executed, issued and delivered by the City pursuant to this Indenture or any Parity Bonds Instrument. "Owner" or "Bond Owner" or "Bondowner", when used with respect to any Series A Bond, means the person in whose name the ownership of such Series A Bond shall be registered on the Bond Registration Books. "Parity Bonds" means, for the Water System, the 2009 Bonds, and for all the Systems, all bonds, notes or other obligations (including without limitation long-term contracts, loans, installment sale agreements or other legal financing arrangements) of the City payable from and secured by a pledge of and lien upon any of the Net Revenues issued or incurred pursuant to Section 3.05. "Parity Bonds Instrument" means the resolution, trust indenture or installment sale agreement adopted, entered into or executed and delivered by the City, and under which Parity Bonds are issued. "Principal Installment" means with respect to any particular Principal Installment Date, an amount equal to the sum of (i) the aggregate principal amount of Outstanding Serial Bonds payable on such Principal Installment Date as determined by the applicable Parity Bonds Instrument (but not including Sinking Fund Installments) and (ii) the aggregate of Sinking Fund Installments with respect to all Outstanding Term Bonds payable on such Principal Installment Date as determined hereby and by the applicable Parity Bonds Instrument. "Principal Installment Date" means the date on which Principal Installments are required to be made pursuant to Section 2.01. "Rating Agency" means, as of any date, each of the following rating agencies which then maintains a rating on any of the Series A Bonds: (a) Moody's and (b) S&P. -10- "Record Date" means, with respect to the Series A Bonds, the fifteenth (15th) calendar day of the month immediately preceding an Interest Payment Date or, with respect to any Parity Bonds, any other date established in the applicable Parity Bonds Instrument. "Redemption Account" means the Account by that name established and held by the Trustee pursuant to Section 4.03. "Redemption Price" means, with respect to any Series A Bond, the principal amount thereof, plus the applicable premium, if any, payable upon redemption thereof pursuant to this Indenture. "Request of the City" means a request in writing signed by the City Manager, Director of Administrative Services or Assistant City Manager of the City, or by any other officer of the City duly authorized by the Council for that purpose. "Reserve Account" means the Account by that name established and held by the Trustee pursuant to Section 4.03. "Reserve Requirement" means an amount equal to the lesser of: (i) Maximum Annual Debt Service; (ii) ten percent (10%) of the Outstanding principal amount of the Series A Bonds; or (iii) 125% of Average Annual Debt Service, as may be set forth in a Parity Bonds Instrument pursuant to Section 3.05. "Revenue Fund" means the Fund by that name established and held by the City pursuant to the 1990 Indenture and referred to in Section 4.02. "S&P" means Standard & Poor's Corporation, a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors or assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. "Second Supplemental Indenture of Trust" means the Second Supplemental Indenture of Trust, between the City and the Trustee, as successor to Bank of America National Trust and Savings Association, as Trustee, dated as of February 1, 1995. "Serial Bonds" means all Series A Bonds other than Term Bonds. "Series" when used with respect to less than all of the Series A Bonds, means and refers to all of the Series A Bonds delivered on original issuance in a simultaneous transaction, regardless of variations in maturity, interest rate or other provisions, and any Series A Bond thereafter delivered in lieu of or substitution for any of such Series A Bonds pursuant to Sections 2.02(i), 2.05, 2.06, 2.07, 2.09 and 7.04. "Series A Bonds" means the City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A, issued and at any time Outstanding hereunder. "Sinking Fund Installment" means, with respect to any particular date, the amount of money required hereby or by or pursuant to a Parity Bonds Instrument to be paid by the City -11- on such date toward the retirement of any particular Term Bonds prior to their respective stated maturities. "State" means the State of California. “Sub-Series” means any of 2011 Gas System Bonds, 2011 Sewer System Bonds, Storm Water System Bonds or Water System Bonds, treating each group of Series A Bonds secured by a different System as a “Sub-Series”. "System" means either of the Gas System or the Water System, as applicable. “Systems” means the aggregate of the Gas System and the Water System "Tax Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Series A Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Series A Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Tax Code. "Tax Regulations" means temporary and permanent regulations promulgated under the Tax Code. "Term Bonds" means, with respect to any Series A Bonds which are payable prior to their stated maturity by operation of Sinking Fund Installments. "Trust Office" means the corporate trust office of the Trustee at One California Street, Suite 1000, San Francisco, California 94111, or such other or additional offices as may be specified to the City by the Trustee in writing. "Trustee" means U.S. Bank National Association, appointed by the City to act as trustee hereunder pursuant to Section 6.01, and its assigns or any other corporation or association which may at any time be substituted in its place, as provided in Section 6.01. "2002 Bonds” means the City’s Utility Revenue Bonds, 2002 Series A, issued in the original principal amount of $26,055,000 pursuant to an Indenture of Trust, dated as of January 1, 2002, between the City and the Trustee. "2009 Bonds” means the City’s Water Revenue Bonds, 2009 Series A (Taxable Direct Payment Build America Bonds), issued in the original principal amount of $35,015,000 pursuant to an Indenture of Trust dated as of October 1, 2009, by and between the City and the Trustee. "2011 Gas System Bonds” means Series A Bonds issued in the original principal amount of $____________, and which are secured by the Net Revenues of the Gas System, in the amounts and on the dates set forth in Exhibit B. "2011 Water System Bonds” means Series A Bonds issued in the original principal amount of $____________, and which are secured by the Net Revenues of the Water System on a parity with the 2009 Bonds, in the amounts and on the dates set forth in Exhibit B. -12- “Water System” means the existing water system of the City, comprising all facilities for the obtaining, conserving, treating, distributing, storing and supplying of water for domestic use, irrigation, sanitation, industrial use, fire protection, recreation, or any other public or private uses. SECTION 1.02. Rules of Construction. All references in this Indenture to "Articles," "Sections," and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; and the words "herein," "hereof," "hereunder," and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, words importing the singular number shall include the plural number and vice versa, and words importing persons shall include corporations and associations, including public bodies, as well as natural persons. SECTION 1.03. Authorization and Purpose of Series A Bonds. The City has reviewed all proceedings heretofore taken relative to the authorization of the Series A Bonds and has found, as a result of such review, and hereby finds and determines that all things, conditions, and acts required by law to exist, happen and/or be performed precedent to and in the issuance of the Series A Bonds do exist, have happened and have been performed in due time, form and manner as required by law, and the City is now authorized, as an exercise of the municipal affairs power of the City as a chartered city under the constitution and laws of the State and pursuant to the Bond Law and each and every requirement of law, to issue the Series A Bonds in the manner and form provided in this Indenture. Accordingly, the City hereby authorizes the issuance of the Series A Bonds pursuant to the Bond Law and this Indenture for the purpose of providing funds to refund the 2002 Bonds, fund the Reserve Account for the Series A Bonds, and to pay Costs of Issuance of the Series A Bonds. SECTION 1.04. Equal Security. In consideration of the acceptance of the Series A Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the City, the Trustee and the Owners from time to time of the Series A Bonds; and the covenants and agreements herein set forth to be performed on behalf of the City shall be for the equal and proportionate benefit, security and protection of all Owners of the Series A Bonds without preference, priority or distinction as to security or otherwise of any of the Series A Bonds over any of the others by reason of the number or date thereof or the time of sale, execution or delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein or herein. -13- ARTICLE II ISSUANCE OF SERIES A BONDS SECTION 2.01. Terms of Series A Bonds. The Series A Bonds authorized to be issued by the City under and subject to the Bond Law and the terms of this Indenture shall be designated the "City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A", and shall be issued in the original principal amount of ________________ Dollars ($[Principal Amount]). Of the Series A Bonds, $_________ shall be issued as 2011 Water System Bonds and $__________ shall be issued as 2011 Gas System Bonds. The Series A Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Series A Bond shall have more than one maturity date. The Series A Bonds shall mature on June 1 in each of the years and in the amounts, and shall bear interest at the rates, as follows: Maturity Date Principal Interest Rate (June 1) Amount Per Annum Interest on the Series A Bonds shall be payable on each Interest Payment Date to the person whose name appears on the Bond Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check or draft of the Trustee mailed by first class mail to the Owner or, at the option of any Owner of at least $1,000,000 aggregate principal amount of the Series A Bonds with respect to which written instructions have been filed with the Trustee prior to the Record Date, by wire transfer, at the address of such Owner as it appears on the Bond Registration Books. Principal of and premium (if any) on any Series A Bond shall be paid upon presentation and surrender thereof at the Trust Office of the Trustee in St. Paul, Minnesota. Both the principal of and interest and premium (if any) on the Series A Bonds shall be payable in lawful money of the United States of America. The Series A Bonds shall be dated the Closing Date and bear interest based on a 360-day year comprised of twelve 30-day months from the Interest Payment Date next preceding the date of authentication thereof, unless said date of authentication is an Interest Payment Date, in which event such interest is payable from such date of authentication, and unless said date of authentication is on or before November 15, 2011, in which event such interest is payable from the Closing Date; provided, however, that if, as of the date of authentication of any Series A Bond, interest thereon is in default, such Series A Bond shall bear interest from the date to which interest has previously been paid or made available for payment thereon in full. -14- SECTION 2.02. Redemption of Series A Bonds. (a) Optional Redemption. The Series A Bonds maturing on or before June 1, 20__are not subject to optional redemption prior to maturity. The Series A Bonds maturing on or after June 1, 20__ are subject to redemption prior to their respective maturity dates, at the option of the City, as a whole on any date, or in part in inverse order of maturities and by lot within a maturity on any date on or after June 1, 20__, from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Periods Redemption Prices The City shall have the option to redeem one or more Sub-Series of Series A Bonds, in whole or in part, in which case the Trustee shall select for redemption those Series A Bonds whose maturities correspond to the Debt Service for the Sub-Series of Series A Bonds being redeemed by reference to the Debt Service due on such Sub-Series as shown on Exhibit B. The City shall be required to give the Trustee written notice of its intention to redeem Series A Bonds under this subsection (a), and shall deposit all amounts required for such redemption with the Trustee at least forty-five (45) days prior to the date fixed for such redemption. (b) Mandatory Redemption. (i) Mandatory Sinking Fund Redemption. Series A Bonds maturing on June 1, 20__ are subject to mandatory redemption in part from Sinking Fund Installments to be made by the City on June 1, ____ and on each June 1 thereafter up to and including June 1, 20__, at a redemption price equal to 100 percent of the principal amount thereof plus accrued interest, if any, to the redemption date without premium, as follows: June 1 Principal Amount (ii) Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Series A Bonds shall also be subject to redemption as a whole on any date, or in part on any Interest Payment Date in inverse order of maturity and by lot within a maturity, to the extent of the Net Proceeds of hazard insurance not used to repair or rebuild the Systems or the Net Proceeds of condemnation awards received with respect to the Systems to be used for such purpose pursuant to Sections 5.06 or 5.07, at a Redemption Price equal to the principal amount of the Series A Bonds plus interest accrued thereon to the date fixed for redemption, without premium. (c) Redemption of Additional Bonds. Any Parity Bonds issued pursuant to Section 3.05 of this Indenture may be made subject to redemption prior to maturity, as a whole or in part, at such time or times, and upon payment of the principal amount thereof and accrued interest thereon plus such premium or premiums, if any, as may be determined by the City in the applicable Parity Bonds Instrument. -15- (d) Notice of Redemption. Unless waived by any Owner of Series A Bonds to be redeemed, notice of any redemption of Series A Bonds shall be given, at the expense of the City, by the Trustee by mailing a copy of a redemption notice by first class mail at least 30 days and not more than 60 days prior to the date fixed for redemption to the Owner of the Series A Bond or Series A Bonds to be redeemed at the address shown on the Bond Registration Books; provided, that neither the failure to receive such notice nor any immaterial defect in any notice shall affect the sufficiency of the proceedings for the redemption of the Series A Bonds. (e) Contents of Notice. All notices of redemption shall be dated and shall state: (i) the redemption date, (ii) the Redemption Price, (iii) if fewer than all Outstanding Bonds are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Series A Bonds to be redeemed, (iv) that on the redemption date the Redemption Price will become due and payable with respect to each such Series A Bond or portion thereof called for redemption, and that interest with respect thereto shall cease to accrue from and after said date, and (v) the place or places where such Series A Bonds are to be surrendered for payment of the Redemption Price, which places of payment may include the Trust Office of the Trustee. (f) Consequences of Notice. Notice of redemption having been given as aforesaid, the Series A Bonds or portions of Series A Bonds so to be redeemed shall, on the redemption date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the City shall default in the payment of the Redemption Price) such Series A Bonds or portions of Series A Bonds shall cease to have interest accrue thereon. Upon surrender of such Series A Bonds for redemption in accordance with said notice, such Series A Bonds shall be paid by the Trustee at the Redemption Price. Installments of interest due on or prior to the redemption date shall be payable as herein provided for payment of interest. Upon surrender for any partial redemption of any Series A Bond, there shall be prepared for the Owner a new Series A Bond or Series A Bonds of the same maturity in the amount of the unredeemed principal. All Series A Bonds which have been redeemed shall be cancelled and destroyed by the Trustee and shall not be redelivered. Neither the failure of any Series A Bond Owner to receive any notice so mailed nor any defect therein shall affect the sufficiency of the proceedings for redemption of any Series A Bonds nor the cessation of accrual of interest thereon. (g) Additional Notice. In addition to the foregoing notice, further notice shall be given by the Trustee as set out below, but no defect in said further notice nor any failure to give all or any portion of such further notice shall in any manner defeat the effectiveness of a call for redemption if notice thereof is given as above prescribed: (i) Each further notice of redemption given hereunder shall contain the information required above for an official notice of redemption plus (A) the CUSIP -16- numbers of all Series A Bonds being redeemed; (B) the stated interest rate with respect to each Series A Bond being redeemed; (C) the maturity date of each Series A Bond being redeemed; and (D) any other descriptive information needed to identify accurately the Series A Bonds being redeemed. (ii) Each further notice of redemption shall be sent at least 35 days before the redemption date by registered or certified mail or overnight delivery service to all registered securities depositories then in the business of holding substantial amounts of instruments of types comprising the Series A Bonds, and, on the date notice is mailed to Series A Bond Owners, to one or more Information Services. (iii) Upon the payment of the Redemption Price of the Series A Bonds being redeemed, each check or other transfer of funds issued for such purpose shall bear the CUSIP number identifying, by issue and maturity, the Series A Bonds being redeemed with the proceeds of such check or other transfer. (i) Partial Redemption of Series A Bonds. In the event only a portion of any Series A Bond is called for redemption, then upon surrender of such Series A Bond redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner, at the expense of the City, a new Series A Bond or Series A Bonds, of the same series and maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Series A Bond or Series A Bonds. (j) Manner of Redemption. Whenever any Series A Bonds are to be selected for redemption, the Trustee shall determine, by lot, the numbers of the Series A Bonds to be redeemed, and shall notify the City thereof. (k) Purchase of Series A Bonds in lieu of Redemption. In lieu of redemption of Series A Bonds as provided in subsection (a) above, amounts in the Redemption Account of the Debt Service Fund may also be used and withdrawn by the Trustee at any time, upon the Request of the City filed with the Trustee no later than April 15 in any year, for the purchase of Series A Bonds at public or private sale as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Debt Service Fund) as the City may in its discretion determine, but not to exceed the principal amount of such Series A Bonds plus the redemption premium applicable on the next ensuing optional redemption date. The City shall, at the time of any such purchase, pay to the Trustee for deposit in the Debt Service Fund the amount of any deficiency in such Fund which may be caused by such purchase. All Series A Bonds purchased pursuant to this Section shall be cancelled. All Series A Bonds redeemed pursuant to this Section and all Series A Bonds purchased by the City pursuant to this subsection (k) shall be cancelled and destroyed pursuant to Section 9.09. SECTION 2.03. Form of Series A Bonds. The Series A Bonds, the Trustee's certificate of authentication, and the assignment to appear thereon, shall be substantially in the form set forth in Exhibit A attached hereto and by this reference incorporated herein, with necessary or appropriate variations, omissions and insertions, as permitted or required by this Indenture. -17- SECTION 2.04. Execution of Series A Bonds. The Series A Bonds shall be signed in the name and on behalf of the City with the manual or facsimile signatures of its Mayor and its Director of Administrative Services and attested by the manual or facsimile signature of its City Clerk under the seal of the City. Such seal may be in the form of a facsimile of the City's seal and shall be imprinted or impressed upon the Series A Bonds. The Series A Bonds shall then be delivered to the Trustee for authentication by it. In case any officer who shall have signed any of the Series A Bonds shall cease to be such officer before the Series A Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the City, such Series A Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though the individual who signed the same had continued to be such officer of the City. Also, any Series A Bond may be signed on behalf of the City by any individual who on the actual date of the execution of such Series A Bond shall be the proper officer although on the nominal date of such Series A Bond such individual shall not have been such officer. Only such of the Series A Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be conclusive evidence that the Series A Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. SECTION 2.05. Transfer of Series A Bonds. Any Series A Bond may, in accordance with its terms, be transferred upon the Bond Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Series A Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, fully executed. Whenever any Series A Bond shall be surrendered for transfer, the City shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a new Series A Bond or Series A Bonds of like tenor, maturity and aggregate principal amount. No Series A Bonds the notice of redemption of which has been mailed pursuant to Section 2.02(d) shall be subject to transfer pursuant to this Section. SECTION 2.06. Exchange of Series A Bonds. Series A Bonds may be exchanged at the Trust Office of the Trustee, for Series A Bonds of the same tenor and maturity and of other authorized denominations. No Series A Bonds the notice of redemption of which has been mailed pursuant to Section 2.02(d) shall be subject to exchange pursuant to this Section. SECTION 2.07. Temporary Series A Bonds. The Series A Bonds may be issued initially in temporary form exchangeable for definitive Series A Bonds when ready for delivery. The temporary Series A Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the City and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Series A Bond shall be executed by the City and be registered and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Series A Bonds. If the City issues temporary Series A Bonds, it will execute and furnish definitive Series A Bonds without delay, and thereupon the temporary Series A Bonds may be surrendered, for cancellation, in exchange therefor at the Trust Office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Series A Bonds an equal aggregate principal amount of definitive Series A Bonds of authorized denominations. Until so exchanged, the temporary -18- Series A Bonds shall be entitled to the same benefits under this Indenture as definitive Series A Bonds authenticated and delivered hereunder. SECTION 2.08. Bond Registration Books. The Trustee will keep or cause to be kept at its Trust Office sufficient Bond Registration Books for the registration and transfer of the Series A Bonds, which shall at all times during regular business hours be open to inspection by the City; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on said books, Series A Bonds as hereinbefore provided. SECTION 2.09. Series A Bonds Mutilated, Lost, Destroyed or Stolen. If any Series A Bond shall become mutilated, the City, at the expense of the Owner of said Series A Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Series A Bond of like maturity and principal amount in exchange and substitution for the Series A Bond so mutilated, but only upon surrender to the Trustee of the Series A Bond so mutilated. Every mutilated Series A Bond so surrendered to the Trustee shall be cancelled by it and delivered to, or upon the order of, the City. If any Series A Bond issued hereunder shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the City and the Trustee and, if such evidence be satisfactory to them and indemnity satisfactory to them shall be given, the City, at the expense of the Series A Bond Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Series A Bond of like maturity and principal amount in lieu of and in substitution for the Series A Bond so lost, destroyed or stolen (or if any such Series A Bond shall have matured or shall have been called for redemption, instead of issuing a substitute Series A Bond the Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to the Trustee). The City may require payment of a reasonable fee for each new Series A Bond issued under this Section and of the expenses which may be incurred by the City and the Trustee. Any Series A Bond issued under the provisions of this Section in lieu of any Series A Bond alleged to be lost, destroyed or stolen shall constitute an original contractual obligation on the part of the City whether or not the Series A Bond alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Indenture with all other Bonds secured by this Indenture. SECTION 2.10. Book Entry System. (a) Original Delivery. The Series A Bonds shall be initially delivered in the form of a separate single fully registered Series A Bond (which may be typewritten) for each maturity of the Series A Bonds. Upon initial delivery, the ownership of each such Series A Bond shall be registered on the Bond Registration Books maintained by the Trustee pursuant to Section 2.08 hereof in the name of the Nominee. Except as provided in subsection (c), the ownership of all of the Outstanding Bonds shall be registered in the name of the Nominee on such Bond Registration Books. With respect to Series A Bonds the ownership of which shall be registered in the name of the Nominee, the City and the Trustee shall have no responsibility or obligation to any Depository System Participant or to any person on behalf of which the City holds an interest in the Series A Bonds. Without limiting the generality of the immediately preceding sentence, the City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Depository System Participant with respect -19- to any ownership interest in the Series A Bonds, (ii) the delivery to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any notice with respect to the Series A Bonds, including any notice of redemption, (iii) the selection by the Depository of the beneficial interests in the Series A Bonds to be redeemed in the event the City elects to redeem the Series A Bonds in part, (iv) the payment to any Depository System Participant or any other person, other than a Bond Owner as shown in the Registration Books, of any amount with respect to principal, premium, if any, or interest represented by the Series A Bonds or (v) any consent given or other action taken by the Depository as Owner of the Series A Bonds. The City and the Trustee may treat and consider the person in whose name each Bond is registered as the absolute owner of such Bond for the purpose of payment of principal, premium, if any, and interest represented by such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers of ownership of such Bond, and for all other purposes whatsoever. The Trustee shall pay the principal, interest and premium, if any, represented by the Series A Bonds only to the respective Owners or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge all obligations with respect to payment of principal, interest and premium, if any, represented by the Series A Bonds to the extent of the sum or sums so paid. No person other than a Bond Owner shall receive a Bond evidencing the obligation of the City to make payments of principal, interest and premium, if any, pursuant to this Trust Indenture. Upon delivery by the Depository to the Nominee of written notice to the effect that the Depository has determined to substitute a new Nominee in its place, such new nominee shall become the Nominee hereunder for all purposes; and upon receipt of such a notice the City shall promptly deliver a copy of the same to the Trustee. (b) Representation Letter. In order to qualify the Series A Bonds for the Depository's book-entry system, the City shall execute and deliver to such Depository a letter representing such matters as shall be necessary to so qualify the Series A Bonds. The execution and delivery of such letter shall not in any way limit the provisions of subsection (a) above or in any other way impose upon the City or the Trustee any obligation whatsoever with respect to persons having interests in the Series A Bonds other than the Bond Owners. Upon the written acceptance by the Trustee, the Trustee shall agree to take all action reasonably necessary for all representations of the Trustee in such letter with respect to the Trustee to at all times be complied with. In addition to the execution and delivery of such letter, the City may take any other actions, not inconsistent with this Trust Indenture, to qualify the Series A Bonds for the Depository's book-entry program. (c) Transfers Outside Book-Entry System. In the event that either (i) the Depository determines not to continue to act as Depository for the Series A Bonds, or (ii) the City determines to terminate the Depository as such, then the City shall thereupon discontinue the book-entry system with such Depository. In such event, the Depository shall cooperate with the City and the Trustee in the execution of replacement Series A Bonds by providing the Trustee with a list showing the interests of the Depository System Participants in the Series A Bonds, and by surrendering the Series A Bonds, registered in the name of the Nominee, to the Trustee on or before the date such replacement Series A Bonds are to be issued. The Depository, by accepting delivery of the Series A Bonds, agrees to be bound by the provisions of this subsection (c). If, prior to the termination of the Depository acting as such, the City fails to identify another Securities Depository to replace the Depository, then the Series A Bonds shall no longer be required to be registered in the Registration Books in the name of the Nominee, but -20- shall be registered in whatever name or names the Owners transferring or exchanging Series A Bonds shall designate, in accordance with the provisions hereof. In the event the City determines that it is in the best interests of the beneficial owners of the Series A Bonds that they be able to obtain certificated Series A Bonds, the City may notify the Depository System Participants of the availability of such certificated Series A Bonds through the Depository. In such event, the Trustee will execute, transfer and exchange Series A Bonds as required by the Depository and others in appropriate amounts; and whenever the Depository requests, the Trustee and the City shall cooperate with the Depository in taking appropriate action (y) to make available one or more separate certificates evidencing the Series A Bonds to any Depository System Participant having Series A Bonds credited to its account with the Depository, or (z) to arrange for another Securities Depository to maintain custody of a single certificate evidencing such Series A Bonds, all at the City's expense. (d) Payments to the Nominee. Notwithstanding any other provision of this Indenture to the contrary, so long as any Bond is registered in the name of the Nominee, all payments with respect to principal, interest and premium, if any, represented by such Bond and all notices with respect to such Bond shall be made and given, respectively, as provided in the letter described in subsection (b) of this Section or as otherwise instructed by the Depository. -21- ARTICLE III ISSUE OF SERIES A BONDS; PARITY BONDS SECTION 3.01. Issuance of Series A Bonds. Upon the execution and delivery of this Indenture, the City shall execute and deliver Series A Bonds in the aggregate principal amount of ________________ Dollars ($[Principal Amount]) to the Trustee for authentication and delivery to the Original Purchaser thereof upon the Request of the City. SECTION 3.02. Application of Proceeds of Sale of Series A Bonds. Upon the receipt of payment for the Series A Bonds on the Closing Date in the amount of $__________ (being an amount equal to the principal amount of the Series A Bonds ($[Principal Amount]), plus original issue premium of $________, less underwriter’s discount ($_________,), [less the good faith deposit of $________ held by the City)], the Trustee shall apply the proceeds of sale thereof as follows: (a) The Trustee shall deposit in the Reserve Account the amount of $______________ (being the Reserve Requirement); and (b) The Trustee shall transfer $_________ to the Escrow Bank, for deposit to the Escrow Fund; and (c) The Trustee shall deposit in the Cost of Issuance Fund the remainder of such proceeds, in an amount equal to $_____________. The Trustee may establish a temporary fund or account in its records to facilitate such deposits and transfers. SECTION 3.03. Reserve Account. An amount equal to the Reserve Requirement under Section 4.06(a) for the account of the Reserve Account, shall be maintained in the Reserve Account at all times; any deficiency therein shall be replenished from available Net Revenues pursuant to Section 4.03(3). SECTION 3.04. Cost of Issuance Fund. There is hereby created a fund to be known as the "City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A Cost of Issuance Fund" (the "Cost of Issuance Fund"), which the City hereby covenants and agrees to cause to be maintained and which shall be held in trust by the Trustee. The moneys in the Cost of Issuance Fund shall be used in the manner provided by law solely for the purpose of the payment of Costs of Issuance upon receipt by the Trustee of Requests of the City therefor, on or after the Closing Date. Any funds remaining in the Cost of Issuance Fund on ____1, 2011, shall be transferred by the Trustee to the Debt Service Fund. SECTION 3.05. Issuance of Parity Bonds. In addition to the Series A Bonds, the City may, by Parity Bonds Instrument, issue or incur other loans, advances or indebtedness payable from Net Revenues to be derived from any System, to provide financing for such System, in such principal amount as shall be determined by the City. The City may issue or incur any such Parity Bonds subject to the following specific conditions which are hereby made conditions precedent to the issuance and delivery of such Parity Bonds: -22- (a) The City shall be in compliance with all covenants set forth in this Indenture. (b) The Net Revenues of the System for which such Parity Bonds are being issued, calculated on sound accounting principles, as shown by the books of the City for the latest Fiscal Year or any more recent twelve (12) month period selected by the City ending not more than sixty (60) days prior to the adoption of the Parity Bonds Instrument pursuant to which such Parity Bonds are issued, as shown by the books of the City, less transfers, if any, from such System’s rate stabilization fund, plus, at the option of the City, any or all of the amount described in the following paragraph, shall at least equal One Hundred percent (100%) of Maximum Annual Debt Service, with Maximum Annual Debt Service calculated on all Bonds to be Outstanding immediately subsequent to the issuance of such Parity Bonds which have a lien on Net Revenues of such System. The following may be added to Net Revenues for the purpose of issuing or incurring Parity Bonds hereunder: an allowance for earnings arising from any increase in the Charges which has become effective prior to the incurring of such additional indebtedness but which, during all or any part of such Fiscal Year or such twelve (12) month period, was not in effect, in an amount equal to the amount by which the Net Revenues would have been increased if such increase in Charges had been in effect during the whole of such Fiscal Year or such twelve (12) month period, all as shown in the written report of an Independent Consultant engaged by the City. (c) The Net Revenues of the System for which such Parity Bonds are being issued, calculated on sound accounting principles, as shown by the books of the City for the latest Fiscal Year or any more recent twelve (12) month period selected by the City ending not more than sixty (60) days prior to the adoption of the Parity Bonds Instrument pursuant to which such Parity Bonds are issued, as shown by the books of the City, plus, at the option of the City, any or all of the items hereinafter in this paragraph designated (i), (ii) and (iii), shall at least equal One Hundred Twenty-Five percent (125%) of Maximum Annual Debt Service, with Maximum Annual Debt Service calculated on all Bonds to be Outstanding immediately subsequent to the issuance of such Parity Bonds which have a lien on Net Revenues of such System. The items any or all of which may be added to such Net Revenues for the purpose of issuing or incurring Parity Bonds hereunder are the following: (i) An allowance for Net Revenues from any additions to or improvements or extensions of the System to be made with the proceeds of such Parity Bonds, and also for Net Revenues from any such additions, improvements or extensions which have been made from moneys from any source but in any case which, during all or any part of such Fiscal Year or such twelve (12) month period, were not in service, all in an amount equal to ninety percent (90%) of the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first thirty-six (36) month period in which each addition, improvement or extension is respectively to be in operation, all as shown in the written report of an Independent Consultant engaged by the City; -23- (ii) An allowance for earnings arising from any increase in the Charges which has become effective prior to the incurring of such additional indebtedness but which, during all or any part of such Fiscal Year or such twelve (12) month period, was not in effect, in an amount equal to the amount by which the Net Revenues would have been increased if such increase in Charges had been in effect during the whole of such Fiscal Year or such twelve (12) month period, all as shown in the written report of an Independent Consultant engaged by the City; and (iii) Funds then on hand in Available Reserves for the System for which such Parity Bonds are being issued. (d) The Parity Bonds Instrument providing for the issuance of such Parity Bonds under this Section 3.05 shall provide that: (i) The proceeds of such Parity Bonds shall be applied to the acquisition, construction, improvement, financing or refinancing of additional facilities, improvements or extensions of existing facilities within the System, or otherwise for facilities, improvements or property which the City determines are of benefit to the System, or for the purpose of refunding any Bonds in whole or in part, including all costs (including costs of issuing such Parity Bonds and including capitalized interest on such Parity Bonds during any period which the City deems necessary or advisable) relating thereto; (ii) Interest on such Parity Bonds shall be payable on an Interest Payment Date; and (iii) The principal of such Parity Bonds shall be payable on June 1 in any year in which principal is payable. SECTION 3.06. No Prior Lien Bonds. The City covenants that it will not issue any obligations which have a lien on Gross Revenues or Net Revenues superior to the lien created hereunder as security for the Series A Bonds. SECTION 3.07. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any way by any proceedings taken by the City for the acquisition or construction of the Project, or by any contracts made by the City in connection therewith, and the recital contained in the Bonds that the same are issued pursuant to the Bond Law shall be conclusive evidence of their validity and of the regularity of their issuance. -24- ARTICLE IV PLEDGE OF NET REVENUES; FUNDS AND ACCOUNTS SECTION 4.01. Pledge of Net Revenues, Revenue Fund. (A) The City hereby transfers, places a charge upon, assigns and sets over to the Trustee, for the benefit of the Owners, the Net Revenues of each System which are necessary to pay Debt Service on the Sub-Series of Bonds issued for such System. The 2011 Water System Bonds are issued on a parity with the 2009 Bonds. The Net Revenues shall not be used for any other purpose while any of the Bonds remain Outstanding, except that out of Net Revenues there may be apportioned and paid such sums for such purposes, as are expressly permitted by this Article. Said pledge shall constitute a first, direct and exclusive charge and lien on the Net Revenues for the payment of the principal or Redemption Price of and interest on the Bonds in accordance with the terms thereof, subject to the prior lien of the 1995 Bonds. (B) The Net Revenues constitute a trust fund for the security and payment of the principal or Redemption Price of and interest on the Bonds. The general fund of the City is not liable and the credit or taxing power of the City is not pledged for the payment of the principal or Redemption Price of and interest on the Bonds. The Owner of the Bonds shall not compel the exercise of the taxing power by the City or the forfeiture of its property. The principal or Redemption Price of and interest on the Bonds are not a debt of the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of its property, or upon any of its income, receipts, or revenues except the Net Revenues. SECTION 4.02. Receipt and Deposit of Gross Revenues. The City covenants and agrees that all Gross Revenues, when and as received, will be received and held by the City in trust hereunder and will be deposited by the City in the Revenue Fund (which has heretofore been created pursuant to the 1990 Indenture and now exists in the City Treasury) and will be accounted for through and held in trust in the Revenue Fund, and the City shall only have such beneficial right or interest in any of such money as in this Indenture provided. All such Gross Revenues shall be transferred, disbursed, allocated and applied solely to the uses and purposes hereinafter in this Article set forth, and shall be accounted for separately and apart from all other money, funds, accounts or other resources of the City. SECTION 4.03. Establishment of Funds and Accounts and Allocation of Revenues Thereto. The Debt Service Fund, as a special fund, and the Redemption Account and the Reserve Account, as special accounts therein, are hereby created. The Debt Service Fund and the Redemption Account and the Reserve Account therein shall be held and maintained by the Trustee. All Gross Revenues shall be held in trust by the City in the Revenue Fund and shall be applied, transferred, used and withdrawn only for the purposes hereinafter authorized in this Article. -25- (1) Operating Costs. The City shall first pay from the moneys in the Revenue Fund the budgeted Maintenance and Operation Costs as such Costs become due and payable. (2) Debt Service Fund. On or before the third Business Day prior to each Interest Payment Date, the City shall transfer from the Revenue Fund to the Trustee for deposit in the Debt Service Fund (i) an amount equal to the aggregate amount of interest to become due and payable on all Outstanding Bonds on the next succeeding Interest Payment Date, plus (ii) on or before the third Business Day prior to each Principal Payment Date, an amount equal to the aggregate amount of Principal Installments becoming due and payable on all Outstanding Bonds on the next succeeding Principal Installment Date. All interest earnings and profits or losses on the investment of amounts in the Debt Service Fund shall be deposited in or charged to the Debt Service Fund and applied to the purposes thereof. No transfer and deposit need be made into the Debt Service Fund if the amount contained therein, taking into account investment earnings and profits, is at least equal to the Interest Requirement or Principal Installments to become due on the next Interest Payment Date or Principal Installment Date upon all Outstanding Bonds. (3) Reserve Account. After making the payments, allocations and transfers provided for in subsections (2) and (3) above, if the balance in the Reserve Account is less than the Reserve Requirement, the deficiency shall be restored by transfers from the first moneys which become available in the Revenue Fund to the Trustee for deposit in the Reserve Account, such transfers to be made from the sources and during the time period specified in Section 4.09(a). (4) Surplus. As long as all of the foregoing payments, allocations and transfers are made at the times and in the manner set forth above in subsections (2) and (3), inclusive, any moneys remaining in the Revenue Fund may at any time be treated as surplus and applied as provided in Section 4.07. SECTION 4.04. Application of Debt Service Fund. (a) The Trustee shall withdraw from the Debt Service Fund, prior to each Interest Payment Date, an amount equal to the Interest Requirement payable on such Interest Payment Date, and shall cause the same to be applied to the payment of said interest when due and is hereby authorized to apply the same to the payment of such interest by check or draft (or by wire transfer, as the case may be), as provided in Section 2.01. (b) The Trustee shall withdraw from the Debt Service Fund, prior to each Principal Installment Date, an amount equal to the principal amount of the Outstanding Serial Bonds, if any, maturing on said Principal Installment Date, and shall cause the same to be applied to the payment of the principal of said Bonds when due, and is hereby authorized to apply the same to such payment upon presentation and surrender of the Bonds as they become due and payable, as provided in Section 2.01. (c) All withdrawals and transfers under the provisions of subsection (a) or subsection (b) of this Section shall be made not earlier than one (1) day prior to the Interest Payment Date or Principal Installment Date to which they relate, and the amount so withdrawn or transferred shall, for the purposes of this Indenture, be deemed to remain in and be part of the appropriate Account until such Interest Payment Date or Principal Installment Date. -26- SECTION 4.05. Application of Reserve Account. If at any time there shall not be sufficient amounts in the Debt Service Fund to make payment of Principal Installments or Redemption Price of or interest on the Bonds, the Trustee shall provide notice of such fact to the City (by telephone, confirmed in writing, provided that no such notice shall be required to be given with respect to a withdrawal of amounts in excess of the Reserve Requirement or of withdrawals in connection with the refunding of the Bonds in whole or in part) and withdraw from the Reserve Account and pay into the appropriate Fund or Account the amount of the deficiency. Any amounts in the Reserve Account in excess of the Reserve Requirement (whether derived from interest or gain on investments or otherwise) shall, on June 2 of each year, be paid by the Trustee to the City for deposit in the Revenue Fund. SECTION 4.06. Application of Redemption Account. On or before the date on which Series A Bonds are subject to redemption pursuant to Section 2.02(a) or on which any Parity Bonds are subject to optional redemption pursuant to the provisions of the Parity Bonds Instrument authorizing such Parity Bonds, the City shall transfer from the Revenue Fund to the Trustee for deposit in the Redemption Account an amount at least equal to the Redemption Price (excluding accrued interest, which is payable from the Debt Service Fund) of such Bonds to be redeemed on such Interest Payment Date. In addition, the City shall transfer to the Trustee for deposit in the Redemption Account all amounts required to redeem any Series A Bonds which are subject to redemption pursuant to Section 2.02 (b) and any Parity Bonds which are subject to redemption pursuant to any similar provision of the Parity Bonds Instrument authorizing such Parity Bonds, when and as such amounts become available. Amounts in the Redemption Account shall be applied by the Trustee solely for the purpose of paying the Redemption Price of Series A Bonds to be redeemed pursuant to Sections 2.02 (a) or (b) and to pay the purchase price in the same manner and subject to the same limitation as purchasers of Bonds under Section 2.02(k) or the Redemption Price of any Parity Bonds to be redeemed pursuant to similar provisions of the Parity Bonds Instrument authorizing such Parity Bonds. If after all of the Bonds have been paid or deemed to have been paid, there are moneys remaining in the Redemption Account, such moneys shall be transferred by the Trustee to the City for deposit in the Revenue Fund. SECTION 4.07. Surplus. Moneys remaining in the Revenue Fund after making the payments, allocations and transfers provided for in subsections (2), (3), and (4) of Section 4.03 shall be applied by the City as required by the city charter. SECTION 4.08. Investments. All moneys in the Revenue Fund may be invested by the City from time to time in any Authorized Investments. All moneys in the Debt Service Fund and Cost of Issuance Fund shall be invested by the Trustee solely in Authorized Investments, as directed pursuant to a Request of the City. In the absence of any such Request of the City, the Trustee may (but shall not be required to) invest any such moneys in money market funds whose investments are restricted to Federal Securities or obligations fully secured by such Federal Securities, selected by the Trustee, which by their terms mature prior to the date on which such moneys are required to be paid out hereunder. Obligations purchased as an investment of moneys in any Fund or Account shall be deemed to be part of such Fund or Account, and all interest or gain derived from the investment of amounts in any of the Funds or Accounts established hereunder shall be deposited in the Fund or Account from which such investment was made; and shall be accounted for and applied as provided in Section 4.04(c) (with respect to the Debt Service Fund) and Section 4.05(a) (with respect to the Reserve Account). For purposes of acquiring any investments hereunder, the Trustee may commingle -27- funds held by it hereunder with the written approval of the City. The Trustee may act as principal or agent in the acquisition of any investment. The Trustee shall incur no liability for losses arising from any investments made pursuant to this Section. The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, the City will not receive such confirmations to the extent permitted by law. The Trustee will furnish the City periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. The Trustee may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee hereunder. The Trustee may rely upon any investment direction of the City as a certification to the Trustee that such investment is a legal investment for purposes of this Indenture. SECTION 4.09. Valuation; Replenishment of Reserve Account; Investments. (a) Method of Valuation, Frequency of Valuation; Replenishment of Reserve Account. In computing the amount in any Fund or Account, Authorized Investments shall be valued at the lower of the cost or the market price, exclusive of accrued interest. With respect to all Funds and Accounts, valuation shall occur annually, except in the event of a withdrawal from the Reserve Account, whereupon securities shall be valued immediately after such withdrawal. If amounts on deposit in the Reserve Account shall, at any time, be less than the Reserve Requirement, such deficiency shall be made up (i) over a period of not more than four (4) months, in four (4) substantially equal payments, from Allocable Shares of the Net Revenues of the Systems received after making the required deposits to the Debt Service Fund, in the event such deficiency results from a decrease in the market value of the Authorized Investments on deposit in the Reserve Account or (ii) over a period of not more than twelve (12) months, in twelve (12) substantially equal payments, from (A) Net Revenues of the applicable System, in the event such deficiency results from a withdrawal from the Reserve Account by reason of the City’s failure to pay Debt Service on the Sub-Series of Series A Bonds of such System. (b) Investment of Amounts Representing Accrued Interest. All amounts representing accrued interest shall be held by the Trustee in the Debt Service Fund, pledged solely to the payment of interest on the Bonds and invested only in Federal Securities maturing at such times and in such amounts as are necessary to match the interest payments to which they are pledged. (c) Additional Limitations. Except as otherwise provided in the following sentence, the City covenants that all investments of amounts deposited in any fund or account created by or pursuant to this Indenture, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Tax Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by this Indenture or the Tax Code) at Fair Market Value. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Tax Code and (unless valuation is undertaken at least annually) investments in the Reserve Account shall be valued at their present value (within the meaning of section 148 of the Tax Code). -28- ARTICLE V COVENANTS OF THE CITY; SPECIAL TAX COVENANTS SECTION 5.01. Punctual Payment; Compliance With Documents. The City shall punctually pay or cause to be paid the interest and principal to become due with respect to all of the Bonds in strict conformity with the terms of the Bonds and of this Indenture, and will faithfully observe and perform all of the conditions, covenants and requirements of this Indenture and all Parity Bonds Instruments. SECTION 5.02. Against Encumbrances. The City will not mortgage or otherwise encumber, pledge or place any charge upon any System or any part thereof, or upon any of the Net Revenues of such System, except as provided in the Indenture; provided, however, that nothing in this Section 5.02 nor elsewhere in this Indenture shall be construed to prevent the City from entering into long-term contracts to finance supplies of water, gas, or electric energy, payments under which are accounted for as Maintenance and Operation Costs under the definition thereof in Section 1.01. SECTION 5.03. Discharge of Claims. The City covenants that in order to fully preserve and protect the priority and security of the Bonds the City shall pay from the Net Revenues and discharge all lawful claims for labor, materials and supplies furnished for or in connection with any System which, if unpaid, may become a lien or charge upon the Net Revenues prior or superior to the lien of the Bonds and impair the security of the Bonds. The City shall also pay from the Net Revenues all taxes and assessments or other governmental charges lawfully levied or assessed upon or in respect of each System or upon any part thereof or upon any of the Net Revenues therefrom. SECTION 5.04. Maintenance and Operation of Systems in Efficient and Economical Manner. The City covenants and agrees to maintain and operate the Systems in an efficient and economical manner and to operate, maintain and preserve the Systems in good repair and working order. SECTION 5.05. Against Sale, Eminent Domain. (a) The City will not sell, lease or otherwise dispose of the Systems or any part thereof essential to the proper operation of the Systems or to the maintenance of the Net Revenues except as herein expressly permitted. The City will not enter into any lease or agreement which impairs the operation of the Systems or any part thereof necessary to secure adequate Net Revenues for the payment of the interest on and principal or Redemption Price, if any, on the Bonds, or which would otherwise impair the rights of the Holders with respect to the Net Revenues or the operation of the Systems. Any real or personal property which has become non-operative or which is not needed for the efficient and proper operation of the Systems, or any material or equipment which has worn out, may be sold at not less than the market value thereof without the consent of the Holders if such sale will not reduce Net Revenues and if all of the Net Proceeds of such sale are deposited in the Revenue Fund. -29- (b) If all or any part of a System shall be taken by eminent domain proceedings, the Net Proceeds realized by the City therefrom shall be deposited by the City with the Trustee in a special fund in trust and applied by the City to the cost of acquiring or constructing or financing Improvements to a System if (A) the City first secures and files with the Trustee a Certificate of the City showing (i) the estimated loss in annual Net Revenues, if any, suffered, or to be suffered, by the City by reason of such eminent domain proceedings, (ii) a general description of the Improvements to the Systems then proposed to be acquired or constructed by the City from such Net Proceeds, and (iii) an estimate of the additional Net Revenues to be derived from such Improvements; and (B) such Certificate of the City, shall state that such additional Net Revenues will sufficiently offset the loss of Net Revenues, resulting from such eminent domain proceedings so that the ability of the City to meet its obligations hereunder will not be substantially impaired, which determination shall be final and conclusive. If the foregoing conditions are met, the City shall then promptly proceed with the acquisition or construction or financing of such Improvements substantially in accordance with such Certificate of the City and payments therefor shall be made by the Trustee from such Net Proceeds and from other moneys of the City lawfully available therefor, and any balance of such Net Proceeds not required by the City for the purposes aforesaid shall be deposited in the Revenue Fund. If the foregoing conditions are not met, then such Net Proceeds shall be applied by the Trustee pro rata to the redemption or purchase of the Bonds of each Series then Outstanding in the proportion which the principal amount of the Outstanding Bonds of each Series bears to the aggregate principal amount of all Bonds then Outstanding. If the Trustee is unable to purchase or redeem Bonds in amounts sufficient to exhaust the available moneys allocable to each such Series, the remainder of such moneys for each such Series shall be held in trust by the Trustee and applied to the payment of the Bonds of such Series as the same become due by their terms, and, pending such application, such remaining moneys may be invested by the Trustee in the manner provided in Section 4.08 for the investment of moneys in the Reserve Account. SECTION 5.06. Insurance. The City covenants that it shall at all times maintain such insurance on the Systems as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to such works or properties. If any useful part of a System shall be damaged or destroyed, such part shall be restored to use. The Net Proceeds of insurance against accident to or destruction of a System shall be used for repairing or rebuilding the damaged or destroyed portions of such System (to the extent that such repair or rebuilding is determined by the City to be useful or of continuing value to such System) and to the extent not so applied, shall be applied to the redemption of the Outstanding Bonds issued on a pro rata basis, and for such purpose shall be paid into the Redemption Account. Any such insurance shall be in the form of policies or contracts for insurance with insurers of good standing and shall be payable to the City, or may be in the form of self- insurance by the City. The City shall establish such fund or funds or reserves as are necessary to provide for its share of any such self-insurance. The City shall file or cause to be filed with the Trustee, annually within one hundred twenty (120) days after the close of each Fiscal Year, a Certificate of the City (a) setting forth a description in reasonable detail of the insurance then in effect, including any self-insurance fund, maintained pursuant to the requirements of this Section, (b) stating that the City is then in compliance with the requirements of this Section, and (c) stating whether during the preceding Fiscal Year any loss has been incurred with respect to the Systems and, if so, the amount of Net Proceeds of insurance, including the Net Proceeds of any self-insurance fund, covering such loss and specifying the reasonable and necessary costs of repair, reconstruction or replacement thereof. -30- SECTION 5.07. Records and Accounts. The City covenants that it shall keep proper books of record and accounts of the Systems, separate from all other records and accounts, in which complete and correct entries shall be made of all transactions relating to the Systems. Said books shall, upon reasonable request, be subject to the inspection of the Owners of not less than ten percent (10%) of the Outstanding Bonds or their representatives authorized in writing. The City covenants that it will cause the books and accounts of the Systems to be audited annually by an Independent Certified Public Accountant and will make available for inspection by the Bond Owners, upon reasonable request, a copy of the report of such Independent Certified Public Accountant. The City covenants that it will cause to be prepared annually, not more than one hundred eighty (180) days after the close of each Fiscal Year, as a part of its regular annual financial report, a summary statement showing the amount of Gross Revenues and the amount of all other funds collected which are required to be pledged or otherwise made available as security for payment of principal of and interest on the Bonds, the disbursements from the Gross Revenues and other funds in reasonable detail, and a general statement of the financial and physical condition of the Systems. The City shall furnish a copy of the statement to the Trustee, and upon written request, to any Bond Owner. The Trustee shall have no duty to review such statement. SECTION 5.08. Protection of Security and Rights of Owners. The City will preserve and protect the security of the Bonds and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all persons. From and after the sale and delivery of any Parity Bonds by the City, such Parity Bonds shall be incontestable by the City. SECTION 5.09. Against Competitive Facilities. The City will not acquire, construct, operate or maintain any system or utility within the service area of the City that would be competitive with the Systems. SECTION 5.10. Payment of Taxes, Etc. The City will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the Systems or any part thereof or upon any Revenues when the same shall become due. The City will duly observe and conform with all valid requirements of any governmental authority relative to the Systems or any part thereof, and will comply with all requirements with respect to any state or federal grants received to assist in paying for the costs of the acquisition, construction or financing of any Improvements to the Systems. SECTION 5.11. Rates and Charges. (1) The City shall fix, prescribe, revise and collect Charges for each System during each Fiscal Year which (together with other funds transferred from stabilization reserve funds for such System, and which are lawfully available to the City for payment of any of the following amounts during such Fiscal Year) are at least sufficient, after making allowances for contingencies and error in the estimates, to pay the following amounts in the following order: (a) all Maintenance and Operation Costs of such System estimated by the City to become due and payable in such Fiscal Year; -31- (b) the Debt Service on the Sub-Series of Series A Bonds issued for such System; (c) all other payments required for compliance with this Indenture and the instruments pursuant to which any Parity Bonds relating to such System shall have been issued; and (d) all payments required to meet any other obligations of the City which are charges, liens, encumbrances upon or payable from the Gross Revenues of such System or the Net Revenues of such System. (2) In addition, the City shall fix, prescribe, revise and collect Charges for such System during each Fiscal Year which, when added to the balance then on hand in Available Reserves for such System, are sufficient to yield Net Revenues of such System at least equal to one hundred twenty-five percent (125%) of the amounts payable under the preceding clause (1)(b) in such Fiscal Year for Bonds which have a lien on such Net Revenues. (3) To the extent that the City appropriates funds from Gross Revenues into a stabilization reserve fund for a System, a deduction shall be made from Gross Revenues of such System in the Fiscal Year during which said transfer occurred for purposes of calculations to be made under this Section 5.11 and Section 3.05. To the extent that the City appropriates funds from a stabilization reserve fund for a System into the Revenue Fund, the City may count the funds so transferred as Gross Revenues in the Fiscal Year in which said transfer occurs, for purposes of this Section 5.11 and Section 3.05. SECTION 5.12. Maintenance of Available Reserves; Transfers Therefrom. (A) The City shall maintain the funds on hand in Available Reserves in an aggregate amount at least equal to five (5.0) times maximum annual debt service on all outstanding bonded indebtedness secured by Net Revenues of any of the Systems (the “Available Reserves Targeted Level”); provided that: (1) any depletion of the Available Reserves which causes the balance therein to fall below the Available Reserves Targeted Level shall be restored from Net Revenues of the System which caused such depletion to take place; (2) the covenant contained in this Section 5.12 shall not require the City to charge Charges for services provided by any System which exceed the reasonable costs of providing said services, or otherwise violate applicable law; and (3) testing of the amount of Available Reserves shall not be required to occur more frequently than twice in any Fiscal Year. (B) The City shall transfer from Available Reserves, to the applicable Revenue Fund, as needed, amounts sufficient to enable the City to pay all Maintenance and Operation Costs of the applicable System, and all Debt Service, when and as the same become due and payable. SECTION 5.13. No Priority for Additional Obligations. The City covenants that no additional bonds or other obligations shall be issued or incurred having any priority in payment -32- of principal or interest out of the Net Revenues over the Bonds. Nothing in this Indenture shall prohibit or impair the authority of the City to issue bonds or other obligations secured by a lien on Gross Revenues or Net Revenues which is subordinate to the lien established hereunder, upon such terms and in such principal amounts as the City may determine. SECTION 5.14. Tax Covenants Relating to Series A Bonds. (a) Generally. The City shall not take any action or permit to be taken any action within its control which would cause or which, with the passage of time if not cured would cause, interest on the Series A Bonds to become includable in gross income for federal income tax purposes. (b) Private Activity Bond Limitation. The City shall assure that the proceeds of the Series A Bonds are not used in a manner which would cause the Series A Bonds to become “private activity bonds” within the meaning of section 141(a) of the Tax Code or to meet the private loan financing test of Section 141(c) of the Tax Code. (c) Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause the Series A Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Tax Code. (d) No Arbitrage. The City shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the Series A Bond proceeds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date, would have caused the Series A Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Tax Code. (e) Rebate of Excess Investment Earnings. The City shall calculate or cause to be calculated all amounts of excess investment earnings with respect to the Series A Bonds which are required to be rebated to the United States of America under Section 148(f) of the Tax Code, at the times and in the manner required under the Tax Code. The City shall pay when due an amount equal to excess investment earnings to the United States of America in such amounts, at such times and in such manner as may be required under the Tax Code, such payments to be made from any source of legally available funds of the City. The City shall keep or cause to be kept, and retain or cause to be retained for a period of six years following the retirement of the Series A Bonds, records of the determinations made under this subsection (e). The Trustee has no duty to monitor the compliance by the City with any of the covenants contained in this Section 5.14. SECTION 5.15. Continuing Disclosure. The City will comply with and carry out all of the provisions of the Continuing Disclosure Certificate which has been executed and delivered by the City on the Closing Date. Notwithstanding any other provision hereof, failure of the City to comply with the Continuing Disclosure Certificate does not constitute an Event of Default hereunder; provided, however, that any Participating Underwriter (as such term is defined in the Continuing Disclosure Certificate) or any Owner or beneficial owner of the Series A Bonds may take such actions as may be necessary and appropriate, including seeking -33- specific performance by court order, to cause the City to comply with its obligations under this Section 5.15. SECTION 5.16. Further Assurances. The City will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture, and for the better assuring and confirming unto the Owners of the Series A Bonds and the Trustee the rights and benefits provided in this Indenture. -34- ARTICLE VI THE TRUSTEE SECTION 6.01. Appointment of Trustee. U.S. Bank National Association, a national banking association organized and existing under and by virtue of the laws of the United States of America, at its corporate trust office in San Francisco, California, is hereby appointed Trustee by the City for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate, use and apply the same as provided in this Indenture. The City agrees that it will maintain a Trustee having a corporate trust office in San Francisco, California, with a combined capital and surplus of at least One Hundred Million Dollars ($100,000,000), and subject to supervision or examination by federal or State authority, so long as any Bonds are Outstanding. If such bank or trust company publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this Section 5.01 the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the Bonds when duly presented for payment at maturity, or on redemption or purchase prior to maturity, and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. SECTION 6.02. Acceptance of Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions: (a) The Trustee, prior to the occurrence of an Event of Default and after curing or waiver of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default hereunder has occurred (which has not been cured or waived) the Trustee may exercise such of the rights and powers vested in it by this Indenture, and shall use the same degree of care and skill in their exercise, as a prudent and reasonable man would exercise or use under the circumstances in the conduct of his own affairs. (b) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys, agents, or receivers but shall be answerable for the selection of the same in accordance with the standard specified above, and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder, and the Trustee shall not be liable for any action taken or not taken by it in good faith reliance upon the advice or opinion of such counsel. (c) The Trustee shall not be responsible for any recital herein, or in the Bonds, or for the validity of this Indenture or any of the supplements thereto or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants, conditions or agreements on the part of the City hereunder. The Trustee shall not be responsible or liable for any loss -35- suffered in connection with any investment of funds made by it in accordance with Section 4.08. (d) The Trustee shall not be accountable for the use of any proceeds of sale of the Bonds delivered hereunder. The Trustee may become the Owner of Bonds secured hereby with the same rights which it would have if not the Trustee; may acquire and dispose of other bonds or evidence of indebtedness of the City with the same rights it would have if it were not the Trustee; and may act as a depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners of Bonds, whether or not such committee shall represent the Owners of the majority in principal amount of the Bonds then Outstanding. (e) In the absence of bad faith on its part, the Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken or omitted to be taken by the Trustee in good faith and without negligence pursuant to this Indenture upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Bond Registration Books. (f) As to the existence or non-existence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a Certificate of the City as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default hereunder of which the Trustee has been given notice or is deemed to have notice, as provided in Section 6.02(h) hereof, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction or action is necessary or expedient, but may at its discretion secure such further evidence deemed by it to be necessary or advisable, but shall in no case be bound to secure the same. The Trustee may accept a Certificate of the City to the effect that an authorization in the form therein set forth has been adopted by the City, as conclusive evidence that such authorization has been duly adopted and is in full force and effect. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful default. The immunities and exceptions from liability of the Trustee shall extend to its officers, directors, employees and agents. (h) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except failure by the City to make any of the payments to the Trustee required to be made by the City pursuant hereto or failure by the City to file with the Trustee any document required by this Indenture to be so filed subsequent to the issuance of the Bonds, unless the Trustee shall be specifically notified in writing of such default by the City or by the Owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding and all notices or -36- other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the Trust Office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default hereunder except as aforesaid. (i) At any and all reasonable times the Trustee, and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right (but not the duty) fully to inspect the Systems, including all books, papers and records of the City pertaining to the Systems and the Bonds, and to take such memoranda from and with regard thereto as may be desired but which is not privileged by statute or by law. (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (k) Notwithstanding anything elsewhere in this Indenture with respect to the execution of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, the Trustee shall have the right, but shall not be required, to demand any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, as may be deemed desirable for the purpose of establishing the right of the City to the execution of any Bonds, the withdrawal of any cash, or the taking of any other action by the Trustee. (l) Before taking the action referred to in Section 8.03 the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful default in connection with any such action. (m) All moneys received by the Trustee shall, until used or applied or invested as herein provided, be held in trust for the purposes for which they were received but need not be segregated from other funds except to the extent required by law. The Trustee shall not be under any liability for interest on any moneys received hereunder except such as may be agreed upon. SECTION 6.03. Fees, Charges and Expenses of Trustee. The Trustee shall be entitled to payment and reimbursement for reasonable fees for its services rendered hereunder and all advances, counsel fees (including expenses) and other expenses reasonably and necessarily made or incurred by the Trustee in connection with such services. Upon the occurrence of an Event of Default hereunder, but only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment of any Bond upon the amounts held hereunder for the foregoing fees, charges and expenses incurred by it respectively. SECTION 6.04. Notice to Bond Owners of Default. If an Event of Default hereunder occurs with respect to any Bonds, of which the Trustee has been given or is deemed to have notice, as provided in Section 6.02(h) hereof, then the Trustee shall promptly give written notice thereof by first-class mail to the Owner of each such Bond, unless such Event of Default shall have been cured before the giving of such notice; provided, however, that unless such Event of Default consists of the failure by the City to make any payment when due, the Trustee may elect -37- not to give such notice if and so long as the Trustee in good faith determines that it is in the best interests of the Bond Owners not to give such notice. SECTION 6.05. Intervention by Trustee. In any judicial proceeding to which the City is a party which, in the opinion of the Trustee and its counsel, has a substantial bearing on the interests of Owners of any of the Bonds, the Trustee may intervene on behalf of such Bond Owners, and subject to Section 6.02 (l) hereof, shall do so if requested in writing by the Owners of at least twenty-five percent (25%) in aggregate principal amount of such Bonds then Outstanding. SECTION 6.06. Removal of Trustee. The Owners of a majority in aggregate principal amount of the Outstanding Bonds may at any time, and the City may so long as no Event of Default shall have occurred and then be continuing, remove the Trustee initially appointed, and any successor thereto, by an instrument or concurrent instruments in writing delivered to the Trustee, whereupon the City or such Owners, as the case may be, shall appoint a successor or successors thereto; provided that any such successor shall be a bank or trust company meeting the requirements set forth in Section 6.01 hereof. SECTION 6.07. Resignation by Trustee. The Trustee and any successor Trustee may at any time resign by giving thirty (30) days' written notice by registered or certified mail to the City. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the City shall cause notice thereof to be given by first class mail to the Bond Owners at their respective addresses set forth on the Bond Registration Books. SECTION 6.08. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to Sections 6.06 or 6.07, respectively, the City shall promptly appoint a successor Trustee. In the event the City shall for any reason whatsoever fail to appoint a successor Trustee within forty-five (45) days following the delivery to the Trustee of the instrument described in Section 6.06 or within forty-five (45) days following the receipt of notice by the City pursuant to Section 6.07, the Trustee may apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of Section 6.01 hereof. Any such successor Trustee appointed by such court shall become the successor Trustee hereunder notwithstanding any action by the City purporting to appoint a successor Trustee following the expiration of such forty-five-day period. SECTION 6.09. Merger or Consolidation. Any company into which the Trustee may be merged or converted or which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such company shall be eligible under Section 6.01, shall be the successor to the Trustee and vested with all of the title to the trust estate and all of the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. SECTION 6.10. Concerning any Successor Trustee. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the City an instrument in writing accepting such appointment hereunder and thereupon such successor, -38- without any further act, deed or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessors; but such predecessor shall, nevertheless, on the Request of the City, or of its successor, execute and deliver an instrument transferring to such successor all the estates, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee hereunder to its successor. Should any instrument in writing from the City be required by any successor Trustee for more fully and certainly vesting in such successor the estate, rights, powers and duties hereby vested or intended to be vested in the predecessor, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the City. SECTION 6.11. Appointment of Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture, and in particular in case of the enforcement of the rights of the Trustee on default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any other action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee. The following provisions of this Section 6.11 are adopted to these ends. In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee but only to the extent necessary to enable such separate or co- trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them. Should any instrument in writing from the City be required by the separate trustee or co-trustee so appointed by the Trustee for more fully and certainly vesting in and confirming to it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the City. In case any separate trustee or co-trustee, or a successor to either, shall become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co- trustee. SECTION 6.12. Indemnification; Limited Liability of Trustee. The City shall indemnify and hold the Trustee harmless from and against all claims, losses, costs, expenses, liabilities and damages including legal fees and expenses arising from the exercise and performance of its duties hereunder. Such indemnity shall survive the resignation or removal of the Trustee hereunder. No provision in this Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability hereunder if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such -39- liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of a majority (or other percentage provided herein) of the Owners of the principal amount of Bonds Outstanding relating to the exercise of any right, power or action, or the time, method and place of conducting any proceeding or remedy available to the Trustee under this Indenture. -40- ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE SECTION 7.01. Amendment by Consent of Bond Owners. This Indenture and the rights and obligations of the City and of the Owners of the Bonds may be modified or amended at any time by a Parity Bonds Instrument which shall become binding when the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding exclusive of Bonds disqualified as provided in Section 7.03 hereof, are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the City to pay the principal, interest or redemption premiums at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. SECTION 7.02. Amendment Without Consent of Bondholders. This Indenture and the rights and obligations of the City and of the Owners of the Bonds may also be modified or amended at any time by a Parity Bonds Instrument which shall become binding upon execution and delivery, without consent of any Bond Owners, but only to the extent permitted by law and only for any one or more of the following purposes- (a) to add to the covenants and agreements of the City in this Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power herein reserved to or conferred upon the City; or (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in this Indenture, or in any other respect whatsoever as the City may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not adversely affect the interests of the Owners of the Bonds; (c) to provide for the issuance of any Parity Bonds, and to provide the terms and conditions under which such Parity Bonds may be issued, including but not limited to the establishment of special funds and accounts relating to such Parity Bonds and any other provisions relating solely to such Parity Bonds, subject to and in accordance with the provisions of Section 3.05; or (d) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds. SECTION 7.03. Disqualified Bonds. Bonds owned or held by or for the account of the City (but excluding Bonds held in any employees' retirement fund) shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding Bonds in this article provided for, and shall not be entitled to consent to, or take any other action in this article provided for. -41- SECTION 7.04. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as hereinabove provided, the City may determine that the Bonds shall bear a notation, by endorsement in form approved by the City, as to such action, and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his Bond for that purpose at the Trust Office of the Trustee, a suitable notation as to such action shall be made on such Bond. If the City shall so determine, new Bonds so modified as, in the opinion of the City, shall be necessary to conform to such Bond Owners' action shall be prepared and executed, and in that case upon demand of the Owner of any Bond Outstanding at such effective date such new Bonds shall be exchanged at the Trust Office of the Trustee, without cost to each Bond Owner, for Bonds then Outstanding, upon surrender of such Outstanding Bonds. SECTION 7.05. Amendment by Mutual Consent. The provisions of this Article VII shall not prevent any Bond Owner from accepting any amendment as to the particular Bond held by him, provided that due notation thereof is made on such Bond. -42- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS SECTION 8.01. Events of Default and Acceleration of Maturities. The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise; (b) Default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; (c) Default by the City in the observance of any of the covenants, agreements or conditions on its part in this Indenture or in any Parity Bonds Instrument or in the Bonds contained, and such default shall have continued for a period of sixty (60) days after the City shall have been given notice in writing of such default by the Trustee; or (d) The filing by the City of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the City, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property. Upon the occurrence of an Event of Default, the Trustee may, and shall, at the direction of the owners of a majority of the principal amount of the Bonds, by written notice to the City, declare the principal of the Bonds to be immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and there interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in this Indenture or in the Bonds to the contrary notwithstanding. This provision, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been so declared due and payable and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the City shall deposit with the Trustee a sum sufficient to pay all of the principal of and interest on the Bonds having come due prior to such declaration, with interest on such overdue principal and interest calculated at the rate of interest per annum then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee and those of its attorneys, and any and all other defaults known to the Trustee (other than in the payment of the principal of and interest on the Bonds having come due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding may, by written notice to the City and to the Trustee, on behalf of the Owners of all of the Outstanding Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to -43- or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. SECTION 8.02. Application of Funds Upon Acceleration. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid - First, to the payment of the costs and expenses of the Trustee and of Bond Owners in declaring such Event of Default, including reasonable compensation to their agents, attorneys and counsel, and to the payment of the costs and expenses of the Trustee, if any, in carrying out the provisions of this Article VIII, including reasonable compensation to its agents, attorneys and counsel; and Second, to the payment of the whole amount then owing and unpaid upon the Bonds for interest and principal, with interest on such overdue amounts to the extent permitted by law at the rate of interest then borne by the Outstanding Bonds, and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such interest, principal and interest on overdue amounts without preference or priority among such interest, principal and interest on overdue amounts ratably in proportion to the aggregate of such interest, principal and interest on overdue amounts. SECTION 8.03. Other Remedies; Rights of Bond Owners. Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy, in addition to the remedy specified in Section 8.01, at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Outstanding Bonds, and to enforce any rights of the Trustee under or with respect to this Indenture. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of at least twenty-five percent (25%) in aggregate principal amount of Outstanding Bonds and indemnified as provided in Section 6.02 (l), the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bond Owners. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Bond Owners) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bond Owners hereunder or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient. SECTION 8.04. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether upon its own discretion or -44- upon the request of the Owners of a majority in principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in principal amount of the Outstanding Bonds hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Any suit, action or proceeding which any Owner of Bonds shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is hereby appointed (and the successive respective Owners of the Bonds issued hereunder, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners of the Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact. SECTION 8.05. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bond Owners under this Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Net Revenues and other amounts pledged hereunder, pending such proceedings, with such powers as the court making such appointment shall confer. SECTION 8.06. Non-Waiver. Nothing in this Article VIII or in any other provision of this Indenture, or in the Bonds, shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as herein provided, out of the Net Revenues and other moneys herein pledged for such payment. A waiver of any default or breach of duty or contract by the Trustee or any Bond Owners shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission of the Trustee or any Owner of any of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy conferred upon the Trustee or Bond Owners by the Bond Law or by this Article VIII may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Bond Owners, as the case may be. If a suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Bond Owners, the City and the Bond Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. SECTION 8.07. Rights and Remedies of Bond Owners. No Owner of any Bond issued hereunder shall have the right to institute any suit, action or proceeding at law or in equity, for -45- any remedy under or upon this Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to enforce any right under this Indenture, except in the manner herein provided, and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all Owners of the Outstanding Bonds. The right of any Owner of any Bond to receive payment of the principal of and interest and premium (if any) on such Bond as herein provided or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the written consent of such Owner, notwithstanding the foregoing provisions of this Section or any other provision of this Indenture. SECTION 8.08. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the City, the Trustee and the Bond Owners shall be restored to their former positions and rights hereunder, respectively, with regard to the property subject to this Indenture, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken. -46- ARTICLE IX MISCELLANEOUS SECTION 9.01. Limited Liability of City. Notwithstanding anything in this Indenture contained, the City shall not be required to advance any moneys derived from any source of income other than the Net Revenues for the payment of the principal of or interest on the Series A Bonds, or any premiums upon the redemption thereof, or for the performance of any covenants herein contained (except to the extent any such covenants are expressly payable hereunder from the Gross Revenues). The City may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose and may be used by the City for such purpose without incurring indebtedness. SECTION 9.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture, expressed or implied, is intended to give to any person other than the City, the Trustee and the Owners of the Series A Bonds, any right, remedy or claim under or by reason of this Indenture. Any covenants, stipulations, promises or agreements in this Indenture contained by and on behalf of the City shall be for the sole and exclusive benefit of the Trustee and the Owners of the Series A Bonds. SECTION 9.03. Discharge of Indenture. If the City shall pay and discharge any or all of the Outstanding Series A Bonds, or any Sub-Series of Series A Bonds, in any one or more of the following ways: (a) by well and truly paying or causing to be paid the principal of and interest and premium (if any) on such Series A Bonds or Sub-Series of Series A Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established pursuant to this Indenture, is fully sufficient to pay such Series A Bonds or Sub-Series of Series A Bonds, including all principal, interest and redemption premiums; or (c) by depositing with a qualified escrow holder, in trust, Defeasance Obligations in such amount as the City (verified by an Independent Certified Public Accountant) shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the Funds and Accounts established pursuant to this Indenture, be fully sufficient to pay and discharge the indebtedness on such Series A Bonds or Sub- Series of Series A Bonds (including all principal, interest and redemption premiums, if any) at or before their respective maturity dates; and if such Series A Bonds or Sub-Series of Series A Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to Section 2.02(d) or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, at the election of the City, and notwithstanding that any of such Series A Bonds or Sub- Series of Series A Bonds shall not have been surrendered for payment, the pledge of the Net Revenues and other funds provided for in this Indenture with respect to such Series A Bonds or -47- Sub-Series of Series A Bonds, and all other pecuniary obligations of the City under this Indenture with respect to all such Series A Bonds or Sub-Series of Series A Bonds, shall cease and terminate, except only the obligation of the City to pay or cause to be paid to the Owners of such Series A Bonds or Sub-Series of Series A Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid, and all expenses and costs of the Trustee. Notice of such election shall be filed with the Trustee. Any funds thereafter held by the Trustee, which are not required for said purposes, shall be paid over to the City. Refunding bonds may be issued at any time without regard to whether an Event of Default exists. To accomplish defeasance the City shall cause to be delivered (i) a report of an Independent Certified Public Accountant verifying the sufficiency of the escrow established to pay the Series A Bonds or Sub-Series of Series A Bonds in full on the maturity or earlier redemption date ("Verification"), (ii) an escrow deposit agreement, and (iii) an opinion of nationally recognized bond counsel to the effect that the Series A Bonds or Sub-Series of Series A Bonds are no longer "Outstanding" under this Indenture; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the City and the Trustee. In the event a forward purchase agreement will be employed in the refunding. SECTION 9.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Parity Bonds Instrument the City is named or referred to, such reference shall be deemed to include the successor to the powers, duties and functions, with respect to the management, administration and control of the affairs of the City, that are presently vested in the City, and all the covenants, agreements and provisions contained in this Indenture by or on behalf of the City shall bind and inure to the benefit of its successors whether so expressed or not. SECTION 9.05. Content of Certificates. Every certificate with respect to compliance with a condition or covenant provided for in this Indenture shall include (a) a statement that the person or persons making or giving such certificate have read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate are based; (c) a statement that, in the opinion of the signers, they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of the signers, such condition or covenant has been complied with. Any such certificate made or given by an officer of the City may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate may be based, as aforesaid, are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. Any such certificate or opinion or representation made or given by counsel may be based, insofar as it relates to factual matters, on information with respect to which is in the possession of the City, upon the certificate or opinion of or representations by an officer or officers of the City, unless such -48- counsel knows that the certificate or opinion or representations with respect to the matters upon which his certificate, opinion or representation may be based, as aforesaid, are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. SECTION 9.06. Execution of Documents by Bond Owners. Any request, consent or other instrument required by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent writings of substantially similar tenor and may be signed or executed by such Series A Bond Owners in person or by agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the City if made in the manner provided in this Section 9.06. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument or writing acknowledged to him the execution thereof. The ownership of Series A Bonds shall be provided by the Bond Registration Books. Any request, consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the City in pursuance of such request, consent or vote. In determining whether the Owners of the requisite aggregate principal amount of Series A Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Series A Bonds which are owned or held by or for the account of the City (but excluding Series A Bonds held in any employees' retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, provided, however, that for the purpose of determining whether the Trustee shall be protected in relying on any such demand, request, direction, consent or waiver, only Series A Bonds which the Trustee knows to be so owned or held shall be disregarded. In lieu of obtaining any demand, request, direction, consent or waiver in writing, the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining any such action. SECTION 9.07. Waiver of Personal Liability. No officer, agent or employee of the City shall be individually or personally liable for the payment of the interest on or principal of the Series A Bonds; but nothing herein contained shall relieve any such officer, agent or employee from the performance of any official duty provided by law. SECTION 9.08. Partial Invalidity. If any one or more of the covenants or agreements, or portions thereof, provided in this Indenture on the part of the City (or of the Trustee) to be performed should be contrary to law, then such covenant or covenants, such agreement or agreements, or such portions thereof, shall be null and void and shall be deemed separable from -49- the remaining covenants and agreements or portions thereof and shall in no way affect the validity of this Indenture or of the Series A Bonds; but the Bond Owners shall retain all rights and benefits accorded to them under the Bond Law or any other applicable provisions of law. The City hereby declares that it would have entered into this Indenture and each and every other section, paragraph, subdivision, sentence, clause and phrase hereof and would have authorized the issuance of the Series A Bonds pursuant hereto irrespective of the fact that any one or more sections, paragraphs, subdivisions, sentences, clauses or phrases of this Indenture or the application thereof to any person or circumstance may be held to be unconstitutional, unenforceable or invalid. SECTION 9.09. Destruction of Cancelled Series A Bonds. Whenever in this Indenture provision is made for the surrender to the City of any Series A Bonds which have been paid or cancelled pursuant to the provisions of this Indenture, the Trustee shall destroy such Series A Bonds and furnish to the City a certificate of such destruction. SECTION 9.10. Funds and Accounts. Any Fund or Account required by this Indenture to be established and maintained by the City or the Trustee may be established and maintained in the accounting records of the City or the Trustee, as the case may be, either as a Fund or an Account, and may, for the purpose of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a Fund or as an Account. All such records with respect to all such Funds and Accounts held by the City shall at all times be maintained in accordance with generally accepted accounting principles and all such records with respect to all such Funds and Accounts held by the Trustee shall be at all times maintained in accordance with industry practices; in each case with due regard for the protection of the security of the Series A Bonds and the rights of every Owner thereof. SECTION 9.11. Notices. Any notice, request, complaint, demand, communication or other paper shall be sufficiently given and shall be deemed given when delivered or mailed by registered or certified mail, postage prepaid, or sent by telegram, addressed as follows: if to the City, to City of Palo Alto, City Hall, 250 Hamilton Avenue, Palo Alto, California 94301, Attention: Director of Administrative Services; and if to the Trustee, at One California Street, Suite 1000, San Francisco, CA 94111, Attention: Corporate Trust Department. The City and the Trustee may designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. SECTION 9.12. Unclaimed Moneys. Anything in this Indenture to the contrary notwithstanding, any moneys held by the Trustee in trust for the payment and discharge of any of the Series A Bonds which remain unclaimed for one (1) year after the date when such Series A Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the Trustee at such date, or for one (1) year after the date of deposit of such moneys if deposited with the Trustee after said date when such Series A Bonds become due and payable, shall, at the Request of the City, be repaid by the Trustee to the City, as its absolute property and free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Bond Owners shall look only to the City for the payment of such Series A Bonds; provided, however, that before being required to make any such payment to the City, the Trustee shall, at the expense of the City, cause to be mailed to the Owners of all such Series A Bonds, at their respective addresses appearing on the Bond Registration Books, a notice that said moneys remain unclaimed and that, after a date named in -50- said notice, which date shall not be less than thirty (30) days after the date of mailing of such notice, the balance of such moneys then unclaimed will be returned to the City. -51- -52- IN WITNESS WHEREOF, the CITY OF PALO ALTO has caused this Indenture to be signed in its name by its Director of Administrative Services and attested by its City Clerk, and U.S. Bank National Association, in token of its acceptance of the trust created hereunder, has caused this Indenture to be signed in its corporate name by its officer identified below, all as of the day and year first above written. CITY OF PALO ALTO By Director of Administrative Services Attest: By City Clerk U.S. BANK NATIONAL ASSOCIATION, as Trustee By Authorized Officer 26005-64 JH:WHM 06/9/11 6/17/11 Global changes: Prior Bonds to 2002 Bonds Prior Indentures to 2002 Indenture ESCROW DEPOSIT AND TRUST AGREEMENT by and between the CITY OF PALO ALTO, and U.S. BANK NATIONAL ASSOCIATION as Escrow Bank Dated as of September 1, 2011 Relating To: $26,055,000 (Original Principal Amount) City of Palo Alto Utility Revenue Bonds, 2002 Series A ESCROW DEPOSIT AND TRUST AGREEMENT This Escrow Deposit and Trust Agreement is made and entered into as of the 1st day of September, 2011, by and between the CITY OF PALO ALTO, a chartered municipal corporation duly organized and existing under the laws of the State of California (the "City") and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, having a corporate trust office in the City of San Francisco, California, as escrow agent (the "Escrow Bank"); W I T N E S S E T H: WHEREAS, the City is authorized pursuant to the provisions of Chapter 12.28 (commencing with Section 12.28.010) of the Palo Alto Municipal Code, enacted pursuant to the charter of the City, to issue its revenue bonds for the purposes of financing improvements to an enterprise of the City and to refund any bonds issued for such purpose; WHEREAS, the City has heretofore authorized, issued and sold $26,055,000 principal amount of its City of Palo Alto Utility Revenue Bonds, 2002 Series A (the “2002 Bonds”) pursuant to an Indenture of Trust, dated as of January 1, 2002 (the “2002 Indenture”); WHEREAS, the City, after due investigation and deliberation, has issued its utility revenue refunding bonds under that certain Indenture of Trust, dated as of September 1, 2011 (the “2011 Indenture”) for the purpose of refunding some or all of the maturities of the 2002 Bonds, and to that end the City Council has heretofore approved and authorized the issuance of its City of Palo Alto Utility Revenue Refunding Bonds, 2011 Series A (the “2011 Bonds”) for such purposes; WHEREAS, the City proposes to make a deposit of moneys and Federal Securities from the proceeds of the 2011 Bonds, and to appoint the Escrow Bank as its agent for the purpose of applying said deposit to the payment of debt service on the 2002 Bonds in accordance with the instructions provided by this Escrow Deposit and Trust Agreement, and to the payment and redemption of the 2002 Bonds in accordance with the 2002 Indenture, and the Escrow Bank desires to accept said appointment; and WHEREAS, the Escrow Bank has full powers to act with respect to the irrevocable escrow created herein and to perform the duties and obligations to be undertaken pursuant to this Escrow Deposit and Trust Agreement: NOW, THEREFORE, in consideration of the above premises and of the mutual promises and covenants herein contained, the parties hereto DO HEREBY AGREE as follows: Section 1. Appointment of Escrow Bank. The City hereby appoints the Escrow Bank as escrow holder for all purposes of this Escrow Deposit and Trust Agreement, and the Escrow Bank hereby accepts such appointment. Section 2. Establishment of Escrow Fund. There is hereby created by the City with, and to be held by, the Escrow Bank, as security for the payment of the debt service on the 2002 Bonds, an irrevocable escrow to be held in escrow by the Escrow Bank on behalf of the City and for the benefit of the owners of the 2002 Bonds, said escrow to be designated the "City of Palo Alto Refunding Escrow Fund" (the "Escrow Fund"). All moneys and Federal Securities in the Escrow Fund are hereby irrevocably transferred to the Escrow Bank, as security for payment of the debt service on the 2002 Bonds, to be held by the Escrow Bank in escrow for the benefit of the owners of the 2002 Bonds, except as specified in Section 6 and Section 7 hereof. If at any time the Escrow Bank shall receive actual knowledge that the moneys and Federal Securities in the Escrow Fund will not be sufficient to make any payment required by Section 6 hereof, the Escrow Bank shall notify the City of such fact and the City shall immediately cure such deficiency. Section 3. Deposit into Escrow Fund. Concurrently with the delivery of the 2011 Bonds, the City shall cause: (i) $____________ of the proceeds of sale thereof, in immediately available funds, to be transferred to the Escrow Bank for deposit in the Escrow Fund; and (ii) $_______ from the Revenue Fund and Reserve Fund for the 2002 Bonds, to be transferred to the Escrow Bank for deposit to the Escrow Fund, for a total deposit of $______________. Any moneys remaining in the funds and accounts established under the 2002 Indenture, including any investment earnings received after the Closing Date, will be transferred to the Trustee, for deposit to the Revenue Fund created under the 2011 Indenture, and such funds and accounts will be closed. Section 4. Investment of Deposit in Escrow Fund. The Escrow Bank shall invest $_____________ of the moneys deposited into the Escrow Fund pursuant to the preceding section in the Federal Securities set forth in Exhibit A attached hereto (the "Escrowed Federal Securities") and the remaining $_____ in cash uninvested. The Escrowed Federal Securities shall be deposited with and held by the Escrow Bank in the Escrow Fund solely for the uses and purposes set forth herein. Section 5. Instructions as to Application of Deposit. The City hereby instructs the Escrow Bank as its agent to apply the moneys and Escrowed Federal Securities deposited in the Escrow Fund pursuant to Section 3 hereof to pay the redemption price of all then outstanding 2002 Bonds on ____ __, 2011 (the “Redemption Date”) at a redemption price equal to the principal amount thereof, plus accrued interest to the Redemption Date, plus a premium equal to one percent (1%) of the 2002 Bonds being redeemed, all pursuant to and in accordance with the provisions of the 2002 Indenture, and in the amounts set forth in Exhibit B attached hereto and by this reference incorporated herein. Section 6. Remaining Moneys. The Escrow Bank shall hold uninvested money, if any, remaining from time to time in the Escrow Fund until needed for payment of the debt service on the 2002 Bonds in accordance with Section 5 hereof; provided, however, that such moneys may be invested or reinvested at such interest rates as the Escrow Bank shall be directed in writing by the City, but only if such written directions shall be accompanied by an opinion of nationally recognized bond counsel that investment in accordance with such directions will not affect, for federal income tax purposes, the exclusion from gross income for purposes of federal income taxes of the interest payable with respect to the 2011 Bonds or payable on the 2002 -2- Bonds. Any interest income resulting from investment or reinvestment of moneys pursuant to this Section 6 shall be paid to the City promptly after, and only upon, the payment and redemption in full of the 2002 Bonds. Section 7. Substitution of Federal Securities. The City may at any time direct the Escrow Bank to substitute Federal Securities then issued by the United States of America for any or all of the Federal Securities then deposited in the Escrow Fund, provided that any such direction and substitution shall be accompanied with a certification of an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of obligations of political subdivisions that the Federal Securities then to be so deposited in the Escrow Fund, together with interest to be derived therefrom, shall be in an amount at all times at least sufficient to make the payments specified in Section 5 hereof and, further, to be accompanied with an opinion of nationally recognized bond counsel that the substitution will not affect, for federal income tax purposes, the exclusion from gross income for purposes of federal income taxes of the interest payable with respect to the 2011 Bonds or payable on the 2002 Bonds. In the event that, following any such substitution of Federal Securities pursuant to this Section 7, there is an amount of moneys or Federal Securities in excess of an amount sufficient to make the payments required by Section 5 hereof, such excess shall be paid to the City. Section 8. Notices of Redemption. The City hereby ratifies actions taken by the Escrow Bank to take all steps required to redeem all outstanding 2002 Bonds on the Redemption Date, including delivery to the holders of the 2002 Bonds of notice of the redemption of the 2002 Bonds, as required by the 2002 Indenture. Section 9. Application of Certain Terms of the 2002 Indenture. All of the terms of the 2002 Indenture regarding the making of payments of principal, premium, if any, and interest on the 2002 Bonds are incorporated in this Escrow Deposit and Trust Agreement as if set forth in full herein. Provisions of the 2002 Indenture relating to the resignation and removal of a trustee shall be the procedure to be followed with respect to any resignation or removal of the Escrow Bank hereunder. Section 10. Compensation to Escrow Bank. The Escrow Bank hereby acknowledges that it has received on the date hereof partial compensation for its duties under this Escrow Deposit and Trust Agreement representing its first year administration fees, except that the City shall indemnify and hold harmless the Escrow Bank for out-of-pocket costs such as mailing costs, redemption expenses, legal fees and other costs and expenses relating hereto and, in addition, fees, costs and expenses relating to the purchase of any Federal Securities, but under no circumstances shall amounts deposited in the Escrow Fund be deemed to be available for said purposes. The City and the Escrow Bank hereby agree that the Escrow Bank shall be paid its subsequent annual administration fees, as billed, plus appropriate out-of-pocket expenses. Section 11. Liabilities and Obligations of Escrow Bank. The Escrow Bank shall have no obligation to make any payment or disbursement of any type or incur any financial liability in the performance of its duties under this Escrow Deposit and Trust Agreement unless the City shall have deposited sufficient funds with the Escrow Bank. The Escrow Bank may rely and shall be protected in acting upon the written instructions of the City or its agents relating to any matter or action as Escrow Bank under this Escrow Deposit and Trust Agreement. -3- The Escrow Bank undertakes such duties as specifically set forth herein and no implied duties or obligations shall be read into this Escrow Deposit and Trust Agreement against the Escrow Bank. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and hold harmless the Escrow Bank and its respective successors, assigns, agents and servants from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, at any time, the Escrow Bank (whether or not also indemnified against by any other person under any other agreement or instrument) and in any way relating to or arising out of the execution and delivery of this Escrow Deposit and Trust Agreement, the establishment of the Escrow Fund, the retention of the moneys therein and any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Escrow Deposit and Trust Agreement, or as may arise by reason of any act, omission or error of the Escrow Bank made in good faith in the conduct of its duties; provided, however, that the City shall not be required to indemnify the Escrow Bank against its own negligence or misconduct. The indemnities contained in this Section 11 shall survive the termination of this Escrow Deposit and Trust Agreement. The Escrow Bank and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract, or otherwise in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or any securities deposited therein, the purchase of the securities to be purchase pursuant hereto, the retention of such securities or the proceeds thereof, the sufficiency of the securities or any uninvested moneys held hereunder to accomplish the defeasance of the 2002 Bonds, or any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Agreement or by reason of any non-negligent act, non-negligent omission or non-negligent error or the Escrow Bank made in good faith in the conduct of its duties. The recitals of fact contained in the "whereas" clauses herein shall be taken as the statement of the City and the Escrow Bank assumes no responsibility for the correctness thereof. The Escrow Bank make no representations as to the sufficiency of the securities to be purchased pursuant hereto and any uninvested moneys to accomplish the redemption of the 2002 Bonds pursuant to the 2002 Indenture or to the validity of this Agreement as the City and, except as otherwise provided herein, the Escrow Bank shall incur no liability in respect thereof. The Escrow Bank shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Bank shall be determined by the express provisions of this Agreement. The Escrow Bank may consult with counsel, who may or may not be counsel to the City, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Bank shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter (except the matters set forth herein as specifically requiring a certificate of a nationally recognized firm of independent -4- certified public accountants or an opinion of counsel) may be deemed to be conclusively established by a written certification of the City. Section 12. Notices. All written notices to be given under this Escrow Deposit and Trust Agreement shall be given by mail to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other parties in writing from time to time. If to the City: Director of Administrative Services City of Palo Alto P. O. Box 10250 Palo Alto, CA 94303 If to the Trustee: U.S. Bank National Association One California Street, 10th Floor San Francisco, CA 94111 Section 13. California Law. This Escrow Deposit and Trust Agreement shall be construed and governed in accordance with the laws of the State of California. Section 14. Severability. Any provision of this Escrow Deposit and Trust Agreement found to be prohibited by law shall be ineffective only to the extent of such prohibition, and shall not invalidate the remainder of this Escrow Deposit and Trust Agreement. Section 15. Execution in Counterpart. This Escrow Deposit and Trust Agreement may be executed in counterparts and each of said counterparts shall be deemed an original for all purposes of this Escrow Deposit and Trust Agreement. All of such counterparts taken together shall be deemed to be one and the same instrument. Section 16. Merger or Consolidation of Escrow Bank. Any company into which the Escrow Bank may be merged or converted or with which may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Escrow Bank may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible to act as Trustee under the 2011 Indenture and the 2002 Indenture, shall be the successor hereunder to the Escrow Bank without the execution or filing of any paper or any further act. * * * * * -5- -6- IN WITNESS WHEREOF, the Escrow Bank and the City have each caused this Escrow Deposit and Trust Agreement to be executed by their duly authorized officers all as of the date first above written. CITY OF PALO ALTO By: Director of Administrative Services ATTEST: City Clerk U.S. BANK NATIONAL ASSOCIATION, as Escrow Bank By: Authorized Officer EXHIBIT A SCHEDULE OF ESCROWED FEDERAL SECURITIES Purchased With ______ Bond Proceeds Security Type Maturity Principal (Maturity Value) Interest Rate Cost Purchased With Prior Bond Moneys Security Type Maturity Principal (Maturity Value) Interest Rate Cost TOTAL $ $ EXHIBIT B PAYMENT AND REDEMPTION SCHEDULE OF 2002 BONDS Payment Date Principal Interest Redemption Premium Total Payment $ $ $ $ City of Palo Alto (ID # 1868) City Council Staff Report Report Type: Action ItemsMeeting Date: 7/18/2011 July 18, 2011 Page 1 of 4 (ID # 1868) Council Priority: City Finances Summary Title: Refinancing of General Fund Debt Title: A Resolution Approving, Authorizing and Directing the Refinancing of the outstanding 1998 Golf Course Lease and Certificates of Participation in the Amount of $3,690,000 and Approval of Related Documents From:City Manager Lead Department: Administrative Services Recommendation Staff recommends that the City Council approve: 1) the attached resolution (Attachment A) authorizing staff to refinance $3.69 million in outstanding 1998 Golf Course Lease and Certificates of Participation, and 2) official documents related thereto. Background In 1998 the City issued Certificates of Participation (COPs) in the amount of $7.75 million to finance Golf Course capital improvements. These included, for example, replacing the irrigation system, upgrading five fairways and the driving range, and installing new cart paths. COPs are a legal and long-standing financing mechanism by which cities enter into lease agreements with corporations, such as the Palo Alto Public Improvement Corporation (PIC), to undertake capital work. Certificates of participation, which represent the right to receive the tax exempt lease payments payable by the City under the Lease, are then sold to an underwriter, the public or a bank, in return for cash to make infrastructure improvements. Discussion As of June 1, 2011, the principal amount remaining on the 1998 COPs was $3.69 million. In working with the City’s new Financial Advisor, Public Financial Management (PFM), it was determined that annual General Fund debt service costs could be reduced by refinancing these COPs. After following the private placement process described below and selecting a bid by JP Morgan Chase Bank, the City will realize, in net present value terms, nearly $239,000 or 6.47 percent on the refunded bonds. Between the low interest rate of 2.49 percent proposed by JP Morgan and the use of nearly $624,000 in a debt service reserve fund (required by the original COP financing) to offset principal owed to current bondholders, the General Fund will reduce its annual debt service costs by approximately $134,000 annually over the next eight years. Given the pressing need for GF savings and that the NPV savings of 6.47 percent that exceeds the July 18, 2011 Page 2 of 4 (ID # 1868) typically used threshold of 3.0 percent to determine a refinancing, staff recommends moving forward with the refinancing with JP Morgan Chase. It is important to note that staff is recommending a different refinancing vehicle than those used in the recent past. Instead of advertising a sale of the COPs on a particular date to obtain competitive bids from interested underwriters, staff utilized what is called a “private placement” with a selected underwriter or bank. The process of completing a private placement typically requires fewer steps than a public sale of municipal bonds. The first task is for the City’s Financial Advisor to circulate a Request for Proposals (RFP) to several banks to solicit interest in acting as the placement agent for the City. In the term sheet sent to qualified lenders, the City requested fixed interest rates, an amortization schedule matching the 1998 COPs, and the flexibility to pre-pay the new lease without penalty. The requests for proposals were sent out to 23 banks, and a total of 9 proposals were received (including alternative proposals from the same bidder). The City, PFM, and Bond Counsel have reviewed the pricing and terms and conditions of each proposal, and the best overall bid in terms of savings was submitted by JP Morgan Chase Bank. The next best overall bid resulted in NPV savings of $216,000 or 5.86 percent, was $23,000 and 0.61 percent less, respectively, than JP Morgan Chase’s bid. There are several major benefits to using a private placement. First, staff has been advised by PFM and its Bond and Disclosure Counsels that a $3.69 million issue is too small to elicit attention and competitive bids from the bond market, particularly in a market that is somewhat unstable in terms of lending and credit concerns. Secondly, a private placement would save the City a variety of fees or costs associated with selling bonds on the open market. These include, for example, a fee for the work performed by a Disclosure Counsel, the public rating fees charged by Standard and Poor’s and Moody’s, and publication costs for an Official Statement. The due diligence typically performed in a public sale would be performed instead by the bank or underwriter submitting a proposal to buy the City’s new lease obligation. Thirdly, and as stated above, the time frame to sell the City’s debt in a private placement is shorter and subject to less uncertainty (in the event market rates move upward and against the City by the time a competitive bid process is held). Finally,the lack of a reserve requirement through the private placement allows the City to reduce the amount of principal outstanding and to lower annual debt service costs at a point in time when the General Fund is under stress. The City and its financing team have been working with the professionals at JP Morgan to negotiate the final terms and conditions of the agreement. In a sale of COPs, an asset must be leased to secure the lease payments. For the 1998 COPs, the Golf Course was pledged. Because the Golf Course has value far in excess of the now remaining debt, staff does not recommend using it as collateral on this relatively small transaction. (COPs are a potential option to address the City’s infrastructure needs and the higher value assets could be used to securer higher borrowing levels.). Instead staff is recommending that the City’s fleet of fire apparatus be used as the leased asset. (A copy of the rolling stock subject to the lease is included in Attachment B). Twenty one (21) vehicles are being leased and their original cost July 18, 2011 Page 3 of 4 (ID # 1868) value was $6.56 million. The oldest of these vehicles were purchased in 1991 and the newest was purchased in 2009. By using this asset, the City retains its real property assets for other COPs transactions down the line.The City has included language in the proposed agreement with JP Morgan Chase to substitute other rolling stock assets in the event that one or more of the pledged fire apparatus is eliminated. The City maintains complete control of the fire vehicles during the debt amortization period. Resource Impact Pending Council approval, the City will enter into a Master Lease-Purchase Agreement with Chase Equipment Finance, Inc. in the principal amount of approximately $3.235 million. General Fund annual debt service costs will be reduced by approximately $134,000 annually over the next eight years (matching the existing debt timeline). Again, NPV savings are $239,000 or 6.47 percent of the COPs being refunded. Policy Implications While there is no Council policy on the methods of refinancing debt, the traditional approach has been to refund bonds with competitive bids in the open bond market. A private placement with an underwriter or bank departs from this practice. Timeline July 18, 2011 City Council Meeting to Approve Financing Documents and Private Placement Bank Week of August 1 Private Placement of Lease (closing) Environmental Review This is not a project requiring CEQA review. Attachments: ·Attachment A: Resolution Approving, Authorizing and Directing Execution of Certain Lease Refinancing Documents, and Authorizing and Directing Certain Actions with Respect Thereto (PDF) ·Exhibit A: JPMorgan Chase's Master Lease Purchase Agreement (PDF) ·Exhibit B: Addendum B to JP Morgan Chase's Master Lease Purchase Agreement (PDF) ·Exhibit C: Escrow Agreement with US Bank National Association (PDF) ·Exhibit D: Notice of Prepayment (PDF) ·Attachment B: Fire (Rolling Stock) Equipment (PDF) Prepared By:Joe Saccio, Assistant Director of Administrative Services July 18, 2011 Page 4 of 4 (ID # 1868) Department Head:Lalo Perez, Director City Manager Approval: James Keene, City Manager Not Yet Approved 1 110707 jb 0130801 Resolution No. _____ Resolution of the Council of the City of Palo Alto Approving, Authorizing And Directing Execution Of Certain Lease Refinancing Documents, And Authorizing And Directing Certain Actions With Respect Thereto The Council of the City of Palo Alto does hereby resolve as follows: WHEREAS, the City has heretofore leased certain real property, consisting of the Palo Alto municipal golf course, including certain improvements financed thereon, by a lease transaction between the City and the Palo Alto Public Improvement Corporation (the “Corporation”) in 1998, pursuant to that certain property lease, dated as of August 1, 1998, by and between the City, as lessor, and the Corporation, as lessee (the "1998 Property Lease"), and a lease agreement, dated as of August 1, 1998, by and between the Corporation, as lessor, and the City, as lessee (the "1998 Lease"); and WHEREAS, the City has determined that it is in the interests of the City at this time to provide for the refinancing of the 1998 Lease and the Certificates of Participation executed and delivered in connection therewith in the original principal amount of $7,750,000 (the “1998 Certificates”), by entering into a Master Lease-Purchase Agreement, between the City and Chase Equipment Finance, Inc. (the “Lessor”), in substantially the form attached hereto as Exhibit A, as amended by those certain conditions set forth in the Lease Addenda, attached hereto as Exhibit B (as so amended, the “Lease Agreement”); and WHEREAS, under the Lease Agreement, the Lessor will lease to the City those certain vehicles and other items of Fire Department Rolling Stock identified in the attached Exhibit C; and WHEREAS, for the purpose of obtaining the moneys required to be deposited with U.S. Bank Trust National Association (the "Escrow Bank") to refund the 1998 Lease and the 1998 Certificates, the City will cause the Lessor to deposit with the Escrow Bank an amount sufficient to refund the 1998 Lease and 1998 Certificates, and pay costs of issuance incurred in connection therewith, pursuant to an Escrow Agreement, dated as of August 1, 2011, between the City and the Escrow Bank (the “Escrow Agreement”); WHEREAS, in connection therewith, it is in the public interest and for the public benefit that the City authorize and direct execution of the Lease Agreement, the Escrow Agreement and Termination of Lease Agreements (described below) in connection therewith; and WHEREAS, the documents below specified have been filed with the City, and the members of the City Council, with the aid of its staff, have reviewed said documents; Not Yet Approved 2 110707 jb 0130801 NOW, THEREFORE, it is hereby ORDERED and DETERMINED, as follows: SECTION 1. The below-enumerated documents be and are hereby approved, and the Mayor, the City Manager, the Administrative Services Director or a designee appointed by any such officer (in each case, an "Authorized Officer") are hereby separately authorized and directed to execute said documents, with such changes, insertions and omissions as may be approved by such official, and the City Clerk is hereby authorized and directed to attest to such Authorized Officer's signature: (a) a Lease Agreement, so long as the stated term of the Lease Agreement does not extend beyond the original term of the 1998 Lease (except in the case of default), and so long as the refunding of the 1998 Certificates and 1998 Lease achieves net present value savings of at least 3% of the principal amount of the 1998 Certificates and 1998 Lease being refunded; (b) an Escrow Agreement, by and between the City and the Escrow Bank, relating to the deposit by the Lessor with the Escrow Bank of an amount sufficient to refund the 1998 Lease and 1998 Certificates, and pay costs of issuance incurred in connection therewith; and (c) A Termination of Lease Agreements, relating to the termination of the 1998 Property Lease and the 1998 Lease, between the Corporation and the City. SECTION 2. The Authorized Officer, the City Clerk and other officials of the City are hereby authorized and directed to execute such other agreements, documents and certificates as may be necessary to effect the purposes of this resolution and the lease financing and refinancing herein authorized. / / / / / / / / / / / / / / / / / / Not Yet Approved 3 110707 jb 0130801 SECTION 3. This Resolution shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: _________________________________ _________________________________ City Clerk Mayor APPROVED AS TO FORM: _________________________________ City Manager _________________________________ _________________________________ Senior Asst City Attorney Director of Administrative Services / CFO _________________________________ _________________________________ William H. Madison, Director of Community Services Bond Counsel Page 1 of 6 MASTER LEASE-PURCHASE AGREEMENT Dated As of: SAMPLE Lessee: SAMPLE This Master Lease-Purchase Agreement together with all addenda, riders and attachments hereto, as the same may from time to time be amended, modified or supplemented ("Master Lease") is made and entered by and between CHASE EQUIPMENT FINANCE, INC. ("Lessor") and the lessee identified above ("Lessee"). 1. LEASE OF EQUIPMENT. Subject to the terms and conditions of this Master Lease, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, all Equipment described in each Schedule signed from time to time by Lessee and Lessor. 2. CERTAIN DEFINITIONS. All terms defined in the Lease are equally applicable to both the singular and plural form of such terms. (a) "Schedule" means each Lease Schedule signed and delivered by Lessee and Lessor, together with all addenda, riders, attachments, certificates and exhibits thereto, as the same may from time to time be amended, modified or supplemented. Lessee and Lessor agree that each Schedule (except as expressly provided in said Schedule) incorporates by reference all of the terms and conditions of the Master Lease. (b) "Lease" means any one Schedule and this Master Lease as incorporated into said Schedule. (c) "Equipment" means the property described in each Schedule, together with all attachments, additions, accessions, parts, repairs, improvements, replacements and substitutions thereto. (d) "Lien" means any security interest, lien, mortgage, pledge, encumbrance, judgment, execution, attachment, warrant, writ, levy, other judicial process or claim of any nature whatsoever by or of any person. 3. LEASE TERM. The term of the lease of the Equipment described in each Lease ("Lease Term") commences on the first date any of such Equipment is accepted by Lessee pursuant to Section 5 hereof or on the date specified in the Schedule for such Lease and, unless earlier terminated as expressly provided in the Lease, continues until Lessee's payment and performance in full of all of Lessee's obligations under the Lease. 4. RENT PAYMENTS. 4.1 For each Lease, Lessee agrees to pay to Lessor the rent payments in the amounts and at the times as set forth in the Payment Schedule attached to the Schedule ("Rent Payments"). A portion of each Rent Payment is paid as and represents the payment of interest as set forth in the Payment Schedule. Lessee acknowledges that its obligation to pay Rent Payments including interest therein accrues as of the Accrual Date stated in the Schedule or its Payment Schedule; provided, that no Rent Payment is due until Lessee accepts the Equipment under the Lease or the parties execute an escrow agreement. Rent Payments will be payable for the Lease Term in U.S. dollars, without notice or demand at the office of Lessor (or such other place as Lessor may designate from time to time in writing). 4.2 If Lessor receives any payment from Lessee later than ten (10) days from the due date, Lessee shall pay Lessor on demand as a late charge five per cent (5%) of such overdue amount, limited, however, to the maximum amount allowed by law. 4.3 EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 6 HEREOF OR IN ANY WRITTEN MODIFICATION TO THE LEASE SIGNED BY LESSOR, THE OBLIGATION TO PAY RENT PAYMENTS UNDER EACH LEASE SHALL BE ABSOLUTE AND UNCONDITIONAL IN ALL EVENTS AND SHALL NOT BE SUBJECT TO ANY SETOFF, DEFENSE, COUNTERCLAIM, ABATEMENT OR RECOUPMENT FOR ANY REASON WHATSOEVER. 5. DELIVERY; ACCEPTANCE; FUNDING CONDITIONS. 5.1 Lessee shall arrange for the transportation, delivery and installation of all Equipment to the location specified in the Schedule ("Location") by Equipment suppliers ("Suppliers") selected by Lessee. Lessee shall pay all costs related thereto. 5.2 Lessee shall accept Equipment as soon as it has been delivered and is operational. Lessee shall evidence its acceptance of any Equipment by signing and delivering to Lessor the applicable Schedule. If Lessee signs and delivers a Schedule and if all Funding Conditions have been satisfied in full, then Lessor will pay or cause to be paid the costs of such Equipment as stated in the Schedule ("Purchase Price") to the applicable Supplier. Page 2 of 6 5.3 Lessor shall have no obligation to pay any Purchase Price unless all reasonable conditions established by Lessor ("Funding Conditions") have been satisfied, including, without limitation, the following: (a) Lessee has signed and delivered the Schedule and its Payment Schedule; (b) no Event of Default shall have occurred and be continuing; (c) no material adverse change shall have occurred in the Internal Revenue Code of 1986, as amended, and the related regulations and rulings thereunder (collectively, the "Code"); (d) no material adverse change shall have occurred in the financial condition of Lessee or any Supplier; (e) the Equipment is reasonably satisfactory to Lessor and is free and clear of any Liens (except Lessor's Liens); (f) all representations of Lessee in the Lease remain true, accurate and complete; and (g) Lessor has received all of the following documents, which shall be reasonably satisfactory, in form and substance, to Lessor: (1) evidence of insurance coverage required by the Lease; (2) an opinion of Lessee's counsel; (3) reasonably detailed invoices for the Equipment; (4) Uniform Commercial Code (UCC) financing statements; (5) copies of resolutions by Lessee's governing body authorizing the Lease and incumbency certificates for the person(s) who will sign the Lease; (6) such documents and certificates relating to the tax-exempt interest payable under the Lease (including, without limitation, IRS Form 8038G or 8038GC) as Lessor may request; and (7) such other documents and information previously identified by Lessor or otherwise reasonably requested by Lessor. 6. TERMINATION FOR GOVERNMENTAL NON-APPROPRIATIONS. 6.1 For each Lease, Lessee represents and warrants: that it has appropriated and budgeted the necessary funds to make all Rent Payments required pursuant to such Lease for the remainder of the fiscal year in which the Lease Term commences; and that it currently intends to make Rent Payments for the full Lease Term as scheduled in the applicable Payment Schedule if funds are appropriated for the Rent Payments in each succeeding fiscal year by its governing body. Without contractually committing itself to do so, Lessee reasonably believes that moneys in an amount sufficient to make all Rent Payments can and will lawfully be appropriated therefor. Lessee directs the person in charge of its budget requests to include the Rent Payments payable during each fiscal year in the budget request presented to Lessee's governing body for such fiscal year; provided, that Lessee's governing body retains authority to approve or reject any such budget request. All Rent Payments shall be payable out of the general funds of Lessee or out of other funds legally appropriated therefor. Lessor agrees that no Lease will be a general obligation of Lessee and no Lease shall constitute a pledge of either the full faith and credit of Lessee or the taxing power of Lessee. 6.2 If Lessee's governing body fails to appropriate sufficient funds in any fiscal year for Rent Payments or other payments due under a Lease and if other funds are not legally appropriated for such payments, then a "Non-Appropriation Event" shall be deemed to have occurred. If a Non-Appropriation Event occurs, then: (a) Lessee shall give Lessor immediate notice of such Non- Appropriation Event and provide written evidence of such failure by Lessee's governing body; (b) on the Return Date, Lessee shall return to Lessor all, but not less than all, of the Equipment covered by the affected Lease, at Lessee's sole expense, in accordance with Section 21 hereof; and (c) the affected Lease shall terminate on the Return Date without penalty to Lessee, provided, that Lessee shall pay all Rent Payments and other amounts payable under the affected Lease for which funds shall have been appropriated, provided further, that Lessee shall pay month-to-month rent at the rate set forth in the affected Lease for each month or part thereof that Lessee fails to return the Equipment under this Section 6.2. "Return Date" means the last day of the fiscal year for which appropriations were made for the Rent Payments due under a Lease. 7. LIMITATION ON WARRANTIES. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, AS TO THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY OF THE EQUIPMENT OR AS TO THE VALUE, DESIGN, CONDITION, USE, CAPACITY OR DURABILITY OF ANY OF THE EQUIPMENT. For and during the Lease Term, Lessor hereby assigns to Lessee any manufacturer's or Supplier's product warranties, express or implied, applicable to any Equipment and Lessor authorizes Lessee to obtain the customary services furnished in connection with such warranties at Lessee's sole expense. Lessee agrees that (a) all Equipment will have been purchased by Lessor in accordance with Lessee's specifications from Suppliers selected by Lessee, (b) Lessor is not a manufacturer or dealer of any Equipment and has no liability for the delivery or installation of any Equipment, (c) Lessor assumes no obligation with respect to any manufacturer's or Supplier's product warranties or guaranties, (d) no manufacturer or Supplier or any representative of said parties is an agent of Lessor, and (e) any warranty, representation, guaranty or agreement made by any manufacturer or Supplier or any representative of said parties shall not be binding upon Lessor. 8. TITLE; SECURITY INTEREST. 8.1 Upon Lessee's acceptance of any Equipment under a Lease, title to the Equipment shall vest in Lessee, subject to Lessor's security interest therein and all of Lessor's other rights under such Lease including, without limitation, Sections 6, 20 and 21 hereof. 8.2 As collateral security for the Secured Obligations, Lessee hereby grants to Lessor a first priority security interest in any and all of the Equipment (now existing or hereafter acquired) and any and all proceeds thereof. Lessee agrees to execute and deliver to Lessor all necessary documents to evidence and perfect such security interest, including, without limitation, UCC financing statements and any amendments thereto. Page 3 of 6 8.3 "Secured Obligations" means Lessee's obligations to pay all Rent Payments and all other amounts due and payable under all present and future Leases and to perform and observe all covenants, agreements and conditions (direct or indirect, absolute or contingent, due or to become due, or existing or hereafter arising) of Lessee under all present and future Leases. 9. PERSONAL PROPERTY. All Equipment is and will remain personal property and will not be deemed to be affixed or attached to real estate or any building thereon. 10. MAINTENANCE AND OPERATION. Lessee agrees it shall, at its sole expense: (a) repair and maintain all Equipment in good condition and working order and supply and install all replacement parts or other devices when required to so maintain the Equipment or when required by applicable law or regulation, which parts or devices shall automatically become part of the Equipment; and (b) use and operate all Equipment in a careful manner in the normal course of its operations and only for the purposes for which it was designed in accordance with the manufacturer's warranty requirements, and comply with all laws and regulations relating to the Equipment. If any Equipment is customarily covered by a maintenance agreement, Lessee will furnish Lessor with a maintenance agreement by a party reasonably satisfactory to Lessor. No maintenance or other service for any Equipment will be provided by Lessor. Lessee will not make any alterations, additions or improvements ("Improvements") to any Equipment without Lessor's prior written consent unless the Improvements may be readily removed without damage to the operation, value or utility of such Equipment, but any such Improvements not removed prior to the termination of the applicable Lease shall automatically become part of the Equipment. 11. LOCATION; INSPECTION. Equipment will not be removed from, or if Equipment is rolling stock its permanent base will not be changed from, the Location without Lessor's prior written consent which will not be unreasonably withheld. Upon reasonable notice to Lessee, Lessor may enter the Location or elsewhere during normal business hours to inspect the Equipment. 12. LIENS, SUBLEASES AND TAXES. 12.1 Lessee shall keep all Equipment free and clear of all Liens except those Liens created under its Lease. Lessee shall not sublet or lend any Equipment or permit it to be used by anyone other than Lessee or Lessee's employees. 12.2 Lessee shall pay when due all Taxes which may now or hereafter be imposed upon any Equipment or its ownership, leasing, rental, sale, purchase, possession or use, upon any Lease or upon any Rent Payments or any other payments due under any Lease. If Lessee fails to pay such Taxes when due, Lessor shall have the right, but not the obligation, to pay such Taxes. If Lessor pays any such Taxes, then Lessee shall, upon demand, immediately reimburse Lessor therefor. "Taxes" means present and future taxes, levies, duties, assessments or other governmental charges that are not based on the net income of Lessor, whether they are assessed to or payable by Lessee or Lessor, including, without limitation (a) sales, use, excise, licensing, registration, titling, gross receipts, stamp and personal property taxes, and (b) interest, penalties or fines on any of the foregoing. 13. RISK OF LOSS. 12.1 Lessee bears the entire risk of loss, theft, damage or destruction of any Equipment in whole or in part from any reason whatsoever ("Casualty Loss"). No Casualty Loss to any Equipment shall relieve Lessee from the obligation to make any Rent Payments or to perform any other obligation under any Lease. Proceeds of any insurance recovery will be applied to Lessee's obligations under this Section 13. 13.2 If a Casualty Loss occurs to any Equipment, Lessee shall immediately notify Lessor of the same and Lessee shall, unless otherwise directed by Lessor, immediately repair the same. 13.3 If Lessor determines that any item of Equipment has suffered a Casualty Loss beyond repair ("Lost Equipment"), then Lessee shall either: (a) immediately replace the Lost Equipment with similar equipment in good repair, condition and working order free and clear of any Liens (except Lessor's Liens), in which event such replacement equipment shall automatically be Equipment under the applicable Lease, and deliver to Lessor true and complete copies of the invoice or bill of sale covering the replacement equipment; or (b) on earlier of 60 days after the Casualty Loss or the next scheduled Rent Payment date, pay Lessor (i) all amounts owed by Lessee under the applicable Lease, including the Rent Payments due on or accrued through such date plus (ii) an amount equal to the Termination Value as of the Rent Payment date (or if the Casualty Loss payment is due between Rent Payment dates, then as of the Rent Payment date preceding the date that the Casualty Loss payment is due) set forth in the Payment Schedule to the applicable Lease. If Lessee is making such payment with respect to less than all of the Equipment under a Lease, then Lessor will provide Lessee with the pro rata amount of the Rent Payment and Termination Value to be paid by Lessee with respect to the Lost Equipment and a revised Payment Schedule. 13.4 To the extent not prohibited by State law, Lessee shall bear the risk of loss for, shall pay directly, and shall defend against any and all claims, liabilities, proceedings, actions, expenses (including reasonable attorney's fees), damages or losses arising under or related to any Equipment, including, but not limited to, the possession, ownership, lease, use or operation thereof. These Page 4 of 6 obligations of Lessee shall survive any expiration or termination of any Lease. Lessee shall not bear the risk of loss of, nor pay for, any claims, liabilities, proceedings, actions, expenses (including attorney's fees), damages or losses which arise directly from events occurring after any Equipment has been returned by Lessee to Lessor in accordance with the terms of the applicable Lease or which arise directly from the gross negligence or willful misconduct of Lessor. 14. INSURANCE. 14.1 (a) Lessee at its sole expense shall at all times keep all Equipment insured against all Casualty Losses for an amount not less than the Termination Value of the Equipment. Proceeds of any such insurance covering damage or loss of any Equipment shall be payable to Lessor as loss payee. (b) Lessee at its sole expense shall at all times carry public liability and third party property damage insurance in amounts reasonably satisfactory to Lessor protecting Lessee and Lessor from liabilities for injuries to persons and damage to property of others relating in any way to any Equipment. Proceeds of any such public liability or property insurance shall be payable first to Lessor as additional insured to the extent of its liability, and then to Lessee. 14.2 All insurers shall be reasonably satisfactory to Lessor. Lessee shall promptly deliver to Lessor satisfactory evidence of required insurance coverage and all renewals and replacements thereof. Each insurance policy will require that the insurer give Lessor at least 30 days prior written notice of any cancellation of such policy and will require that Lessor's interests remain insured regardless of any act, error, misrepresentation, omission or neglect of Lessee. The insurance maintained by Lessee shall be primary without any right of contribution from insurance which may be maintained by Lessor. 15. PREPAYMENT OPTION. Upon thirty (30) days prior written notice by Lessee to Lessor, and so long as there is no Event of Default then existing, Lessee shall have the option to prepayment Lessee's obligations under a Lease on any Rent Payment due date by paying to Lessor all Rent Payments then due (including accrued interest, if any) for such Lease plus the Termination Value amount set forth on the Payment Schedule to such Lease for such date. Upon satisfaction by Lessee of such prepayment conditions, Lessor shall release its Lien on such Equipment and Lessee shall retain its title to such Equipment "AS-IS, WHERE-IS", without representation or warranty by Lessor, express or implied, except for a representation that such Equipment is free and clear of any Liens created by Lessor. 16. LESSEE'S REPRESENTATIONS AND WARRANTIES. With respect to each Lease and its Equipment, Lessee hereby represents and warrants to Lessor that: (a) Lessee has full power, authority and legal right to execute and deliver the Lease and to perform its obligations under the Lease, and all such actions have been duly authorized by appropriate findings and actions of Lessee's governing body; (b) the Lease has been duly executed and delivered by Lessee and constitutes a legal, valid and binding obligation of Lessee, enforceable in accordance with its terms; (c) the Lease is authorized under, and the authorization, execution and delivery of the Lease complies with, all applicable federal, state and local laws and regulations (including, but not limited to, all open meeting, public bidding and property acquisition laws) and all applicable judgments and court orders; (d) the execution, delivery and performance by Lessee of its obligations under the Lease will not result in a breach or violation of, nor constitute a default under, any agreement, lease or other instrument to which Lessee is a party or by which Lessee's properties may be bound or affected; (e) there is no pending, or to the best of Lessee's knowledge threatened, litigation of any nature which may have a material adverse effect on Lessee's ability to perform its obligations under the Lease; and (f) Lessee is a state, or a political subdivision thereof, as referred to in Section 103 of the Code, and Lessee's obligation under the Lease constitutes an enforceable obligation issued on behalf of a state or a political subdivision thereof. 17. TAX COVENANTS. Lessee hereby covenants and agrees that: (a) Lessee shall comply with all of the requirements of Section 149(a) and Section 149(e) of the Code, as the same may be amended from time to time, and such compliance shall include, but not be limited to, executing and filing Internal Revenue Form 8038G or 8038GC, as the case may be, and any other information statements reasonably requested by Lessor; (b) Lessee shall not do (or cause to be done) any act which will cause, or by omission of any act allow, any Lease to be an "arbitrage bond" within the meaning of Section 148(a) of the Code or any Lease to be a "private activity bond" within the meaning of Section 141(a) of the Code; and (c) Lessee shall not do (or cause to be done) any act which will cause, or by omission of any act allow, the interest portion of any Rent Payments to be or become includable in gross income for Federal income taxation purposes under the Code. 18. ASSIGNMENT. 18.1 Lessee shall not assign, transfer, pledge, hypothecate, nor grant any Lien on, nor otherwise dispose of, any Lease or any Equipment or any interest in any Lease or Equipment. 18.2 Lessor may assign its rights, title and interest in and to any Lease or any Equipment, and/or may grant or assign a security interest in any Lease and its Equipment, in whole or in part, to any party at any time. Any such assignee or lienholder (an "Assignee") shall have all of the rights of Lessor under the applicable Lease. LESSEE AGREES NOT TO ASSERT AGAINST ANY ASSIGNEE ANY CLAIMS, ABATEMENTS, SETOFFS, COUNTERCLAIMS, RECOUPMENT OR ANY OTHER SIMILAR DEFENSES WHICH LESSEE MAY HAVE AGAINST LESSOR. Unless otherwise agreed by Lessee in writing, any Page 5 of 6 such assignment transaction shall not release Lessor from any of Lessor's obligations under the applicable Lease. An assignment or reassignment of any of Lessor's right, title or interest in a Lease or its Equipment shall be enforceable against Lessee only after Lessee receives a written notice of assignment which discloses the name and address of each such Assignee; provided, that such notice from Lessor to Lessee of any assignment shall not be so required if Lessor assigns a Lease to JPMORGAN CHASE & CO. any of its direct or indirect subsidiaries. Lessee shall keep a complete and accurate record of all such assignments in the form necessary to comply with Section 149(a) of the Code and for such purpose, Lessee hereby appoints Lessor (or Lessor's designee) as the book entry and registration agent to keep a complete and accurate record of any and all assignments of any Lease. Lessee agrees to acknowledge in writing any such assignments if so requested. 18.3 Each Assignee of a Lease hereby agrees that: (a) the term Secured Obligations as used in Section 8.3 hereof is hereby amended to include and apply to all obligations of Lessee under the Assigned Leases and to exclude the obligations of Lessee under any Non-Assigned Leases; (b) said Assignee shall have no Lien on, nor any claim to, nor any interest of any kind in, any Non- Assigned Lease or any Equipment covered by any Non-Assigned Lease; and (c) Assignee shall exercise its rights, benefits and remedies as the assignee of Lessor (including, without limitation, the remedies under Section 20 of the Master Lease) solely with respect to the Assigned Leases. "Assigned Leases" means only those Leases which have been assigned to a single Assignee pursuant to a written agreement; and "Non-Assigned Leases" means all Leases excluding the Assigned Leases. 18.4 Subject to the foregoing, each Lease inures to the benefit of and is binding upon the heirs, executors, administrators, successors and assigns of the parties hereto. 19. EVENTS OF DEFAULT. For each Lease, "Event of Default" means the occurrence of any one or more of the following events as they may relate to such Lease: (a) Lessee fails to make any Rent Payment (or any other payment) as it becomes due in accordance with the terms of the Lease, and any such failure continues for ten (10) days after the due date thereof; (b) Lessee fails to perform or observe any of its obligations under Sections 12.1, 14 or 18.1 hereof; (c) Lessee fails to perform or observe any other covenant, condition or agreement to be performed or observed by it under the Lease and such failure is not cured within thirty (30) days after receipt of written notice thereof by Lessor; (d) any statement, representation or warranty made by Lessee in the Lease or in any writing delivered by Lessee pursuant thereto or in connection therewith proves at any time to have been false, misleading or erroneous in any material respect as of the time when made; (e) Lessee applies for or consents to the appointment of a receiver, trustee, conservator or liquidator of Lessee or of all or a substantial part of its assets, or a petition for relief is filed by Lessee under any federal or state bankruptcy, insolvency or similar law, or a petition in a proceeding under any federal or state bankruptcy, insolvency or similar law is filed against Lessee and is not dismissed within sixty (60) days thereafter; or (f) Lessee shall be in default under any other Lease or under any other financing agreement executed at any time with Lessor. 20. REMEDIES. If any Event of Default occurs, then Lessor may, at its option, exercise any one or more of the following remedies: (a) Lessor may require Lessee to pay (and Lessee agrees that it shall pay) all amounts then currently due under all Leases and all remaining Rent Payments due under all Leases during the fiscal year in effect when the Event of Default occurs together with interest on such amounts at the rate of twelve percent (12%) per annum (but not to exceed the highest rate permitted by applicable law) from the date of Lessor's demand for such payment; (b) Lessor may require Lessee to promptly return all Equipment under all or any of the Leases to Lessor in the manner set forth in Section 21 (and Lessee agrees that it shall so return the Equipment), or Lessor may, at its option, enter upon the premises where any Equipment is located and repossess any Equipment without demand or notice, without any court order or other process of law and without liability for any damage occasioned by such repossession; (c) Lessor may sell, lease or otherwise dispose of any Equipment under all or any of the Leases, in whole or in part, in one or more public or private transactions, and if Lessor so disposes of any Equipment, then Lessor shall retain the entire proceeds of such disposition free of any claims of Lessee, provided, that if the net proceeds of the disposition of all the Equipment exceeds the applicable Termination Value of all the Schedules plus the amounts payable by Lessee under clause (a) above of this Section and under clause (f) below of this Section, then such excess amount shall be remitted by Lessor to Lessee; (d) Lessor may terminate, cancel or rescind any Lease as to any and all Equipment; (e) Lessor may exercise any other right, remedy or privilege which may be available to Lessor under applicable law or, by appropriate court action at law or in equity, Lessor may enforce any of Lessee's obligations under any Lease; and/or (f) Lessor may require Lessee to pay (and Lessee agrees that it shall pay) all out-of-pocket costs and expenses incurred by Lessor as a result (directly or indirectly) of the Event of Default and/or of Lessor's actions under this section, including, without limitation, any attorney fees and expenses and any costs related to the repossession, safekeeping, storage, repair, reconditioning or disposition of any Equipment. Page 6 of 6 None of the above remedies is exclusive, but each is cumulative and in addition to any other remedy available to Lessor. Lessor's exercise of one or more remedies shall not preclude its exercise of any other remedy. No delay or failure on the part of Lessor to exercise any remedy under any Lease shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise of any remedy preclude any other exercise thereof or the exercise of any other remedy. 21. RETURN OF EQUIPMENT. If Lessor is entitled under the provisions of any Lease, including any termination thereof pursuant to Sections 6 or 20 of this Master Lease, to obtain possession of any Equipment or if Lessee is obligated at any time to return any Equipment, then (a) title to the Equipment shall vest in Lessor immediately upon Lessor's notice thereof to Lessee, and (b) Lessee shall, at its sole expense and risk, immediately de-install, disassemble, pack, crate, insure and return the Equipment to Lessor (all in accordance with applicable industry standards) at any location in the continental United States selected by Lessor. Such Equipment shall be in the same condition as when received by Lessee (reasonable wear, tear and depreciation resulting from normal and proper use excepted), shall be in good operating order and maintenance as required by the applicable Lease, shall be free and clear of any Liens (except Lessor's Lien) and shall comply with all applicable laws and regulations. Until Equipment is returned as required above, all terms of the applicable Lease shall remain in full force and effect including, without limitation, obligations to pay Rent Payments and to insure the Equipment. Lessee agrees to execute and deliver to Lessor all documents reasonably requested by Lessor to evidence the transfer of legal and beneficial title to such Equipment to Lessor and to evidence the termination of Lessee's interest in such Equipment. 22. LAW GOVERNING. Each Lease shall be governed by the laws of the state of where Lessee is located (the "State"). 23. NOTICES. All notices to be given under any Lease shall be made in writing and either personally delivered or mailed by regular or certified mail or sent by an overnight courier delivery company to the other party at its address set forth herein or at such address as the party may provide in writing from time to time. Any such notices shall be deemed to have been received five (5) days subsequent to mailing. 24. FINANCIAL INFORMATION. As soon as they are available after their completion in each fiscal year of Lessee during any Lease Term, Lessee will deliver to Lessor upon Lessor's request the publicly available annual financial information of Lessee. 25. SECTION HEADINGS. All section headings contained herein or in any Schedule are for convenience of reference only and do not define or limit the scope of any provision of any Lease. 26. EXECUTION IN COUNTERPARTS. Each Schedule to this Master Lease may be executed in several counterparts, each of which shall be deemed an original, but all of which shall be deemed one instrument. If more than one counterpart of each Schedule is executed by Lessee and Lessor, then only one may be marked "Lessor's Original" by Lessor. A security interest in any Schedule may be created through transfer and possession only of: the sole original of said Schedule if there is only one original; or the counterpart marked "Lessor's Original" if there are multiple counterparts of said Schedule. 27. ENTIRE AGREEMENT; WRITTEN AMENDMENTS. Each Lease, together with the exhibits, schedules and addenda attached thereto and made a part hereof and other attachments thereto constitute the entire agreement between the parties with respect to the lease of the Equipment covered thereby, and such Lease shall not be modified, amended, altered, or changed except with the written consent of Lessee and Lessor. Any provision of any Lease found to be prohibited by law shall be ineffective to the extent of such prohibition without invalidating the remainder of the Lease. SAMPLE CHASE EQUIPMENT FINANCE, INC. (Lessee) (Lessor) By: By: Title: Title: Funding Manager Addendum B City’s Proposed Changes to JPMorgan Chase’s Master Lease Purchase Agreement 1) Insurance. City’s Proposal: Casualty insurance - The City is self-insured for damage or destruction to vehicles up to $1 million, and excess liability coverage above that. Liability Insurance - The City is also self-insured for liability insurance up to $1,000,000, and carries excess liability insurance for claims above that amount. JPMorgan Chase approved, their response: City is titled owner and JPMorgan Chase holds lien. 2) Title City’s Proposal: At the end of the lease (on 09/01/18) there should be a clear provision or process in the document(s) for JP Morgan to release their lien on the equipment. JPMorgan Chase approved, their response: Once a transaction is paid off, JPMorgan Chase will sign the release on the original title and return the original title to the City. Then, it is up to the City to process the release at the DMV. JPMorgan Chase will also electronically release our UCC filing. 3) Substitution/Replacement of Vehicles. City’s Proposal: The Lease should contain a clear provision permitting substitution of (collateral) vehicles that may include rolling stock that will not consist of Fire engines or Fire Department Rolling Stock. Besides replacing vehicles due to damage or end of a piece of equipment’s life cycle, the City anticipates that there will be future discussions of reorganizing the City’s Fire operations, including outsourcing or regionalizing the services. There should be flexibility in the agreement should these events materialize. Similarly, there should be a clear process in the Lease to facilitate normal replacement of the collateral equipment when its useful life has been reached. Reference to a division or individual title with appropriate contact information who has authority to approve substitution or replacement would be ideal. JPMorgan Chase approved, their response: Substitution/Replacement will be permitted as long it is of equal or greater value, and substitution/replacement will be subject to JPMorgan Chase’s approval. 26005-65 JH:WHM 7/6/11 ESCROW AGREEMENT by and between the CITY OF PALO ALTO, and U.S. BANK NATIONAL ASSOCIATION as Escrow Bank Dated as of August 1, 2011 Relating To the Refunding of the: City of Palo Alto $7,750,000 (Original Principal Amount) Certificates of Participation (Golf Course Improvements and Refinancing Project) Series 1998 ESCROW AGREEMENT This Escrow Agreement is made and entered into as of the 1st day of August, 1998, by and between the CITY OF PALO ALTO, a chartered municipal corporation duly organized and existing under the laws of the State of California (the "City"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, having a corporate trust office in the City of San Francisco, California (the "Escrow Bank"); W I T N E S S E T H: WHEREAS, the City has heretofore leased certain real property, consisting of the Palo Alto municipal golf course, including certain improvements financed thereon, by a lease transaction between the City and the Palo Alto Public Improvement Corporation (the “Corporation”) in 1998, pursuant to that certain property lease, dated as of August 1, 1998, by and between the City, as lessor, and the Corporation, as lessee (the "1998 Property Lease"), and a lease agreement, dated as of August 1, 1998, by and between the Corporation, as lessor, and the City, as lessee (the "1998 Lease"); and WHEREAS, the City has determined that it is in the interests of the City at this time to provide for the refinancing of the 1998 Lease and the Certificates of Participation executed and delivered in connection therewith in the original principal amount of $7,750,000 (the “1998 Certificates”), by entering into a Master Lease-Purchase Agreement, dated as of August 1, 2011, between the City and the Chase Equipment Finance, Inc. (the “Lease Agreement”); and WHEREAS, the 1998 Certificates were executed and delivered pursuant to a Trust Agreement, dated as of August 1, 1998, among the City, the Escrow Bank, as trustee, and the Corporation (the “1998 Trust Agreement”); and WHEREAS, the 1998 Property Lease and the 1998 Lease have been duly terminated pursuant to a Termination Agreement, dated as of August 1, 2011, between the City and the Corporation; WHEREAS, the City will cause to be deposited with the Escrow Bank funds for the refinancing of the 1998 Lease and the 1998 Certificates; WHEREAS, the City proposes to make a deposit of moneys from the proceeds of the Lease Agreement, and to appoint the Escrow Bank as its agent for the purpose of applying said deposit to the prepayment of the 1998 Certificates in accordance with the instructions provided by this Escrow Agreement; and WHEREAS, the Escrow Bank has full powers to act with respect to the irrevocable escrow created herein and to perform the duties and obligations to be undertaken pursuant to this Escrow Agreement: NOW, THEREFORE, in consideration of the above premises and of the mutual promises and covenants herein contained, the parties hereto DO HEREBY AGREE as follows: Section 1. Appointment of Escrow Bank. The City hereby appoints the Escrow Bank as escrow holder for all purposes of this Escrow Agreement, and the Escrow Bank hereby accepts such appointment. Section 2. Establishment of Escrow Fund. There is hereby created by the City with, and to be held by, the Escrow Bank, as security for the payment of the 1998 Certificates, an irrevocable escrow to be held in escrow by the Escrow Bank on behalf of the City and the Assignee and for the benefit of the owners of the 1998 Certificates, said escrow to be designated the "City of Palo Alto 1998 Refunding Escrow Fund" (the "Escrow Fund"). All moneys in the Escrow Fund are hereby irrevocably transferred to the Escrow Bank, as security for payment of the 1998 Certificates, to be held by the Escrow Bank in escrow for the benefit of the owners of the 1998 Certificates. If at any time the Escrow Bank shall receive actual knowledge that the moneys in the Escrow Fund will not be sufficient to make any payment required by Section 5 hereof, the Escrow Bank shall notify the City of such fact, and the City shall immediately cure such deficiency. Section 3. Deposit into Escrow Fund. Concurrently with the delivery of the Lease Agreement, the City and the Assignee shall cause: (i) $___________ of the proceeds of the Lease Agreement, in immediately available funds, to be transferred to the Escrow Bank for deposit in the Escrow Fund, and (ii) $__________ to be transferred to the Escrow Fund from the Reserve Fund created under the 1998 Trust Agreement, for a total deposit into the Escrow Fund of $______________. Any moneys remaining in the funds and accounts established under the 1998 Trust Agreement, including any investment earnings received after the Closing Date, will be transferred to the City, and such funds and accounts will be closed. Section 4. Investment of Deposit in Escrow Fund. The Escrow Bank shall hold the Escrow Fund uninvested. Section 5. Instructions as to Application of Deposit. The City hereby instructs the Escrow Bank as its agent to apply the moneys deposited in the Escrow Fund pursuant to Section 3 hereof to pay the principal of and accrued interest with respect to the 1998 Certificates on August 12, 2011 (the “Redemption Date”), and to pay the redemption price of all then outstanding 1998 Certificates on the Redemption Date, at a redemption price equal to the principal amount thereof, plus accrued interest to the Redemption Date ($_____________), as shown on Exhibit A. Section 6. Costs of Issuance Fund. The Escrow Bank shall establish a special fund designated as the "Costs of Issuance Fund"; shall keep such fund separate and apart from all other funds and moneys held by it; and shall administer such fund as provided herein. There shall be deposited in the Costs of Issuance Fund the proceeds of the Assignment, in addition to the deposit to the Escrow Fund, an amount equal to $______________. The moneys in the Costs -2- of Issuance Fund shall be disbursed to pay the costs of issuance incurred by the City in connection with the refunding of the 1998 Certificates from time to time upon the receipt of written requests of the City setting forth the amounts to be disbursed for payment or reimbursement of costs of issuance and the name and address of the person or persons to whom said amounts are to be disbursed, stating that the amounts to be disbursed are for costs of issuance properly chargeable to the Costs of Issuance Fund. Any amounts remaining in the Costs of Issuance Fund on __________shall be withdrawn therefrom by the Escrow Bank and transferred to the City. Section 7. Remaining Moneys. The Escrow Bank shall hold uninvested money, if any, remaining from time to time in the Escrow Fund until needed for payment of the debt service on the 1998 Certificates in accordance with Section 5 hereof. Section 8. Notice of Redemption. a Notice of redemption of the 1998 Certificates has been properly sent to the holders of the 1998 Certificates in conformity with the provisions of the 1998 Trust Agreement. Section 9. Application of Certain Terms of the 1998 Trust Agreement. All of the terms of the 1998 Trust Agreement regarding the making of payments of principal, premium, if any, and interest on the 1998 Certificates are incorporated in this Escrow Agreement as if set forth in full herein. Provisions of the 1998 Trust Agreement relating to the resignation and removal of a trustee shall be the procedure to be followed with respect to any resignation or removal of the Escrow Bank hereunder. Section 10. Compensation to Escrow Bank. The Escrow Bank hereby acknowledges that it has received on the date hereof partial compensation for its duties under this Escrow Agreement representing its first year administration fees, except that the City shall indemnify and hold harmless the Escrow Bank for out-of-pocket costs such as mailing costs, redemption expenses, legal fees and other costs and expenses relating hereto, but under no circumstances shall amounts deposited in the Escrow Fund be deemed to be available for said purposes. The City and the Escrow Bank hereby agree that the Escrow Bank shall be paid its subsequent annual administration fees, as billed, plus appropriate out-of-pocket expenses. Section 11. Liabilities and Obligations of Escrow Bank. The Escrow Bank shall have no obligation to make any payment or disbursement of any type or incur any financial liability in the performance of its duties under this Escrow Agreement unless the City shall have deposited sufficient funds with the Escrow Bank. The Escrow Bank may rely and shall be protected in acting upon the written instructions of the City or its agents relating to any matter or action as Escrow Bank under this Escrow Agreement. The Escrow Bank undertakes such duties as specifically set forth herein and no implied duties or obligations shall be read into this Escrow Agreement against the Escrow Bank. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and hold harmless the Escrow Bank and its respective successors, assigns, agents and servants from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including legal fees and disbursements) of whatsoever kind and -3- nature which may be imposed on, incurred by, or asserted against, at any time, the Escrow Bank (whether or not also indemnified against by any other person under any other agreement or instrument) and in any way relating to or arising out of the execution and delivery of this Escrow Agreement, the establishment of the Escrow Fund, the retention of the moneys therein and any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Escrow Agreement, or as may arise by reason of any act, omission or error of the Escrow Bank made in good faith in the conduct of its duties; provided, however, that the City shall not be required to indemnify the Escrow Bank against its own negligence or misconduct. The indemnities contained in this Section 11 shall survive the termination of this Escrow Agreement. The Escrow Bank and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract, or otherwise in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or any securities deposited therein, the purchase of the securities to be purchase pursuant hereto, the retention of such securities or the proceeds thereof, the sufficiency of the securities or any uninvested moneys held hereunder to accomplish the defeasance of the 1998 Certificates, or any payment, transfer or other application of moneys or securities by the Escrow Bank in accordance with the provisions of this Agreement or by reason of any non-negligent act, non-negligent omission or non-negligent error or the Escrow Bank made in good faith in the conduct of its duties. The recitals of fact contained in the "whereas" clauses herein shall be taken as the statement of the City and the Escrow Bank assumes no responsibility for the correctness thereof. The Escrow Bank make no representations as to the sufficiency of the securities to be purchased pursuant hereto and any uninvested moneys to accomplish the redemption of the 1998 Certificates pursuant to the 1998 Trust Agreement or to the validity of this Agreement as the City and, except as otherwise provided herein, the Escrow Bank shall incur no liability in respect thereof. The Escrow Bank shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Bank shall be determined by the express provisions of this Agreement. The Escrow Bank may consult with counsel, who may or may not be counsel to the City, and in reliance upon the written opinion of such counsel shall have full and complete authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Bank shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter (except the matters set forth herein as specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of counsel) may be deemed to be conclusively established by a written certification of the City. Section 12. Notices. All written notices to be given under this Escrow Agreement shall be given by mail to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other parties in writing from time to time. If to the City: City Clerk City of Palo Alto P. O. Box 10250 Palo Alto, CA 94303 -4- If to the Esrow Bank: U.S. Bank National Association One California Street, 4th Floor San Francisco, CA 94111 Section 13. California Law. This Escrow Agreement shall be construed and governed in accordance with the laws of the State of California. Section 14. Severability. Any provision of this Escrow Agreement found to be prohibited by law shall be ineffective only to the extent of such prohibition, and shall not invalidate the remainder of this Escrow Agreement. Section 15. Execution in Counterpart. This Escrow Agreement may be executed in counterparts and each of said counterparts shall be deemed an original for all purposes of this Escrow Agreement. All of such counterparts taken together shall be deemed to be one and the same instrument. Section 16. Merger or Consolidation of Escrow Bank. Any company into which the Escrow Bank may be merged or converted or with which may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Escrow Bank may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible to act as Trustee under the 1998 Trust Agreement, shall be the successor hereunder to the Escrow Bank without the execution or filing of any paper or any further act. * * * * * -5- -6- IN WITNESS WHEREOF, the Escrow Bank, the Assignee and the City have each caused this Escrow Agreement to be executed by their duly authorized officers all as of the date first above written. CITY OF PALO ALTO By: Director of Administrative Services ATTEST: City Clerk U.S. BANK NATIONAL ASSOCIATION, as Escrow Bank By: Authorized Officer ATTEST: Secretary EXHIBIT A PAYMENT AND REDEMPTION SCHEDULE OF 1998 Certificates Payment Date Principal Interest Total Payment August 12, 2011 $3,690,000 $________ $ Notice of Conditional Prepayment City of Palo Alto Certificates of Participation (Golf Course Improvements and Refinancing Project) Series 1998 Amount Maturity Date Interest Rate *CUSIP # $405,000 9/1/2012 4.70% 425,000 9/1/2013 4.875 445,000 9/1/2014 5.0 470,000 9/1/2015 5.0 495,000 9/1/2016 5.0 520,000 9/1/2017 5.0 545,000 9/1/2018 5.0 NOTICE IS HEREBY GIVEN, that the City of Palo Alto has conditionally called for Prepayment on August 12, 2011 (the “Prepayment Date”) all of its Certificates of Participation (Golf Course Improvement and Refinancing Project) Series 1998 (the “Certificates”) in the principal amount of $3,690,000, together with the accrued interest to the Prepayment Date (the “Prepayment Price”). The Certificates are being conditionally called for Prepayment on the Prepayment Date subject to the provisions of the succeeding paragraph of this notice, and pursuant to the provisions of the governing documents of the Certificates. The Conditional Notice of Prepayment, and the payment of the Prepayment Price of the Certificates on the Prepayment Date, is subject to the receipt of funds in an amount sufficient to pay the Prepayment Price of the Certificates on or before the Prepayment Date resulting from the execution and delivery of the City of Palo Alto Master Lease-Purchase Agreement, which Lease Agreement is expected to be delivered on or about August 2, 2011. In the event such funds are not received by the Prepayment Date, this notice shall be null and void and of no force and effect. The Certificates delivered for Prepayment shall be returned to the respective owners thereof, and said Certificates shall remain outstanding as though this notice of conditional Prepayment had not been given. Notice of a failure to receive funds, and cancellation of this Prepayment, shall be given by the Trustee by first class mail, postage prepaid, to the registered owners of the Certificates. Pursuant to the governing documents, payment of the Prepayment Price on the Certificates called for Prepayment will be paid without presentation of the Certificates if presentment is not required and upon presentation of the Certificates if presentment is required. If presentment is required, surrender thereof can be made in the following manner: If by Mail: If by Hand or Overnight Mail: U.S. Bank U.S. Bank Corporate Trust Services Corporate Trust Services P.O. Box 64111 60 Livingston Avenue St. Paul, MN 55164-0111 1st Fl – Bond Drop Window St. Paul, MN 55107 1-800-934-6802 Bondholders presenting their Certificates in person for same day payment must surrender their bond(s) by 1:00 P.M. CST on the Prepayment Date and a check will be available for pick up after 2:00 P.M CST. Checks not picked up by 4:30 P.M. will be mailed out to the bondholder via first class mail. If payment of the Prepayment Price is to be made to the registered owner of the Bond, you are not required to endorse the Bond to collect the Prepayment Price. Interest on the principal amount designated to be redeemed shall cease to accrue on and after the Prepayment Date REQUIREMENT INFORMATION For a list of Prepayment requirements please visit our website at www.usbank.com/corporatetrust and click on the “Bondholder Information” link IMPORTANT NOTICE Under the Job and Growth Tax Relief Reconciliation Act of 2003 (the “Act”), 28% will be withheld if tax identification number is not properly certified. *The Undersigned shall not be held responsible for the selection or use of the CUSIP number, nor is any representation made as to their correctness indicated in the Prepayment Notice. It is included solely for convenience of the Holders. By U. S. Bank National Association As Trustee Date: July 12, 2011 CITY EQUIPMENT NUMBER YEAR MANUFACTURER MODEL VEHICLE DESCRIPTION METER READING (MILEAGE) ORIGINAL COST 1 6144 2009 PIERCE ARROW XT (E-1) PUMPER - 1500 GPM 16,752 $ 542,788 2 6149 2009 PIERCE ARROW XT (E6) PUMPER - 1500 GPM 16,254 542,566 3 6148 2009 PIERCE ARROW XT (E-5) PUMPER - 1500 GPM 14,050 542,261 4 6146 2009 PIERCE ARROW XT (E-3) PUMPER - 1500 GPM 15,438 541,996 5 6147 2009 PIERCE ARROW XT (E-4) PUMPER - 1500 GPM 15,272 541,734 6 6145 2009 PIERCE ARROW XT (E-2) PUMPER - 1500 GPM 14,298 541,394 7 6122 1999 SPARTAN/LTI N/A (T-6) 75` QUINTUPLE FIRE APPARATUS 75,301 512,919 8 6123 2005 KME TBD (BS-1) LIGHT AND POWER UNIT 10,185 402,976 9 6121 2008 INTERNATIONAL 7400 (E-8) TYPE III WILDLAND PUMPER - 500 GPM 3,938 317,184 10 6119 1992 PIERCE DASH (R-2) HEAVY RESCUE 184,671 298,144 11 6124 1999 SPARTAN/LTI N/A (MTV) 75` QUINTUPLE FIRE APPARATUS 35,050 270,827 12 6116 1991 PIERCE ARROW (E-11) PUMPER - 1500 GPM 115,629 215,910 13 6117 1991 PIERCE ARROW (E-10) PUMPER - 1500 GPM 124,478 215,910 14 6040 1997 FREIGHTLINER FL50 (MEDIC 3) AMBULANCE - TYPE III 112,158 184,340 15 6041 1998 FREIGHTLINER FL50 (BLS 1) AMBULANCE - TYPE III 132,272 174,491 16 6120 1992 INTERNATIONAL 4800 (E-9) TYPE III WILDLAND PUMPER - 500GPM 26,775 150,406 17 6044 2003 FORD E-450 (MEDIC 2) AMBULANCE - TYPE III 130,790 131,108 18 6043 2003 FORD E-450 (MEDIC 1) AMBULANCE - TYPE III 110,391 125,810 19 6176 2001 FORD F-450 (P-8) WILDLAND PATROL UNIT 6,488 108,939 20 6177 2001 FORD F-450 (P-7) WILDLAND PATROL UNIT 10,515 108,666 21 6178 2006 FORD F-450 WILDLAND PATROL UNIT (P-6) 2,285 88,230 6,558,599$ City of Palo Alto Fire Department (Rolling Stock) Equipment City of Palo Alto (ID # 1661) City Council Staff Report Report Type: Action ItemsMeeting Date: 7/18/2011 July 18, 2011 Page 1 of 7 (ID # 1661) Council Priority: Land Use and Transportation Planning Summary Title: Historic/Seismic Bonus for Rehab 668 Ramona Title: PUBLIC HEARING: Approval of a Request and Record of Land Use Action for On-site Use of 4,940 Square Feet of a 5,000 Square-Foot “Double Bonus” From a Proposed Historic Rehabilitation and Seismic Retrofit, to Increase the Floor Area Ratio (FAR) of 668 Ramona Street (Palo Alto Art League), Listed as a Category II Structure on the Palo Alto Historic and Seismic Inventories From:City Manager Lead Department: Planning and Community Environment Recommendation Staff, the Historic Resources Board, and the Architectural Review Board recommend that the City Council approve the on-site use of 4,940 square feet of bonus floor area generated for historic and seismic upgrades pursuant to Palo Alto Municipal Code section 18.18.070(b)(8), based upon the findings and recommended conditions of approval in the Record of Land Use Action (Attachment A). Executive Summary The Pacific Art League (PAL) is proposing a historic and seismic rehabilitation of the building at 668 Ramona Street in order to expand the existing 7,606 square foot facility by 4,940 square feet to total 12,546 square feet using bonus floor area, which is permitted based upon the provisions of PAMC Section 18.18.070. Because the project site is listed as a Category 2 Historic Resource and as Seismic Category 2 on the Seismic Structures Inventory, historic and seismic rehabilitation allows a combined historic and seismic Floor Area Bonus ("double bonus") whereby the building may increase its floor area by 5,000 square feet or 50 percent of the existing building, whichever is greater, without having this increase count toward Floor Area Ratio (FAR) limits or requiring parking for the additional area. Background Council Purview PAMC section 18.18.070(b)(8) requires the Council to approve on-site use of a double floor area bonus. To grant approval of the on-site use, the Council must find that: July 18, 2011 Page 2 of 7 (ID # 1661) (i)The exterior modifications for the entire project comply with the U.S. Secretary of the Interior's "Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings" (36 CFR §67,7); and (ii)The on-site use of the FAR bonus would not otherwise be inconsistent with the historic character of the interior and exterior of the building and site. These findings are outlined in the Record of Land Use Action (Attachment A).The Historic Resources Board (HRB) and Architectural Review Board (ARB) reviewed the rehabilitation project and determined that the rehabilitation will comply with these requirements. Site Information The 5,610 square foot Project site is located in Downtown Palo Alto on the corner of Ramona Street and Forest Avenue within the Downtown Parking Assessment District. The subject parcel has 66 feet of frontage on Forest Avenue and 85 feet of frontage on Ramona Street. The adjacent site on Forest Avenue is developed with a two-story commercial building (office use). The adjacent site on Ramona Street is separated from the Project site by an alley (Lane 11 West) and a two-story commercial building (restaurant on the ground floor and office upstairs). The existing three-story building on the Project site was originally developed in 1926 as the Winsor Cabinet Shop and remained as such until 1965 when the Pacific Art League (formerly called Palo Alto Art Club) bought and occupied the building. The building currently contains 7,606 square feet of floor area. No on-site parking is provided. The 16 foot wide paved building setback area, accessible via Lane 11 West, on the south side of the building is regularly used for tandem parking for two to three vehicles. The Pacific Art League operates as a non-profit organization that provides classes and hosts art exhibitions. Historic Designation In 1980 the City Council designated 668 Ramona to the Historic Inventory in Category 3. In 1988, the City Council reclassified the building as a Category 2 “Major Building” which is defined as follows in the Historic Preservation Ordinance: “’Major Building’ means any building or group of buildings of major regional importance, meritorious works of the best architects or an outstanding example of Figure 1. Rendering of Proposed Project (new addition to the rear left) July 18, 2011 Page 3 of 7 (ID # 1661) an architectural style or the stylistic development of architecture in the state or region. A major building may have some exterior modifications, but the original character is retained.” The Historic Inventory form emphasizes that 668 Ramona is “a building of presence and strong visual interest….that anchors the end of this commercial block and turns the corner gracefully.” Also, “along with the two-building complex at 628-632 Ramona, this structure forms the dominant historic character of most of the block.” The most significant historic features of the exterior are the central castle tower with diamond-shaped wood muntins at the tower windows, the Palladian gable vents, the strongly textured pebble dash stucco, several second floor windows with clay tile awnings and unique bent wood balcony railings that simulate wrought iron, and the unusual wood detailing of the first floor window frames of the south wing. The building was also evaluated by the State Historic Preservation Office (SHPO) several years ago as part of a Section 106 federal review of a proposed project. SHPO classified the building as eligible for the National Register of Historic Places. The Historic Structure Report is included as Attachment H. Historic Integrity The Palo Alto Art League building retains a high level of integrity. The most significant alteration that has occurred was carried out in 1965 when the original north wing recessed entry on Ramona Street was replaced with a window grouping of divided lights and transom windows closely similar to the original window groups on either side. Because the demolished entry was narrower than the flanking window groups, the replacement group had to be slightly reduced in height and the panes, though in the same pattern as the flanking windows, had to be slightly smaller. The goal was likely to replicate the historic window groupings but because of the needed size reductions it is actually clear that the replacement window group is not original. The resulting new window group is highly compatible but still differentiated. The other principal alterations occurred after the 1978 Historic Inventory photo of the building: on the Forest Avenue elevation, the ornate ribbon of second-floor wood windows was replaced by incompatible aluminum sliders and the large first floor multi-pane window was replaced by a simple wood panel. The great majority of the building retains its original character, and with the exception of the replacement of the north wing Ramona entry in 1965, the most significant features of the building have not been altered, or have been altered compatibly such as the replacement of the original corrugated metal roofing with composition roofing in 1980. Project Description The major component of the project is the 4,940 square foot addition proposed along the south side of the existing building. The project also includes minor improvements to the existing building, such as a replacement door for the recessed main entrance (Ramona Street), replacement wood windows for the aluminum second-floor windows (Forest Avenue), new windows to replace the infill wall on the first floor (Forest Avenue), and repainting of the building to match the existing colors. The new floor area of the building would be 12,546 square feet. July 18, 2011 Page 4 of 7 (ID # 1661) The addition to the building provides a new primary entrance on the Forest Avenue frontage for the future tenants of the second and third floor spaces. The “for lease” space is identified in the plans on Sheet A-23 (5,213 s.f.) and the remaining 7,333 s.f. of the building will be utilized by the Pacific Art League. The proposed addition is differentiated from the historic building by setting it back 10 feet from the existing building wall face and with the use of a smooth cement plaster wall finish. The addition incorporates architectural elements (windows, arches, colors, etc) that are complimentary to the existing historic building. Discussion Rehabilitation Plan The four primary components of the rehabilitation plan are: (1) a 4,940 square-foot addition expanding the existing three stories and redesigned spaces within the existing historic building providing additional artist studios, gallery spaces, and classrooms to meet the expanding needs of PAL; (2) an expansion and alteration of the building to provide compliance with the handicap accessibility requirements of the Americans with Disabilities Act (ADA) including an elevator serving all floors, enlarged restrooms, doorways sufficient for wheelchair access, and ADA-code compliant stairs and corridors; (3) seismic rehabilitation of the building which is currently classified by the City of Palo Alto as a seismic hazard; and (4) remediation of all the known historic rehabilitation needs of the eighty-five year old building. The applicant proposes to seismically upgrade the building so that it is consistent with the structural standards of the current Seismic Code. Such rehabilitation would provide major protection of the building in the long term. Components of the seismic upgrade will not be located on the exterior of the building. Steel columns will be positioned on the inside faces of the 12” x 12” existing concrete columns making the columns minimally visible from the street. The steel ceiling beams will be clearly seen from the sidewalk but the circular perforations will give the beams a decorative character. Although the full details have yet to be determined for the depicted seismic upgrade, the applicant’s engineer has provided a memo verifying that the proposed seismic upgrade is generally feasible (Attachment C). This detail is required to return to the HRB and ARB for review and final approval. Floor Area Bonus and TDR The requirement that the City Council review the use of the double floor area bonus on significant (Category 1 and 2) historic sites was established in the Municipal Code in 1995, and was part of the ongoing evolution of a stronger development-based historic incentives program in Palo Alto. The Floor Area Bonus program initially restricted historic-seismic properties to a single Floor Area Bonus for either historic or seismic rehabilitation even if both rehabilitations were carried out. In 1995, the “double bonus” was created to combine historic and seismic bonuses into a single incentive that generated 5,000 square feet of FAR-exempt floor area (or 50 percent of the existing building, whichever is greater), which can be used on-site or as transferable development rights (TDRs). July 18, 2011 Page 5 of 7 (ID # 1661) The Floor Area Bonus program has been further strengthened by requiring applications to include a Historic Structure Report (HSR), prepared by a qualified consultant according to federal standards, to guide the development of the rehabilitation plan. In addition, owners of properties receiving a Floor Area Bonus must enter into a protective preservation covenant ensuring retention of the property’s historic character in perpetuity. For a historic and seismic rehabilitation, the building would be allowed to increase its floor area by 5,000 square feet (PAMC 18.18.070(4)), but not to exceed a floor area ratio of 3:1. The applicant proposes to use 4,940 square feet for the addition and the remaining 60 square feet would be available as Transferable Development Rights (TDR). As an added benefit of the historic and seismic rehabilitation, parking is not required for the bonus floor area added to a project. Board Reviews and Recommendations Historic Resources Board On June 15, 2011, the HRB conducted a public hearing on the project and unanimously recommended approval (7-0) of the project with added conditions. The HRB staff report and verbatim minutes are attached for review. There were no members of the public present to speak to this item. The HRB conditioned the project to return on Consent with design details of the following items: ·The new wood-frame ribbon-style casement windows on the second floor of the existing building on the Forest Avenue elevation; ·The new skylight located on the three-story addition; ·The arched canopy over the new Forest Avenue entrance; ·An alternative street lamp fixture at the new Forest Avenue entrance; ·The seismic upgrade plan; and ·The trash enclosure and the location of the bike racks. Architectural Review Board On June 16, 2011, the ARB conducted a public hearing on the project and unanimously recommended approval (4-0-0-1) of the project with added conditions similar to those listed above. There was minimal discussion of the project by the Board, but they concurred with the HRB in that additional details were needed on some of the items for the project. The ARB staff report and verbatim minutes are attached for review and the complete list of approval conditions is provided in Attachment A. Director’s Decision On June 27, 2011, following staff review and recommendations from the HRB and ARB, the Director of Planning and Community Environment (“Director”) approved the Architectural and July 18, 2011 Page 6 of 7 (ID # 1661) Historic Review of the project contingent upon Council approval of the on-site use of the bonus floor area. Resource Impact The proposed project is not expected to have significant impacts on City revenue or expenses. With the 4,940 square feet of additional office development, there will be a negligible increase in property tax collected, little if any sales tax increase, and very little additional cost of City services. Policy Implications Comprehensive Plan The proposed project is consistent with the Comprehensive Plan and staff believes there are no other substantive policy implications. The project design and intent is in general conformance with the Comprehensive Plan. The project is consistent with and supported by the following Land Use policies: Policy L-23: Maintain and enhance the University Avenue/Downtown area as the central business district of the City, with a mix of commercial, civic, cultural, recreational and residential uses. Promote quality design that recognizes the regional and historical importance of the area and reinforces its pedestrian character. Policy L-49: Design buildings to revitalize streets and public spaces and to enhance a sense of community and personal safety. Provide an ordered variety of entries, porches, windows, bays and balconies along public ways where it is consistent with neighborhood character; avoid blank or solid walls at street level; and include human-scale details and massing. Policy L-51:Encourage public and private upkeep and preservation of resources that have historic merit, including residences listed in the Historic Inventory. Policy L-56: To reinforce the scale and character of University Avenue/Downtown, promote the preservation of significant historic buildings. Policy L-58: Promote adaptive reuse of old buildings. Environmental Review The project is Categorically Exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15301 and 15331 of the CEQA Guidelines. The project is consistent with the Secretary’s Standards for Rehabilitation. Attachments: ·Attachment A: Record of Land Use Action (DOC) July 18, 2011 Page 7 of 7 (ID # 1661) ·Attachment B: Location Map (PDF) ·Attachment C: Applicant's Project Description/Information (PDF) ·Attachment D: HRB Staff Report, June 15, 2011 (w/o attachments)(PDF) ·Attachment E: HRB Verbatim Meeting Minutes and Summary of Motion, June 15, 2011 (DOC) ·Attachment F: ARB Staff Report, June 16, 2011 (w/o attachments)(PDF) ·Attachment G: ARB Verbatim Meeting Minutes, June 16, 2011(DOC) ·Attachment H: Historic Structures Report (PDF) ·Attachment I: Project Plans (TXT) Prepared By:Clare Campbell, Planner Department Head:Curtis Williams, Director City Manager Approval: James Keene, City Manager 1 ACTION NO. 2011-xx RECORD OF THE COUNCIL OF THE CITY OF PALO ALTO LAND USE ACTION FOR 668 BRYANT STREET: HISTORIC REVIEW APPLICATION, 11PLN-00007, (WILLIAM BRUNER, APPLICANT) On July 18, 2011, the Council of the City of Palo Alto approved a request for on-site use of 4,940 square feet of a 5,000 square-foot combined Historic and Seismic Rehabilitation Floor Area Bonus from a proposed historic rehabilitation and seismic retrofit to increase the floor area of a property listed on the Palo Alto Historic Inventory as a Category 2 historic resource and on the Seismic Structures Inventory as a Seismic Category II building, making the following findings, determination and declarations: SECTION 1. Background.The City Council of the City of Palo Alto (“City Council”) finds, determines, and declares as follows: A.On January 4, 2011, William Bruner, on behalf of the Pacific Art League,applied for Historic and Architectural Review of the historic rehabilitation and seismic upgrade of an existing Category 2 Historic Resource generating a combined Historic and Seismic Rehabilitation Floor Area Bonus (“Double Bonus”) of 5,000 square feet, of which 4,940 square feet would be used on site and the remainder would be available as Transfer of Development Rights (“The Project”). B.Following staff review, the Historic Resource Board (HRB) reviewed the project on June 15, 2011, and recommended approval of the project (7-0).The Architectural Board (ARB) reviewed the project on June 16, 2011, and recommended approval of the project (4-0-0-1).The HRB’s and ARB’s recommendations are contained in the CMR #1661. C.On June 27, 2011, the Director of Planning and Community Environment (“Director”) approved the Architectural and Historic Review application contingent upon City Council approving the on-site use of bonus floor area. SECTION 2.Environmental Review. The project is exempt from the California Environmental Quality Act (“CEQA”) Guidelines, per sections 15301 and 15331. SECTION 3.Floor Area Bonuses –Findings. The project is eligible for a combined bonus totaling 5,000 square feet for both historic and seismic rehabilitation. 4,940 square feet of the combined bonus will be used on site. The City Council, pursuant to Deleted: The 2 Section 18.18.070(b)(8)(A) of the Palo Alto Municipal Code, finds that: 1.The exterior modifications for the entire project comply with the U.S. Secretary of the Interior's "Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings" (36 CFR § 67, 7), in that: The improvements to the existing building have been determined by the City’s Historic Resources board to be compatible with the existing historic elements of the building and meets the definition of “historic rehabilitation” as set forth in Municipal Code 18.18.030(b):”…returning a property to a state of utility, through repair or alteration, which makes possible an efficient contemporary use while preserving those portions and features of the property which are significant to its historic, architectural, and cultural values… and shall remedy all the known rehabilitation needs of the building, and shall not be confined to routine repair and maintenance as determined by the director of planning and community environment.” The major component of the project is a 4,940 square foot addition to the three-story building proposed along the south side of the existing building. The project also includes minor improvements to the existing building, such as a replacement door for the recessed main entrance (Ramona Street), replacement wood windows for the aluminum second-floor windows (Forest Avenue), new windows to replace the infill wall on the first floor (Forest Avenue), and repainting of the building to match the existing colors. 2.The on-site use of the floor area bonus would not otherwise be inconsistent with the historic character of the interior and exterior of the building and site, in that: The addition includes compatibility and differentiation strategies, especially the contrast between the smooth stucco finish of the addition and the rough finish of the historic walls. Also, the addition is recessed 10 feet which is an effective differentiation strategy. The entry doors and sidelights with the large glass arch above appeared to be a distinctly modern entry feature which is also compatible with the traditional form and references of the addition. The great majority of the interior is utilitarian in character reflecting the original repair shop use of the building. This character will generally remain and may even be enhanced by the seismic framing system. Also, the general shapes and sizes of the main rooms on the first and second floors and the general circulation pattern will be largely retained by the project. The two interior features that are rated as contributing are the Deleted: addition Deleted: within the 16 foot setback Deleted: three-story 3 hardwood floors and the built-in cabinets in the Library. The project appears to preserve these features. SECTION 4.Floor Area Bonuses. Floor area bonuses in the amount of 5,000 square feet are granted for Historic Rehabilitation and Seismic Upgrades performed. 4,940 square feet are used on-site as part of the Project. 60 square feet are eligible for transfer to other sites. SECTION 5.Conditions of Approval. Planning Division 1.The project shall be in substantial conformance with the approved plans and related documents received May 26, 2011, except as modified to incorporate these conditions of approval. 2.The project’s Record of Land Use Action documenting the Council approval of the on-site use of bonus floor area and all associated project approval conditions shall be printed on one of the initial sheets of the Building Permit Plan Set (final construction plans). 3.The Historic Rehabilitation Plan for 668 Ramona Street shall comprise the applicant’s written “Project Description” document, the “Treatment Recommendations” listed on pages 49-50 of the Historic Structure Report by PAST Consultants, LLC, dated May 11, 2010, the rehabilitation items depicted in the revised project Plan Set dated May 22, 2011, and two rehabilitation items added by staff: (a) a pest report if evidence of pests is found, and implementation of recommendations contained in that report, and (b) an assessment of the building for water leaks and, if found, the repair of the leaks. 4.The historic and seismic rehabilitation, restoration, and new construction at 668 Ramona Street shall be based on the Secretary of the Interior’s Standards and Guidelines for Rehabilitation and on consideration by the applicant of recommendations provided in the Department of the Interior’s “Preservation Briefs” #9 (“The Repair of Historic Wooden Windows”), #18 (“Rehabilitating Interiors in Historic Buildings: Identifying and Preserving Character-Defining Elements”), #22 (“The Preservation and Repair of Historic Stucco”), #24 (“Heating Ventilating, and Cooling Historic Buildings”), #32 (“Making Historic Properties Accessible”), #41 (“The Seismic Retrofit of Historic Buildings: Keeping Preservation in the Forefront”), and “Preservation Tech Note: 4 Specifying Temporary Protection of Historic Interiors During Construction and Repair.” (Staff will provide these documents to the project applicant for guidance on rehabilitation details.) 5.That details of the following project components shall return to the full HRB on the Consent Calendar: a).The new wood-frame ribbon-style casement windows on the second floor of the Forest Avenue elevation of the historic building; b).The new skylight over the new addition; c).The arched projecting glass canopy over the entry doors of the new addition including the type of glass and non-glass components of the canopy; d).An alternative design or designs for the street lamp that will illuminate the entry area to the new addition; e).The seismic upgrade structural steel system proposed for the interior spaces of the historic building; f).The trash enclosures at the alley elevation; g).The location of the bicycle racks. 6.That details of the following project components shall return to the full ARB on the Consent Calendar: a).The window details on the addition; b).The modification of the sidelights on the Forest Avenue entrance; c).The alternative light fixtures for the lamp and at the alley side roll-up door; d).Provide a sample of the roof material with the accurate color proposed; e).Provide details of the exterior treatment of the recessed entry on Forest Avenue, with detail on planters, furniture, etc; f).Provide details on the new canopy element above the new Forest Avenue entrance; g).Provide location of the bike racks; and h).Reconsider the roofline on the addition and provide an alternative solution. 7.Any proposed revisions to approved materials and colors for the exterior of 668 Ramona Street proposed during the project construction phase shall be submitted for review by the Historic Preservation Planner. 8.The project shall include the installation of two bicycle parking spaces on-site. Contact the Transportation Division for the approved bike racks and return for final review and approval (see 5(g) and 6(g) above). 5 9.The applicant shall install planters, and possibly a bench, along the new entry façade on Forest Avenue; the proposed plan shall be submitted for review and approval (see 6(e) above). 10.The applicant shall install a covered trash enclosure; the details are required to return for review and approval (see 5(f) above). 11.Any signage proposed to be attached to the exterior façade of the building shall be reviewed by the Historic Preservation Planner prior to ordering manufacture of the sign in conjunction with Architectural Review. 12.No demolition or permanent removal of significant historic fabric that is not included in the project approval shall be carried out in any amount for any reason except with written permission by the Department of Planning and Community Environment. 13.The California Historical Building Code shall be applied to all eligible aspects of the historic and seismic rehabilitation of the building exterior and interior when needed to preserve character-defining features. 14.The ten Secretary of the Interior’s Standards for Rehabilitation shall be printed on one of the initial sheets of the Building Permit Plan Set (final construction plans). 15.The Historic Preservation Planner shall participate in the Planning Department’s Final Inspection of the completed project. 16.Upon Planning Department approval of the completed project the owner of the site shall enter into an unsubordinated protective covenant running with the land in favor of the city, in a form satisfactory to the city attorney, to assure the property will be rehabilitated and maintained in accordance with the Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings, as they may be amended from time to time. 17.Development Impact fees are required for the proposed development. The estimated total of the Development Impact Fees is $133,039. These fees must be paid prior to building permit issuance. 6 Fire 1.Install a monitored NFPA 13 fire sprinkler system throughout the entire building. 2.All sprinkler drains, including auxiliary, inspector’s test and main drain, shall not discharge within the building. Water discharged from these points shall be directed to an approved landscape location or to the sanitary sewer system. NOTE: The maximum flow capacity of sanitary sewer in the area is 30 gpm. Main Drain test discharge flow rate shall be impounded and attenuated to below sanitary sewer capacity before discharge. 3.Elevator car shall be sized for Fire Department gurney access requirements based on gurney dimensions of 24 in. x 84 in. plus a minimum of two emergency response personnel. 4.Provide project data, including Type of Construction and an allowable area analysis. Electrical Engineering (Utilities) 1.The applicant shall comply with all the Electric Utility Engineering Department service requirements noted during plan and building review. 2.Applicant/Developer must notify Utilities Engineering (Electric) if the proposed renovation/change of use has any impact on the existing electrical service size, voltage, or location. If there are any changes, the Utilities will provide comments and/or conditions along with any applicable fees and cost estimate. Building Architectural Comments: 1. List the following project data information on the Cover Sheet of the plans: a. Building Occupancy Group: (M,B, etc) b. Type of Construction: ( V-B, III-B, etc) c. Sprinklered: (Y/N) d. Building Area: First Floor (E) & (N) Second Floor (E) & (N) Third Floor (E) & (N) 2. Note on the plans that the Applicable Codes for this review will under: California Building Code 2010 Edition California Electrical Code 2010 Edition California Plumbing Code 2010 Edition California Mechanical Code 2010 Edition 3. Clarify on the Proposed Floor Plans for the 1st, 2nd & 3rd Floors the intended use of each room and/ or space shown,e.g. Retail, Classroom, Office, etc. 4. On sheet A-4, First Floor Plan: it appears that the (N) stairwell (located in the rear addition) connects more than two-stories and serves as a required means of egress rated exit enclosure for the 2nd and 3rd floors. The exit enclosure shall lead directly to the exterior of the building or shall be extended with an exit passageway conforming to CBC 1023. Please revise the exit enclosure to comply. (CBC 1002.1) 5. On sheet A-6, Third Floor Plan and on sheet A-12, Southwest Elevation: there are three (3) windows shown in the rear addition in the exterior wall that is located 6" from the property line and is not permitted. Exterior wall openings that are protected or unprotected 7 are not permitted with the fire separation distance is less than 3- ft. Please delete these windows from the floor plan and elevation views. (CBC 705.8.1) Please note that once the project has received Building Division approval the following conditions of approval will apply: General Comment: 1. The completed plan submittal package should be sent to an approved Outside Plan Check Consultant for plan review. Architectural Comments: 1. On the Proposed First to Third Floor Plan, the minimum required plumbing fixture(s) count for the restrooms will based on the 2010 CA Plumbing Code, CPC Table 4-1. Structural Comments: 1. A geotechnical report is required for the construction of the addition to the commercial building. 2. A lateral seismic evaluation and/ or upgrade of the (E) building to the current Building Code is required. Where the addition is not structurally independent of the existing structure, the exiting structure and its addition acting together as a single structure shall meet the requirements of CBC Section 1609 and 1613 for Wind and Earthquake Loads. In addition where the alteration decreases the capacity of the any existing lateral load-carrying structural element, the structure of the altered building shall meet the similar requirements of CBC 1609 and 1613. This appears to be the case of the addition to the rear of the (E) building that demolishes the majority of the rear exterior wall. (CBC 3403.4, 3404.4) Water-Gas-Wastewater (Utilities) 1.The applicant shall submit a completed water-gas-wastewater service connection application -load sheet for City of Palo Alto Utilities. The applicant must provide all the information requested for utility service demands (water in fixture units/g.p.m., gas in b.t.u.p.h, and sewer in fixture units/g.p.d.). 2.The applicant shall submit improvement plans for any utility construction. The plans must show the size and location of all underground utilities within the development and the public right of way including meters, backflow preventers, fire service requirements, sewer mains, sewer cleanouts, sewer lift stations and any other required utilities. 3.Utility vaults, transformers, utility cabinets, concrete bases, or other structures can not be placed over existing water, gas or wastewater mains/services. Maintain 1’ horizontal clear separation from the vault/cabinet/concrete base to existing utilities as found in the field. If there is a conflict with existing utilities, Cabinets/vaults/bases shall be relocated from the plan location as needed to meet field conditions. 8 4.The applicant must show on the site plan the existence of any auxiliary water supply, (i.e. water well, gray water, recycled water, rain catchment, water storage tank, etc). 5.The applicant shall be responsible for installing and upgrading the existing utility mains and/or services as necessary to handle anticipated peak loads. This responsibility includes all costs associated with the design and construction for the installation/upgrade of the utility mains and/or services. 6.Sewer drainage piping serving fixtures located less than one foot above the next upstream sewer main manhole cover shall be protected by an approved backwater valve per California Plumbing Code 710.0. The upstream sewer main manhole rim elevation shall be shown on the plans. 7.Flushing of the fire system to sanitary sewer shall not exceed 30 GPM. Higher flushing rates shall be diverted to a detention tank to achieve the 30 GPM flow to sewer. 8.Sewage ejector pumps shall meet the following conditions: 1.The pump(s) be limited to a total 100 GPM capacity or less. 2.The sewage line changes to a 4” gravity flow line at least 20’ from the City clean out. 3.The tank and float is set up such that the pump run time not exceed 20 seconds each cycle. 9.Existing wastewater laterals that are not plastic (ABS, PVC, or PE) shall be replaced at the applicant’s expense. 10.The applicant shall pay the capacity fees and connection fees associated with the installation of the new utility service/s to be installed by the City of Palo Alto Utilities. The approved relocation of services, meters, hydrants, or other facilities will be performed at the cost of the person/entity requesting the relocation. 11.Each unit or place of business shall have its own water and gas meter shown on the plans. 12.An approved reduce pressure principle assembly (RPPA backflow preventer device) is required for all existing and new water connections from Palo Alto Utilities to comply with requirements of California administrative code, title 17, sections 7583 through 7605 inclusive. The RPPA shall be installed on the owner's property and directly behind the water meter, within 5’ of the property line. Show the location of the RPPA on the plans. Inspection by the utilities cross connection inspector is required for the supply pipe between the meter and the assembly. The 9 applicant shall provide the City with current test certificates for all backflows. 13.An approved reduced pressure detector assembly is required for the existing or new water connection for the fire system to comply with requirements of California administrative code, title 17, sections 7583 through 7605 inclusive. Reduced pressure detector assemblies shall be installed on the owner's property adjacent to the property line, within 5’ of the property line. Show the location of the reduced pressure detector assembly on the plans. Inspection by the utilities cross connection inspector is required for the supply pipe between the City connection and the assembly. 14.All existing water and wastewater services that will not be reused shall be abandoned at the main per WGW utilities procedures before any new utility services are installed. 15.All utility installations shall be in accordance with the City of Palo Alto utility standards for water, gas & wastewater. Public Works Engineering 1.SIDEWALK, CURB & GUTTER: As part of this project, the applicant must replace those portions of the existing sidewalks, curbs, gutters or driveway approaches in the public right-of-way along the frontage(s) of the property that are broken, badly cracked, displaced, or non-standard. Contact Public Works’ inspector at 650-496-6929 to arrange a site visit so the inspector can determine the extent of replacement work. The site plan submitted with the building permit plan set must show the extent of the replacement work or include a note that Public Works’ inspector has determined no work is required. The plan must note that any work in the right-of-way must be done per Public Works’ standards by a licensed contractor who must first obtain a Street Work Permit from Public Works at the Development Center. 2.STREET TREES: The applicant may be required to replace existing and/or add new street trees in the public right-of-way along the property’s frontage. Call Public Works’ arborist at 650-496-6905 to arrange a site visit so he can determine what street tree work, if any, will be required for this project. The site plan submitted with the building permit plan set must show the street tree work that the arborist has determined, including the tree species, size, location, staking and irrigation requirements. The plan must note that in order to do street tree work, the applicant must first obtain a Permit for Street Tree Work in the Public Right-of-Way from Public Works’ arborist. The following comments are provided to assist the applicant at the building permit phase. You can obtain various plan set details, 10 forms and guidelines from Public Works at the City's Development Center (285 Hamilton Avenue) or on Public Works’ website: http://www.cityofpaloalto.org/depts/pwd/forms_permits.asp. Include in plans submitted for a building permit: 3.GRADING & DRAINAGE PLAN: The plan set must include a grading & drainage plan prepared by a licensed professional that includes existing and proposed spot elevations and drainage flow arrows to demonstrate proper drainage of the site. Adjacent grades must slope away from the buildings a minimum of 2%. Downspouts and splashblocks should be shown on this plan, as well as any site drainage features such as swales. Grading will not be allowed that increases drainage onto, or blocks existing drainage from, neighboring properties. Public Works generally does not allow rainwater to be collected and discharged into the street gutter, but encourages the developer to keep rainwater onsite as much as feasible by directing runoff to landscaped and other pervious areas of the site. Site grading, excavation, and other site improvements that disturb large soil areas may only be performed during the regular construction season (from April 16 through October 15th) of each year the permit is active. The site must be stabilized to prevent soil erosion during the wet season. The wet season is defined as the period from October 15 to April 15. Methods of stabilization are to be identified within the Civil sheets of the improvement plans for approval. 4.GRADING & EXCAVATION PERMIT: Show the amount of soil that will be excavated and filled. For new basement projects or if more than 100 cubic yards of soil is disturbed, a Grading and Excavation Permit needs to be obtained from Public Works at the Development Center. Refer to the Public Works’ website for “Excavation and Grading Permit Instructions.” 5.STORM WATER POLLUTION PREVENTION: The City's full-sized "Pollution Prevention -It's Part of the Plan" sheet must be included in the plan set. Copies are available from Public Works at the Development Center or on our website. Also, the applicant must provide a site-specific storm water pollution control plan sheet in the plan set. 6.IMPERVIOUS SURFACE AREA: If the project will be creating or replacing 500 square feet or more of impervious surface, the applicant shall provide calculations of the existing and proposed impervious surface areas with the building permit application. The Impervious Area Worksheet for Land Developments form and instructions are available at the Development Center or on our website. 11 7.WORK IN THE RIGHT-OF-WAY: The plans must clearly indicate any work that is proposed in the public right-of-way, such as sidewalk replacement, driveway approach, curb inlet, storm water connections or utility laterals. The plans must include notes that the work must be done per City standards and that the contractor performing this work must first obtain a Street Work Permit from Public Works at the Development Center. 8.LOGISTICS PLAN: The contractor must submit a logistics plan to the Public Works Department prior to commencing work that addresses all impacts to the City’s right-of-way, including,but not limited to: pedestrian control, traffic control, truck routes, material deliveries, contractor’s parking, concrete pours, crane lifts, work hours, noise control, dust control, storm water pollution prevention, contractor’s contact, noticing of affected businesses, and schedule of work. The plan will be attached to a Street Work Permit. PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: APPROVED: _____________________________________________________ City Clerk Director of Planning and Community Environment APPROVED AS TO FORM: ___________________________ Senior Deputy City Attorney PLANS AND DRAWINGS REFERENCED: 1. Those plans prepared by Lundberg Design titled “Pacific Art League of Palo Alto 2010-13 Building Project”, consisting of forty- one pages, revision dated May 22, 2011, and received May 26, 2011. H o m er E m erson C orridor 6' 6'7' 7'7' 6' monatreetHistoricDistrict PC-2967 RM-15 P C-3707 D-C P) RM-30 AM (MU C D-S(P) 3872 PF CD-C (P)RM C D-S(P) RT-35RT-50 Downtown Library City Hall 90 828 700 774 795654 660-66 669 137 139 145 150 711709707705703701160-62 728-32 230212200- 820 834 825 761 201 239748 255 645-55635-39 700 165 718 151153155 636632628 635-39 702- 730 644 203 645-55 57-65 67-75 77-85 695 195 185 698175 171 640 220-44 701 721-23 731 735 734 225 744 745 739 248 260 26 771 741 755 757 776 80 209 635 285 642 231 22521520701 581 267-61555 545 53 540 300 248240238 619 628 616 227225 651643 180 620 624 533-35537-39 250 42 229 235546-52 5 541 236-30 200 206 210 220 226 221 223 668 636 640630634 625-27 629-31611 623 730 365 270 635 654 650 345664 325 661 740-46 777 707 332 36 275 675651 375 385 265 762- 724 e E m Ra m ona m an Street e Forest A venue t Lane 7 East Lane 6 East Centennial W alk Lane 11 W est This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend Project Site 0' 135' 668 Ramona Street Double Bonus Project CITY O F PALO A L TO I N C O R P O R ATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors ©1989 to 2010 City of Palo Alto ccampbe, 2011-06-23 16:32:17 (\\cc-maps\gis$\gis\admin\Personal\Planning.mdb) City of Palo Alto June 15, 2011 Page 1 of 50 THE PACIFIC ART LEAGUE AT 668 RAMONA STREET HRB MOTION ON JUNE 15, 2011 _____________________________________________________________ Historic Resources Board Action: Chair Bower moved, seconded by Board Member Smithwick, to recommend approval of the project, specifically the following items: A.That the scope of work proposed in the project’s Historic Rehabilitation Plan is consistent with the definition of “historic rehabilitation” set forth in Municipal Code Section 18.18.030(b); B.That the project conforms to the Secretary of the Interior’s Standards and Guidelines for Rehabilitation with respect to preservation of the character of the historic building’s exterior. C.That the project conforms to the Secretary of the Interior’s Standards and Guidelines for Rehabilitation with respect to the compatibility of the proposed new addition; D.That details of the following project components shall return to the full HRB on the Consent Calendar: ·The new wood-frame ribbon-style casement windows on the second floor of the Forest Avenue elevation of the historic building; ·The new skylight located on the roof of the new addition; ·The arched projecting glass canopy over the entry doors of the new addition including the type of glass and non-glass components of the canopy; ·An alternative design or designs for the street lamp that will illuminate the entry area to the new addition; ·The seismic upgrade structural steel system proposed for the interior spaces of the historic building; ·The trash enclosures at the alley elevation; ·The location of the bicycle racks. E.That the following staff-recommended Conditions of Approval, as modified by the HRB, are included: 1.The Historic Rehabilitation Plan for 668 Ramona Street shall comprise the applicant’s written “Project Description” document (Attachment A), the “Treatment Recommendations” listed on pages 49-50 of the Historic Structure Report by PAST Consultants, LLC, dated May 11, 2010 (Attachment B), the rehabilitation items depicted in the revised project Plan Set dated May 22, 2011 (Attachment C), and two rehabilitation items added by staff: (a) a pest report if evidence of pests is found, and implementation of recommendations contained in City of Palo Alto June 15, 2011 Page 2 of 50 that report, and (b) an assessment of the building for water leaks and, if found, the repair of the leaks. 2.The project shall be constructed in substantial conformance with the approved ARB/HRB plans dated May 22, 2011 and received May 26, 2011 except as modified to incorporate these conditions of approval. 3.The California Historical Building Code shall be applied to all eligible aspects of the historic and seismic rehabilitation of the building exterior and interior when needed to preserve character-defining features. 4.The historic and seismic rehabilitation, restoration, and new construction at 668 Ramona Street shall be based on the Secretary of the Interior’s Standards and Guidelines for Rehabilitation and on consideration by the applicant of recommendations provided in the Department of the Interior’s “Preservation Briefs” #9 (“The Repair of Historic Wooden Windows”), #18 (“Rehabilitating Interiors in Historic Buildings: Identifying and Preserving Character-Defining Elements”), #22 (“The Preservation and Repair of Historic Stucco”), #24 (“Heating Ventilating, and Cooling Historic Buildings”), #32 (“Making Historic Properties Accessible”), #41 (“The Seismic Retrofit of Historic Buildings: Keeping Preservation in the Forefront”), and “Preservation Tech Note: Specifying Temporary Protection of Historic Interiors During Construction and Repair.” (Staff will provide these documents to the project applicant for guidance on rehabilitation details.) 5.No demolition or permanent removal of significant historic fabric that is not included in the project approval shall be carried out in any amount for any reason except with written permission by the Department of Planning and Community Environment. 6.Any revisions to approved materials and colors for the exterior of 668 Ramona Street proposed during the project construction phase shall be submitted for review by the Historic Preservation Planner. 7.The color of the frame of the new skylight on the sloping roof of the addition shall be reviewed by the Historic Preservation Planner for similarity to the color of the roofing material. 8.Any new exterior lighting added to the project during the construction phase shall be reviewed by the Historic Preservation Planner with respect to the style, materials, and color of the fixtures, and the light bulb types. 9.Any additional signage proposed during the construction phase to be attached to the exterior of the historic building or the new addition shall be reviewed by the Historic Preservation Planner, in conjunction with Architectural Review, prior to ordering manufacture of the sign. 10.The Director of Planning’s project approval letter, including the approved Conditions, shall be printed on one of the initial sheets of the Building Permit Plan Set (final construction plans). 11.The ten Secretary of the Interior’s Standards for Rehabilitation shall be printed on one of the initial sheets of the Building Permit Plan Set (final construction plans). City of Palo Alto June 15, 2011 Page 3 of 50 12.Prior to issuance of the building permit the Historic Preservation Planner shall review the Building Permit Plan Set (final construction plans) for consistency with the Director of Planning’s project approval based on the recommendations of the Historic Resources Board and approval by the City Council. 13.The Historic Preservation Planner shall participate in the Planning Department’s Final Inspection of the completed project. 14.Upon Planning Department approval of the completed project the owner of the site shall enter into an unsubordinated protective covenant running with the land in favor of the city, in a form satisfactory to the city attorney,to assure the property will be rehabilitated and maintained in accordance with the Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings, as they may be amended from time to time. Vote: 6-0-0-1 (DiCicco absent) City of Palo Alto June 15, 2011 Page 4 of 50 Wednesday, June 15, 20111 REGULAR MEETING –8:00 AM2 Council Chambers3 Civic Center, 1st Floor4 250 Hamilton Avenue5 Palo Alto, California 943016 7 ROLL CALL:8 9 Board Members:Staff:10 David Bower, Chair Steven Turner, Advance Planning Manager11 Scott Smithwick Dennis Backlund, Historic Pres. Planner12 Martin Bernstein Diana Tamale, Admin. Associate13 Roger Kohler Clare Campbell, Planner14 Patricia DiCicco15 Beth Bunnenberg16 Michael Makinen17 18 Board Member Bower: Let’s move onto the second agenda item. While they are setting 19 up I would like to welcome Nancy Shepherd here, our Council representative. Nancy is 20 here every week with us.21 22 So let me just read while they are changing things the item number two application. It is 23 668 Ramona Street. It is a request by Pacific Art League of Palo Alto for Architectural 24 Review Board and Historic Resources Board review of the historic rehabilitation and 25 seismic upgrade of an existing Category II historic resource which would generate 5,000 26 square feet of bonus floor area, 4,959 square feet of which would be used on site,and 41 27 square feet of which would be available as Transferable Development Rights.The 28 zoning district is CD-C(P). The environmental assessment is this project is exempt from 29 provisions of the California Environmental Quality Act, per Section 15331.30 31 City of Palo Alto June 15, 2011 Page 5 of 50 I guess I will open the public hearing and while they are finishing setup maybe Staff could do a 1 relatively brief overview.2 3 4 NEW BUSINESS5 6 2.668 Ramona Street [11PLN-00007]:Request by Pacific Art League of Palo Alto for 7 Architectural Review Board and Historic Resources Board review of the historic 8 rehabilitation and seismic upgrade of an existing Category II historic resource which 9 would generate 5,000 sq. ft. of bonus floor area, 4,959 sq. ft. of which would be used on 10 site and 41 sq. ft. of which would be available as Transferable Development Rights. 11 Zone District: CD-C(P). Environmental Assessment: Exempt from the provisions of the 12 California Environmental Quality Act per Section 15331. 13 14 Mr. Dennis Backlund, Historic Preservation Planner: Thank you very much Chair Bower and 15 members of the Board. We would like to introduce this morning the Planner, Clare Campbell, 16 who has done a very great deal of work on this project, partly because it will also go to the 17 Architectural Review Board. I believe that is tomorrow morning at 8:30 the meeting begins. So 18 I will note here that the Board Members present could consider which Board Member would be 19 able to represent the HRB tomorrow with a short presentation to that Board on what the HRB 20 accomplishes today, and what the motion was, and be available to answer questions from the 21 ARB.22 23 According to the Municipal Code the HRB recommends to the ARB, and that would be part of 24 the presentation tomorrow. Because this project is involving as a nonresidential building 25 architectural review that is discretionary design review. The project is subject to CEQA, and the 26 City is only allowed to grant the building permit upon a finding of the City based on the HRB’s 27 recommendation that the project overall conforms to the Secretary Standards. Therefore the 28 City of Palo Alto June 15, 2011 Page 6 of 50 Architectural Review Board will have certain issues that they will talk about, for example the 1 correspondence with a Downtown urban plan and other items. However, the ARB for 2 discretionary CEQA projects can only put together an approval that the City regards as also 3 complying with the Secretary Standards and that is why the ARB benefits greatly by a 4 presentation from the HRB and to answer any questions the ARB might raise on their issues, and 5 the compliance of those with the Secretary Standards. 6 7 So with that said, the Staff Report has recommended that the project complies with the Secretary 8 Standards. However, as modified by the Conditions of Approval there are 16 Conditions of 9 Approval, and there are two items that I will mention that we asked the Board to give special 10 attention to because the Historic Staff is fairly certain that these two items will be raised by 11 Architectural Review Board review. So we would appreciate if these items that I will mention 12 are included in the Board’s motion.13 14 Before I mention those, in the 16 Conditions of Approval most of those are standard conditions. 15 The project does include on the addition a joined pair of skylights fairly close to Forest Avenue 16 that will be on top of the addition. Those skylights are there in the plans because there is a 17 classroom building that is underneath, whose usage will require as much light as possible for 18 artistic creation and instruction. Therefore the Staff accepts those skylights. We are aware that 19 the Secretary Standards recommends that skylights be placed well away from a primary façade. 20 The primary façades are Forest Avenue and Ramona Street, but we accepted those skylights 21 because they are pretty far up, and we believe that they will be not interusably visible from the 22 street. We do have a condition that Staff wants to make a final review of the frames of those 23 City of Palo Alto June 15, 2011 Page 7 of 50 skylights, to have them colored about the same as what the roof is, and that will make the 1 skylights even less obtrusive. So that is one condition that is not standard but we have added it 2 for the project.3 4 As I said, the other conditions are things that might happen, but may not. That is any additional 5 signage that might be affixed to the building would be reviewed, we recommend by Staff in 6 conjunction with Architectural Review Board Staff. No additional signage may be submitted, 7 however. 8 9 Then there are two required bicycle racks and we recommended that the location of those and 10 their design be reviewed by the Historic Preservation Planner also in conjunction with 11 Architectural Review. 12 13 Then there will be need to be a trash enclosure. Usually trash enclosures given location and the 14 usual materials work out well. We have had a couple of examples where there were all steel and 15 steel mesh enclosures that did not correspond well with the historic building. So we did provide 16 a condition that Historic Staff can look at any final design for a trash enclosure in conjunction 17 with ARB. 18 19 The two items that we would like the Board to rule on, Staff was uncertain about the compliance 20 with the Secretary Standards. We would like the Board to make their judgment on that. One of 21 them occurs on page A-16, the Forest Avenue elevation plans. That is a new streetlamp in front 22 of the addition. The sheets that were attached at the front of your plans show a larger cut-sheet 23 City of Palo Alto June 15, 2011 Page 8 of 50 scenario for that streetlamp. The addition is a contemporary interpretation of Spanish Colonial 1 Revival, in fact, quite contemporary. It will be well differentiated, but Staff believes compatible 2 with the historic building. The streetlamp in Staff’s judgment does have a rather Victorian gas lit 3 type of appearance that is an earlier type of look, quite a bit earlier than the 1926 construction of 4 the historic building, and then the contemporary nature of the addition. So we would appreciate 5 it if the Board’s motion could include a conclusion if this streetlamp design appears to you 6 compatible with the project. We suspect that the ARB that generally looks at lighting pretty 7 closely may raise that issue, and would appreciate your comment on it. If the Board feels that 8 the design is a problem then a different type of streetlamp closer to the contemporary look of the 9 addition or with references to something that would be appropriate to Spanish Colonial Revival 10 could be indicated. That could be reviewed by Staff or come back to a Board subcommittee at a 11 later time. So that is one of the two items we would like the Board to make a ruling on.12 13 The other one is found on Sheet A-17, and that is the proposed glass canopy in the front. I 14 apologize that Historic Staff did not interpret correctly the drawing that is on the far right of 15 Sheet A-17. It was not labeled and we didn’t notice that that is a sideways view of that glass 16 canopy, and shows that it would project approximately three and a half feet out from the 17 building. So in fact it is a glass awning. What the canopy is is when you look back at the half 18 circle type glass window above the front doors that is not projecting. The only thing that projects 19 is above the sort of rust colored, red arch above the sign Pacific Art League. That thin strip of 20 glass above that that is the projecting canopy. So it would be a half circle glass structure of some 21 size as indicated in the sideways view, and would project out. So it is intended to be an all-glass 22 awning projected out from the addition. We would appreciate a Board’s ruling on that whether 23 City of Palo Alto June 15, 2011 Page 9 of 50 an all-glass awning of that height and projection appears to you compatible with the new 1 addition and with the historic site in general, or if there should be some different detailing or 2 material than that glass awning has. You could include that in your motion.3 4 Otherwise, we regarded the project in our estimation as very compliant with the Secretary 5 Standards. We regarded one very happy change from existing conditions is the proposal to do a 6 rusty red color approach to all of the wood elements, as you can see on the cover sheet of the 7 plans. Some of the upper windows and the bentwood railings on the second floor that are 8 historic are already colored in this rusty red. So the rusty red wood coloration would be 9 extended throughout the first floor of the historic building and would also be used on the addition 10 to help tie the addition to the historic building. We regarded that as a very beneficial component 11 of the project because when the wood elements on the first floor were painted black several years 12 ago black is the same color as the darker shadowing that would happen from the detailing of the 13 wood. So when the wood elements were painted black most of the historic detailing on the first 14 floor tended to disappear. You can see it through studying very close up but it is not prominent 15 to the street. You don’t any longer see the detailing.16 17 The lighter rusty red color would make the detailing of the wood elements, kind of molded 18 elements, and detailing on those window frames particularly wrapped around Forest Avenue 19 much more apparent to the street and we regard that as a great benefit of the project.20 21 One thing I will point out. When you look at the model you will see some substantial connecting 22 structures partly in stucco, partly in a glass canopy that connects the new addition with the tower 23 City of Palo Alto June 15, 2011 Page 10 of 50 that is on Ramona Street. We would like to emphasize that those elements do not show even in 1 the rendering that is on the front cover of your plans. You wouldn’t be able to see any of these 2 elements from the street, only from up in the air. The large photograph that we provided on the 3 wall of the front taken from an actual bystanders viewpoint holding a camera shows that that area 4 connecting the tower and the new addition would be even less visible than the rendering on the 5 covers of your plans, because the photograph shows from an actual person’s vantage point. All 6 you can see is the historic elements of the building and not what happens behind there. So that is 7 one way to look at the model.8 9 The photograph also shows, since it shows the whole of Ramona Street down to the Cardinal 10 Hotel, it is intended to illustrate Staff’s opinion that there is no historic building in the whole of 11 the Downtown that has a dominance and strong character contribution to the Downtown area, no 12 historic building that quite equals this one. Therefore, we regard the rehabilitation of this 13 historic building, the new color scheme and other aspects of the project as extremely beneficial 14 to the historic character of the Downtown by preserving this building, and particularly 15 seismically upgrading an unreinforced, hazardous masonry building that is threatened at this time 16 by any very strong earthquake that would occur in the 8.0 range. Since it contributes more than 17 any other historic building because of its scale and castle-like character to the Downtown this 18 project was very essential. I think only the Christian Science Church could possibly compare to 19 this building in the contribution it makes to the Downtown. 20 21 So there were a lot of details of this project that the Board has reviewed in a site visit. We invite22 the Board’s questions on any project aspect.23 City of Palo Alto June 15, 2011 Page 11 of 50 1 Mr. Steven Turner, Advance Planning Manager: Chair Bower, just to follow up on Dennis’s 2 presentation. In your Staff Report on page 9 Staff has outlined the recommended key decisions 3 that could be made by the Historic Resources Board, and that could be used as a tool in your 4 questions and comments to Staff and the applicants, and then finally as you perhaps make your 5 motion about the items that Staff would appreciate the Board’s comments on. Thank you.6 7 Board Member Bower: Thank you Steven. Let’s move to the applicant presentation. We will 8 have questions of everyone after this.9 10 Mr. Bill Bruner, Architect, Pacific Art League: Good morning Board, a pleasure to be here 11 before you and great pleasure to see some of you yesterday and the day before.12 13 Board Member Bower: Could you tell us your name first.14 15 Mr. Bruner: Yes, Bill Bruner, Pacific Art League architect. I enjoyed giving the tours, and the 16 tower was very popular.17 18 I wanted to say one thing, for what it is worth, the last time I stood here in this Chamber was 40 19 years ago. I was representing the seniors of Palo Alto. My mother-in-law was bringing the 20 project to the Council. The proposal was to take the police and fire station of Birge Clark and 21 convert it to the use for the seniors. She asked me if I would do that, do some drawings, and do a 22 model, which I did showing the addition to Avenidas, the Comida, the dining hall. Well, it 23 City of Palo Alto June 15, 2011 Page 12 of 50 carried the day and the City sold us the building for one dollar. You probably know the story. 1 So it went from there to Birge Clark’s firm and they created the final solution, Kohler, Potter, 2 Scomquist & Earlich.So that was a little bit of my history and it is really at the other end of the 3 cross axis here at Cogswell Park. I feel like I am helping to anchor both ends here.4 5 Let me just get going then with this. Here is the aerial photograph, of course where we are. 6 Here is where we are now in the Council Chamber. If you look out the window we can see the 7 Art League. This is a close up looking from down the street at that roof. It is very prominent, 8 which we had some skylights on, and Dennis reminded us they are not historically appropriate. I 9 agreed with him, and I would like to thank Dennis and Clare both for being of great service over 10 the years here. Especially Dennis since about three years ago we got involved and started 11 meeting and so he has kept me on track pretty well. This is the tower here, which almost 12 disappears with the sky. So that is the view.13 14 Then this is my take on the Forest Avenue streetscape, which shows the three buildings along 15 here. I thought that was a very good point that Dennis said about the coloration of the windows. 16 You look now at this rendering down here or this photograph and these are just black holes. I 17 knew we put black fences in front of properties so you don’ see the fence like along the Palo 18 Alto High School area there, but in some ways they almost jump out at you. In this case they are 19 definitely hiding some of the strongest features of the building, these windows,and the windows 20 along here. So I think that is a good strategy to go to red. It was suggested by Patty Tarkwell21 and the members of the board that we get the black out of there, and there we are. 22 23 City of Palo Alto June 15, 2011 Page 13 of 50 So these I think are probably the most strongest most interesting features are the corner windows 1 with the false balconies. One thing you might not realize is these balconies, which appear very 2 substantial and of an iron nature are actually wood, like one-by wood. Winsor was a 3 cabinetmaker and he did a lot of built-in work so the scale –he thought no problem doing wood 4 exterior balconies. Of course, they have been there now for close to 90 years. I think what we 5 would do is just go over them and make sure they were anchored properly. We have had some 6 work done on this particular one where Bernard Riley who was with the Trust of England who is 7 now doing roofing here did secure some of these more substantially. So what we want to do is 8 just basically restore and tighten up and have good painting all around here. We found some dry 9 rot in some of the roofing areas, I mean the windows. Just some more. 10 11 Our plan here is to keep this as a main entrance to the gallery, and here is some more window 12 detail with the gallery behind. More detail. I think you have the time at your leisure to look at 13 these. We will also be retaining some of the casework that he had built upstairs in the gallery.14 15 Here is our site. As you can see we pretty much filled in the property. We are setback here ten 16 feet, which is the setback line for the residential across the area there. Then we have an eight by 17 16 square area here, which we will have to put in a shelter for the trash.18 19 This shows now the addition as seen in elevation. All of this is existing as you can see, and all to 20 remain. There will be new doors here setback six to seven feet from the arch, which will stay at 21 a four foot width. Then these will be open, stay open on up. Then we will be able to remove the 22 stair without affecting the light quality in here. The stairway does not meet code in terms of its 23 City of Palo Alto June 15, 2011 Page 14 of 50 rise and run. It would be a liability in spite of its historic nature. It was the entrance to the 1 Winsor’s apartments upstairs. 2 3 This is the elevation. We are going to be restoring these windows to the wood casement. They 4 are aluminum sliders now. Then we will be putting this panel back as nearly as we can surmise 5 with wood panel and windows. This shows the entrance, which will be a main entrance to the 6 building off of Forest. I am sorry I don’t have what the address will be.7 8 Here is the canopy. I thought we just need something to kind of shield people standing at the 9 door ready to come in. So I was thinking maybe a laminated glass canopy, maybe have some 10 texture to it perhaps. A decidedly modern element, but almost an art element. Maybe bolted on 11 that could be considered a piece of sculpture, maybe just announcing that we are the Art League 12 and that is what we do.13 14 Now this is interesting, and this is mis-noted here these windows as wood frames. They are 15 actually all steel frame, steel and wire glass, and all of these windows on the alley are steel. It is 16 interesting that that was a requirement at the time even then. So we are setback here so we are 17 flush with the neighbor. In this area we will have the trash receptacle. So we will probably want 18 to do a different treatment on the door. We have discussed it and we just really feel we don’t 19 need anything quite that large to get in, just go with a double high door to bring in materials.20 21 This of course is the elevation next to the adjacent building. There are no openings in it. It is on 22 the property line. 23 City of Palo Alto June 15, 2011 Page 15 of 50 1 This is the entrance to the building. Right now we have steps in here that go up and down, and it 2 is quite hazardous for people bringing their materials in so we wanted to level all that off and fill 3 in this area a few inches so that it is level with the studio are, Studio 2. Then we will take that 4 same level all the way back, but then keep the main galleries here at the lower level, which is 5 approximately six inches lower so that we could continue to come directly in off of this entrance. 6 This one as well. So there is a ramp and step requirement between those two levels. 7 8 Okay, so the second floor.The pumpkin color is all addition including what is now the open 9 porch upstairs, which we will skylight as much as we can of it with some light control but also to 10 give light to these spaces. It is intended, I mean we could keep it open that is another option. 11 This becomes all the new, considered new area then, because it is enclosed on four sides. 12 13 This is looking down on it. A bridge at that level that takes you over to the tower. We are 14 removing the stair, which is a noncompliant stair too. It is very steep. These numbers refer to 15 the –a little different format, but they are the same numbers that you have in your pamphlets 16 there. 17 18 The overall roof plans showing the solar array, the skylights that were mentioned,and this 19 skylight over the courtyard. 20 21 City of Palo Alto June 15, 2011 Page 16 of 50 This is the final level to the tower. You can come up some steps inside here to walk out on the 1 top of that. I was thinking it would be nice to have an observatory of sorts, but that is my bent. I 2 am an amateur astronomer. 3 4 The biggest feature I think for most members in their minds is adding the elevator. This shows 5 it. It is accessible on three levels. This is the new stair. The old stair was in here. This is a new 6 stair, which takes us up.7 8 Looking towards the southwest at the addition, cutting through the patio area, and the existing 9 print room and the skylight and the bridge above which leads to the exit stair and the elevator. 10 There will be under 50 people, 50 occupancy as I am interpreting it requires one exit, one 11 protected exit in three levels.12 13 This is the model again photoshopped into its surroundings, or the surroundings photoshopped 14 into the model. There is the tree, actually the level of where the drip line of the tree goes well 15 into here. They recently trimmed it so it is looking pretty good, but it is a nice element obviously 16 to have that tree on the south side. It kind of gives us a courtyard sense, a little protection from 17 the sun.18 19 Looking down here, I am not showing the streetlamp, which would be right here on our property. 20 It was meant to be kind of a gathering point where you would come to with just a cone of light 21 that would be as light as --not as bright as it would be to be a safety light so much, but it is 22 enough to allow you to have the door protected there.23 City of Palo Alto June 15, 2011 Page 17 of 50 1 I can switch back to any of these if you have questions. Another view showing the little bridge 2 here. 3 4 The color scheme as Dennis mentioned is an off-rust terra cotta. What you see there now would 5 be duplicated in both the new, we are saying aluminum windows,and there are treatments to get 6 the colors in aluminum. 7 8 This is the rendering of the new addition. A little close up here. Here is the canopy. The way 9 this started to work in photoshop it started suggesting other shapes to me. So the story is still on 10 the boards as far as this canopy, but I just think that going to Hanoi and back to Paris and seeing 11 the beautiful glass and steel canopies, protection, the Metro and other places that it would do 12 something that would not maybe –I mean whatever period you want to capture. I am not sure 13 we need to capture the period of the 1920s. It might be something to do a counter or like if the 14 structure inside is definitely going to be 2010 structure, right? But maybe a little bit of it can 15 come outside. That is just my bias. 16 17 Here are some of the steel inside, just one version of what could happen there. We want to take 18 out a column in the center so we would have steel, like a Barron Deal or cut web steel in there 19 probably just a straight shot without any curvature to it itself. 20 21 This is the other studio here where we have a lecture going on, and the windows all open to 22 Ramona at that point. So okay, that is the slide presentation. I would be happy to take questions.23 City of Palo Alto June 15, 2011 Page 18 of 50 1 Board Member Bower: Well, thank you for this. Appreciate your coming to us in the Study 2 Session before you actually did this. I think that was helpful. The plans look very carefully 3 considered. In light of the time let’s try to make questions for Staff and applicant short. Scott, 4 do you want to start? 5 6 Board Member Smithwick: I will direct my first questions here to Staff. Under Condition 7 number one you have under B, an assessment of water leaks. I am assuming that it looks like 8 from the later part of that statement is repair leaking plumbing inside the building. That is not 9 looking for water leaks in the existing roof or structure, is that correct?10 11 Mr. Backlund: It could be anywhere on the building. Staff is not aware that there is a leaking 12 problem. It is just a reminder that that is something that the fixing of which preserves the 13 building in the long-term. The building has had the same ownership and use for decades, and it 14 appears to us that it has been maintained quite well over the decades. It appeared to us when we 15 went through the interior we didn’t notice noticeable leaks, but we put it in there as a reminder as 16 they kind of get into the building for the rehabilitation that a leaking situation if it is seen 17 anywhere is something to think about. It is the same thing with our recommendation for a pest 18 report. It may be that there have been periodic pest reports up until recent times that have found 19 that there is not significant intrusion because the building has been maintained for decades. If it 20 is not leaking and it has not been a restaurant use there may not be a pest situation, but it simply 21 is a reminder that that is something always good to include as you go through a building and 22 rehab it.23 City of Palo Alto June 15, 2011 Page 19 of 50 1 Board Member Smithwick: Okay. In comment number three I would just suggest, well the 2007 2 code is no longer in force, we are at the 2010. So I would just suggest striking that out and just 3 leaving California Historical Building Code. 4 5 Under number four, I think just to be clear, 661 Bryant is a mistake again. Is that correct?6 7 Mr. Backlund: Yes. That condition had so much detail on the preservation briefs from the 8 National Park Service that would be used. We regarded those as educational documents for the 9 applicant. There are many things in those documents that they don’t have to do and don’t apply 10 to this project, but they are good to consult those projects while you do a rehab. Unfortunately, I 11 lifted that from an almost identical project and forgot to change the address. So it should read 12 668 Ramona Street with these same documents as applicable to the Ramona project.13 14 Board Member Smithwick: Thank you. Under number seven you talked about the skylights and 15 this is specifically referencing the skylights on the new addition and not the skylight above the 16 courtyard, correct?17 18 Mr. Backlund: Yes, it is noted here that it is on the roof of the addition. So as the project 19 proceeds we will just confirm as actually shown in the plans that the frame of the skylight will be 20 a similar color to the roof of the addition. That will tend to make the skylight very much less 21 intrusive.22 23 City of Palo Alto June 15, 2011 Page 20 of 50 Board Member Smithwick: Okay, thank you. The project is really good. I just have a few 1 comments, and as Staff has asked the new streetlamp I think should be looked at for alternative 2 types, and agree with Staff’s assessment that it is not quite in keeping with either the 3 contemporariness of the new addition nor the historic building. 4 5 I do have a question on the wood and glass panel that is being replaced on Forest. I forget what 6 sheet it is, but it looked like there is an existing elevation that you are taking your cues from on 7 the replacement of that. Is that correct?8 9 Mr. Bruner: Yes, we believe that prior to purchasing the building in 1965 that there was a panel 10 movable that Winsor could bring his materials in and out of to build his furniture. Bob Peterson 11 who was the architect at that time had suggested that, and where he got his information was in 12 historical context…..13 14 Board Member Smithwick: On page A-14 there is an existing elevation.15 16 Mr. Bruner: Okay, A-14. Yes, this was Bob’s drawing. Rather than having the glass –we could 17 consider having the glass going down, having the top two rather than just the top one panel. It 18 would be more accurately correct to have six lights there with the wood below. So what you are 19 seeing here on A-14 are original drawings done for the Art League back in 1965 by Bob 20 Peterson. They have been enormously helpful. If that answers your question.21 22 Board Member Smithwick: Yes, thank you.23 City of Palo Alto June 15, 2011 Page 21 of 50 1 Board Member Bower: Scott, could I, since we are on this I had a question about this too. I see 2 five places where this window is shown in these plans and they are all different. So which one is 3 actually going to be the style? I don’t particularly like the one on A-16. I think that is 4 inconsistent with the existing and the new. These are these replacement windows. If you go to 5 A-39 and A-40 they look a little different. We are actually being asked to approve these 6 replacement windows but I don’t see exactly where.7 8 Mr. Bruner: I borrowed that from the other sketch. It shows a two light on A-40 but we want 9 three. I am thinking now, we had the kitchen here at one time. So we needed to cover up the 10 bottom panels for the cabinetry. I am thinking now that is just an opening into the gallery. So 11 we could go to just have six lights as the Peterson drawings show.That would be acceptable. 12 We could certainly make that a condition if that works for you. It works for us. I don’t know.13 14 Board Member Bower: I guess my question is is this drawing on A-16 what you were 15 proposing?16 17 Mr. Bruner: Yes, this was the proposal, yes.18 19 Board Member Smithwick: You are now saying that would be the proposal only making all six 20 of those lights glass.21 22 Mr. Bruner: Yes.23 City of Palo Alto June 15, 2011 Page 22 of 50 1 Board Member Smithwick: Which would be consistent with the 1965 drawings by Bob 2 Peterson.3 4 Board Member Bower: Can’t we do better than that? So I am looking at the existing windows. 5 They are adjacent on the front and on the Forest Street side. This is the only window on your 6 drawings that has multiple lights and they are small. Your new building, which is to be 7 differentiated from the old, has a small upper transom and then a larger lower transom in the 8 vertical dimension but they are all the same width.So I am just wondering why there are so 9 many lights in this one window and there is no other part of this building that has that many 10 lights.11 12 Mr. Bruner: You are speaking of the wood frame panel?13 14 Board Member Bower: No, I am actually speaking of this window that is replacing the one that 15 is shown on A-14 as an aluminum slider.16 17 Mr. Bruner: You are talking about the second floor.18 19 Board Member Bower: Yes, I am talking about the one on the second floor.20 21 Mr. Bruner: I am sorry. Yes, it is aluminum frame now.22 23 City of Palo Alto June 15, 2011 Page 23 of 50 Board Member Bower: So while we are on A-14, and I know we are short of time. Look at all 1 the windows across the Forest Street side of this building on the first floor. They consist of a 2 single straight line from the transom area windows down to the lower windows. This on A-16, 3 this new proposed window, actually has a horizontal transom and then three vertical divisions 4 under each of those making what I think is a very busy look to a building. It is going to add a 5 whole new dimension to this. I am just wondering why.6 7 Mr. Bruner: The purpose is to restore to the photograph we have and the drawings that Bob did, 8 restores it to that look.9 10 Board Member Bower: So you are going to restore to the 1960s look?11 12 Mr. Bruner: Those windows, we don’t want them the way they are, which are the aluminum 13 sliders. We found on the drawings and some photographs that they had these multiple light 14 casement windows.15 16 Board Member Bower: Prior to the aluminum windows put in in the 1960s. Okay, so you are 17 matching a photograph of what was there before the existing windows were installed.18 19 Mr. Bruner: Yes, and I believe probably Bob was aware. They were there at the time and they 20 removed them at that time in 1965.21 22 City of Palo Alto June 15, 2011 Page 24 of 50 Board Member Bower: I am sorry to take so long on this I just want to be sure I understand. So 1 this is what you are proposing to do.2 3 Mr. Bruner: That is what we are proposing and it goes all the way back. Scott, I apologize for 4 stepping in.5 6 Mr. Backlund: Chair Bower, if I could clarify. The historic inventory photo that was taken in 7 the 1970s shows those second floor ribbon of windows as they are on Sheet A-16. Then at a 8 later date then that, we are not sure when, the aluminum sliders were put in. We do not have 9 evidence or plans from the very early period of what that ribbon of windows was like. We 10 regarded that those showing in the 1978 photograph could well be the early windows, because 11 the project from 1965 from Bob Peterson only had a very limited scope, and we don’t believe 12 that it included the Forest elevation but just changes on the Ramona elevation. So we took the 13 Forest second floor windows in the 1970s photograph to be the original ones.14 15 Board Member Bower: Okay, fine. So we can assume that those windows shown on the 16 drawing that is what we are going to see when the project is built. That’s all.17 18 Mr. Bruner: Yes, yes.19 20 Board Member Bower: Thank you sir. Scott, continue.21 22 Mr. Bruner: Sorry I misunderstood.23 City of Palo Alto June 15, 2011 Page 25 of 50 1 Board Member Smithwick: So my final two comments are about the seismic scheme and the 2 glass canopy. The seismic scheme in these documents is fairly limited but what it appears to me 3 is that it is a steel structure that is going to be inside and bracing the existing concrete frame. Is 4 that correct?5 6 Mr. Burner: Yes, yes, and it will be evident that is there. It will be physical presence. We are 7 not hiding it. It will be differentiated in that sense. We have a slightly simpler scheme that was 8 done by the engineer but it featured diagonal four by tubing across the windows, and we just felt 9 that that was just not the look we wanted. The old Café Barona had those, which is now the 10 Repesada has the movement-resisting frame, which is much nicer. So we need to consult with an 11 engineer to make sure we can actually do it that way and have those movement-resisting frames 12 or some combination of. Almost now that we are looking at the corner of the building with those 13 12 by 12 columns would become like a rigid bench with legs and triangular in each corner 14 almost to at least catch the corner. It is a work in progress and we haven’t work with an engineer 15 now for a couple of years, so we have to get back on track with that. He is very competent and 16 will come up with something. I thought something that had more of a tensegrity, you know 17 tinsel and compression nature inside. It would be more freeform or something that would 18 conform to the walls. That was my idea years ago. I think we want something that is going to be 19 cost effective and the engineering of course has advanced so much now that I can’t pretend to 20 know what his calculations are. So that is a long-winded reply, sorry.21 22 City of Palo Alto June 15, 2011 Page 26 of 50 Board Member Smithwick: The last comment I have is on the glass canopy.While I am not 1 opposed to that concept I think that the success of that is going to live and die on the detailing of 2 it. So I guess essentially I approve of it in concept, but I am hesitant to approve it at this stage 3 not knowing exactly what it is going to end up looking like once it is fully detailed and 4 engineered. That is essentially my general same comment on the seismic scheme. I think it is an 5 appropriate scheme but without having a more detailed plan of what that is based on my previous 6 experience of like what happened at the College Terrace Library, I am hesitant to approve a 7 seismic scheme that has yet to be fully defined.8 9 Mr. Bruner: Yes. If I may, the other element to the seismic solution is the stabilization of the 10 walls themselves, the infill clay. We are proposing to use an FRP, fiber reinforced polymer, 11 sheets much like fiberglass, doing a fiberglass hull or something, in layers of this material. It 12 really is everywhere in the existing building on the exterior, even up into the gables, this block, 13 which we have been told would literally explode out of those frames in a significant earthquake. 14 What we want to do is anchor them together on the inside with this material that would glue 15 itself to it. Just what that combination would be, but it is primarily an FRP solution. That would 16 also happen to one large interior wall to stabilize that and make that also keep within its frame in 17 a shake. So it is not so much structural in terms of lateral stability but it is definitely to keep the 18 things from popping out of the walls.19 20 Board Member Smithwick: I was actually going to mention that, and I am glad you said that. I 21 have used I call it fiber wrap on concrete frame buildings before. It is a pretty slick solution for 22 reinforcing hollow clay tile and concrete. 23 City of Palo Alto June 15, 2011 Page 27 of 50 1 Board Member Bower: Thank you Scott. Michael comments or questions.2 3 Board Member Makinen: Is it questions?4 5 Board Member Bower: Either. Everything.6 7 Board Member Kohler: This is a fairly large project so to come in pointblank without it. We8 usually get a Study Session at some point. Now we are expected to –first I saw this building 9 was yesterday. It didn’t come earlier to us. So now we are expected to approve this, is that it?10 11 Mr. Turner: Staff is recommending a series of recommendations regarding this project. It is not 12 required that projects go through study sessions or preliminary reviews. We seek to provide that 13 to the HRB but it is not required. We think Staff has provided all of the information that is 14 necessary for an HRB review of this project. Certainly if the HRB feels that there is not enough 15 material, or the review needs to be continued that certainly can be part of the Board’s motion.16 17 Board Member Bower: I am sorry I thought they came before us in a Study Session, because I 18 thought we had seen this. I must be thinking of another project, no? If the answer is no, it is no.19 20 Mr. Backlund: It had not come before. The Board could create this meeting as a kind of Study 21 Session by a continuance in which this would be the first look and then the second look, or a 22 subcommittee on certain conditions. However you choose.23 City of Palo Alto June 15, 2011 Page 28 of 50 1 Board Member Bower: Okay, well let’s see what the rest of the Board feels. Go ahead.2 3 Board Member Makinen: Do you want to take up that matter right now before we proceed?4 5 Board Member Bower: No, let’s go through.6 7 Board Member Makinen: Just a couple of brief questions. You are going to put an elevator in 8 the new part of the building.9 10 Mr. Bruner: Yes.11 12 Board Member Makinen: Does that provide ADA accessibility to the tower and other parts of 13 the building completely?14 15 Mr. Bruner: Yes, yes it will. It is going to be a hospital type gurney accessible for fire. So the 16 doors on the short side of the elevator are fully four feet wide and eight feet deep.17 18 Board Member Makinen: But it allows you to get into all parts of the original building.19 20 Mr. Bruner: The original building, yes, and all parts. That would be our intent to be able to 21 move through. Even with ramps where we have that change in floor level by six inches.22 23 City of Palo Alto June 15, 2011 Page 29 of 50 Board Member Makinen: My second question is I am looking at the historic structures report, on 1 the early sketch here, page 2. I see on the second floor upper level would be on the corner 2 windows, it shows a little bit. It looks like a different arrangement than it is currently at. I don’t 3 know if that was ever built or not.4 5 Mr. Bruner: The sketches, those are Winsor’s sketches himself that he did.6 7 Board Member Makinen: Right up in there, this area.8 9 Mr. Bruner: In that area on the left hand side.10 11 Board Member Makinen: It shows like a little canopy going over there up to the corner.12 13 Mr. Bruner: Yes, they are on there. In the corners on each side.14 15 Board Member Makinen: See this right here on page 2? I am looking at it and it looks like that 16 canopy goes all the way to the corner. I guess my question was is that the way it was built or 17 was that just the way it was originally sketched out and never built that way?18 19 Mr. Bruner: Never built. That was his original concept. He was not an architect. He was a 20 furniture maker. That was his, they are all his sketches,and he signed them. He decided as he 21 was going along that he would just do the two windows on each side. 22 23 City of Palo Alto June 15, 2011 Page 30 of 50 So it is very interesting. The building was built in two parts. The alley side was the original 1 building, gable, simple gable. Then a few years on he added the tower and the Ramona-Forest 2 corner elements. 3 4 Board Member Makinen: Okay, thank you.5 6 Board Member Bower: Roger.7 8 Board Member Kohler: I just have a couple of things. So the approval for this is in the design as 9 presented today, but we are going to comment on this. It is not coming back to us.10 11 Mr. Turner: It would not if the Board recommends approval of the project today.12 13 Board Member Kohler: Well I think it is great. The first time I totally walked through the 14 building yesterday and it was quite interesting to see how it is all operating. I was just curious 15 one comment you made while we were there was that you were going to be renting out the back 16 half of this, or part of this building, to other tenants to help pay for all the work you are doing on 17 this. In the floor plans is there any kind of division or is there a wing or something that will be 18 rented, or is it just that each room will be rented out separately?19 20 Mr. Bruner: We have had several recommendations in talking with people that lease properties. 21 The strongest recommendation is that we actually lease the second floor, because a lessee would 22 like to be able to control the floor and the exits and entrances to it, and security. It would be the 23 City of Palo Alto June 15, 2011 Page 31 of 50 5,000 square feet. So that would be the simplest solution. The way we had originally thought 1 we would have the new addition it would be all leased out.2 3 Ms. Campbell: If I could add to that. On Sheet A-23 and A-24 there is a differentiation showing 4 the areas that will be used by the Art League as well as what is proposed for the leasing. So it is 5 shown on the plans.6 7 Board Member Kohler: You show the entire second floor being leased out.8 9 Mr. Bruner: Yes.10 11 Board Member Kohler: So the Art League is gaining –so on the upper floor there are a couple 12 of classrooms and restrooms. So the third floor will be Art League.13 14 Mr. Bruner: Yes, with the exception of the tower at this point. It is being leased now as you saw 15 yesterday.16 17 Board Member Kohler: No? The whole third floor is Art League.18 19 Mr. Bruner: I am sorry I didn’t introduce Rick, who is our Executive Director, and Joy Chase, 20 President of the Board. Jack Woodson is our Board Member.21 22 City of Palo Alto June 15, 2011 Page 32 of 50 Board Member Kohler: Okay. I was just trying to see how the logistics of this works, whether 1 or not we have purview over that or not I don’t know. Did you try any other elevations on this 2 major view that is facing Forest than the one we see here? I am having a little trouble…3 4 Mr. Bruner: Page A-16.5 6 Board Member Kohler: So the exit door from the stair has a panel up there, and then a wood 7 panel below. Then there are sidelights on each side of the doors but there are wood panels down 8 low, and the doors are up high. Is that because of the wheelchair situation you have to have the 9 panel there on those main doors?10 11 Mr. Bruner: Yes it is required to be like a ten-inch or 12-inch.12 13 Board Member Kohler: I am having trouble getting a handle on the whole proposed elevation 14 situation with the windows. Somehow it just looks a little random. I guess you could argue the 15 whole building is random because it has a lot of different things. I will curious to see what the 16 ARB says about that elevation. I am not sure what to do with it but I am just having a hard time17 with it. 18 19 I think the project as a whole is a good idea. I like the way it maintains the majority of the 20 existing structure. Being able to rent out the whole floor makes the whole project viable. Just 21 the logistics of the Art League kind of sandwiched above and below the rental space could create 22 issues depending on who that rental person is on the second floor, but I can see that is a simple 23 City of Palo Alto June 15, 2011 Page 33 of 50 way to divide out that this is the rental area. The Art League people are going to have to get on 1 that second floor to continue their way up to the third floor. Will there be rules that say you 2 can’t –I don’t know.3 4 Mr. Bruner: Well, the elevator would be a direct access, but then the stairway, the one enclosed 5 in addition.6 7 Board Member Kohler: I agree with other comments and David’s questions about the windows, 8 but they are similar. In general I think it is a great project to be able to preserve the building 9 essentially as it is, and to come up with a way to pay for it. It works out quite well.10 11 Board Member Bower: Thanks, Roger. Martin.12 13 Board Member Bernstein: Thank you Chair. I will also disclose that Mr. Bruner gave me a fine 14 tour of the building. So thank you for that. It was great to see all four or five levels of the 15 existing structure.16 17 I have a question on page 9 of 12 of the Staff Report. It is the in the category of Recommended 18 Key Decisions to be made by the HRB. Item number two, the last portion of that says “respect 19 to preservation of the historic character of the building’s exterior and interior.” On this particular 20 project are we to address character of the interior?21 22 City of Palo Alto June 15, 2011 Page 34 of 50 Mr. Backlund: The review of the review of the interior of any project that is allowed to do that 1 under the Municipal Code, and this one, it is a question of historical character defining features. 2 One of the reasons we have a historic structure report is they always have a section identifying 3 all the major character defining features of the property. The historic consultant, PAST 4 Consultants of Petaluma, concluded that only the hardwood floors and the built-in cabinets of the 5 second floor that were the former residence of Winsor were character defining features. Staff 6 concurred with that because the rest of the spaces are generally utilitarian in character, but that is7 very appropriate to an art studio use that use is often located in old warehouse buildings and 8 things around the state. We also regarded that the seismic girders and upgrading are industrial in 9 character but so are those interior spaces so those were generally compatible. But on the second 10 floor if the Board chose to be consistent with the historic structure report you could recommend 11 that you include the preservation of the wood floors and build-in cabinets of the second floor.12 13 Board Member Bernstein: Alright, thank you. Mr. Bruner, you showed a sketch of some open 14 web steel beams. 15 16 Mr. Bruner: Yes.17 18 Board Member Bernstein: Would those be visible from the street?19 20 Mr. Bruner: Yes, because we will access through the windows, looking through the windows at 21 artwork and you would see those.22 23 City of Palo Alto June 15, 2011 Page 35 of 50 Board Member Bernstein: Okay, so that would tie into my –I think Board Member Smithwick 1 brought up the idea of those steel beams. So if that is going to be part of the street presence does 2 that enhance, or is it compatible, or does it distract from the historical structure here? So that 3 would be one of my concerns. 4 5 The other item I would like to bring up quickly is the proposed arch glass awning, a new 6 addition. I think the form is very compatible with the historic. If you look on page A-6 and A-7 7 of our files, certainly we have arches on the historical part of the structure. So by having a 8 sculptural arch contemporarily expressed I think that is most appropriate since it is different and 9 yet it is compatible. So I would support that. Again, support the question that Board Member 10 Smithwick brought up about seeing the details of it and so making sure it is fine enough so it is 11 not a distraction but a compatible addition then I would support that.12 13 Then the light fixture, as Mr. Backlund brought up, of how that style looks more Victorian and I 14 would say not compatible with the Colonial direction of the existing structure. So I would take a 15 look at a different direction for that. Okay, not Colonial but the Spanish influence, 16 Spanish/Colonial, whatever we are going to be deciding this structure is. Those are my 17 comments. Thanks.18 19 Board Member Bower: Beth.20 21 City of Palo Alto June 15, 2011 Page 36 of 50 Board Member Bunnenberg: One little question of Staff. Our historic inventory sheet indicates 1 Birge Clark might have been the architect for this building, and it appears from the things that 2 have been presented in the historic structures report we may want to take a look at that notation.3 4 Mr. Backlund: Yes, we think that that is one of the very few historic inventory forms that may 5 need to be revised. Our conclusion on how that got into the historic inventory form is that the 6 builder was Wells Goodenough and he and Birge Clark worked very closely together on a 7 number of Downtown buildings. We know that that builder was there, but that doesn’t mean 8 automatically that every Wells Goodenough building was Birge Clark. We simply don’t have 9 documentary evidence that Birge Clark was involved in this particular structure.10 11 Board Member Bunnenberg: Certainly interesting to see that Winsor had some sketches at least 12 that were presented in the historic structures report.13 14 Mr. Backlund: Yes, those were included simply as a historical document for information, not 15 that it indicated anything about the actual building that got built.16 17 Board Member Bunnenberg: Alright, let’s see in terms of comments. I don’t have a problem 18 with the windows along the Forest Street side because I think that that wooden framework 19 actually echoes some of the shapes of the windows on the front façade. So replacing those 20 second story windows with wood frames I think looks appropriate as far as I can see. 21 22 City of Palo Alto June 15, 2011 Page 37 of 50 The glass canopy I would be concerned about what holds it up, and again that is in the details of 1 how that is done.2 3 The streetlamp I concur that I feel a different choice would probably be appropriate and perhaps 4 even a contemporary lamp since that is being differentiated.5 6 Seismic scheme, I have one great concern, which is something we learned on another building 7 that the how you get the steel into the building can be a really difficult problem, and if you 8 decide to drop it in through the roof you have all sorts of problems.9 10 Mr. Bruner: That is a very good point.11 12 Board Member Bunnenberg: So just a cautionary note on that. It was interesting to hear about 13 the fiber wrap. That sounded like a good kind of solution. I think that those basic comments.14 15 Mr. Backlund: If I can point out that Staff is going to continue to pursue, as we already have 16 with the applicant over time, the treatment of those new steel elements for the seismic upgrading 17 through color strategies in relation to the colors of the interior to get that beam work as 18 unobtrusive as color strategies can possibly make it. A frame does have to go in there. It is 19 currently unreinforced masonry.20 21 City of Palo Alto June 15, 2011 Page 38 of 50 Board Member Bower: Thanks, Dennis. So I have a couple of brief comments. One, I think 1 this is a fabulous project and I like the concept of building out the alley area. I think the addition 2 is compatible. I think it is perfect for this. 3 4 I am a little uncomfortable that we are being asked to make decisions and basically approve 5 details on parts of the building that we have no details of. The skylight, not a big deal,but it is 6 not on any of the elevations. I don’t think you could see it, but probably should have seen it. 7 8 Still bothered by the replacement windows on the Forest Avenue side, and if those are going to 9 be ribbon type as it describes in the Staff Report I think that we should have seen more detail on 10 that.11 12 I like the idea of the glass canopy but I would like to know whether it is clear, whether it is 13 obscure. Those would actually have a significantly different impact on the building. 14 15 Streetlight, I think Staff could figure that out, not a big deal.16 17 Then there are three other areas garbage enclosure, bike racks, and signage. If signage was being 18 done the way it is on page 7, as it is now I think that is a very compatible method. While that is 19 not exactly the Historic Resources Board’s purview it could be because if the signage isn’t 20 compatible we could be approving something that is going to take away from the beauty of this 21 particular building. 22 23 City of Palo Alto June 15, 2011 Page 39 of 50 Then again as Martin and I both picked up we are being asked to make some interior decisions 1 and we have basically one page, which is A-41, where we have a sketch of the interior steel. The 2 building is going to have steel but if it is going to be part of our approval process it seems to me 3 we ought to be a little further along on the project. 4 5 So those are comments. I guess my feeling is that maybe we could have more detail here. We 6 are being asked to make fairly substantial decisions about things we can’t see.7 8 Mr. Backlund: Chair Bower, one of the options that you have in making an approval that is not a 9 complete approval is simply for the Board to confer and make a list of those detailing items that 10 you have been listing and recommend that all of those come back subsequently when the final 11 details are in place to an HRB subcommittee of up to three members. That is one option that you 12 can do. Therefore if you choose you could approve the project subject to additional conditions, 13 list those detailing items, and say all of those are to come back to a Board subcommittee with 14 final details.15 16 Board Member Bower: Okay, I don’t want to actually delay this project. I would like to see this 17 move forward. Maybe other Board Members have comments. Scott.18 19 Board Member Smithwick: That is exactly what I was actually going to entertain making a 20 motion along the lines of what Dennis just said. I think this project in concept and in large part 21 does meet the standards, and I am comfortable with approving that with listing these specific 22 items that we would like to see in subcommittee. That being the seismic scheme, the glass 23 City of Palo Alto June 15, 2011 Page 40 of 50 canopy, and the streetlight to a lesser extent. I am not as concerned about the second floor 1 windows as you, but I would be happy to include those as well.2 3 Board Member Bower: Anybody else have comments on this? 4 5 Board Member Kohler: I think it should just come back to the full Board for the interior seismic 6 review, and it ought to be open to the public for their review as well. If that is our required 7 purview that we are supposed to review that and approve it, it should not be done behind closed 8 doors in a subcommittee. It is a major. If you walk through that space what they do in there to 9 seismically upgrade is going to have a huge impact on how those spaces feel. To just say we are 10 going to do it upstairs and that becomes it, and the public doesn’t have a chance to comment and 11 other Board Members don’t have a chance I just think that is a major, major part of the whole 12 project. We can approve in general the exterior but that the detail of the insides ought to come 13 back to us.14 15 Mr. Turner: Chair Bower, Board Member Kohler’s recommendation would be for the full Board 16 to review those details. The appropriate motion in that case could be that the project is approved 17 but that those details come back to the full Board perhaps on Consent Calendar, and the Board 18 would be getting a report and those details in your packet. If you feel like you wanted to discuss 19 those details at the meeting you could pull the item off of the Consent Calendar and review it. If 20 the items appear to be appropriate and there is no need for discussion then the HRB could 21 approve the Consent Calendar item. So it does provide you with an ability to either review the 22 City of Palo Alto June 15, 2011 Page 41 of 50 materials, find them to be acceptable and move on, or review the materials and pull it off the 1 Consent Calendar and review it as a full Board.2 3 Board Member Kohler: I think that is better than none of us being aware of it and two or three of 4 us voting on it. I still think there may be public members, once they see what is going on inside 5 that may or may not be happy or maybe it is great. I just think they ought to have the 6 opportunity to know that it is coming.7 8 Mr. Turner: So Chair Bower, the formation of a motion might start to make that clear amongst 9 the other Board Members about who would support that.10 11 Board Member Bower: First I want to get through all the discussion and then we will move to 12 that. Any other discussion about this? Beth.13 14 Board Member Bunnenberg: Simply that I feel that in general the project does meet the 15 Secretary of the Interior’s Standards with these few concerns.16 17 Board Member Bower: Alright, any final comments? Let’s move onto the final applicant 18 comments. You are not required. You have done a lot of explaining. I think we all understand 19 it.20 21 Mr. Bruner: Well, like yourselves I am concerned about what the solution is for the structural 22 frame that is going to be holding our building together. That will be done by a structural 23 City of Palo Alto June 15, 2011 Page 42 of 50 engineer, myself, and our committee. That requires a commitment on our part in obviously fees 1 to have that structural work done, and it is going to come on down the road. We need to form 2 our LLC and get other partnership issues resolved before we get into the technical, my drawings 3 and the structural engineers, and the request for proposals for mechanical, electrical. We have a 4 lot of old pipes in there. I want to assure you that we are going to be presenting this and 5 pursuing this for the most beautiful solution all around. Hopefully some excitement to it so that 6 when you look in the windows you will say, yes, I want to go in and see what is going on in there 7 besides the art, of course. I agree with Dennis, I think whiting it out, most of the gallery itself, 8 the galleries,and studios themselves are light colored just to bounce the light around when you 9 are water coloring and whatnot. So I don’t see making the structure as strongly coming forward 10 from the background at all. I could see it blending in but still there. So that would be I guess my 11 preference. Just the way the process works we can’t do really definitive. We could do a 12 structural analysis but we would have to make some agreements with our partner, _________13 Oliver that we will be going ahead with it.14 15 Board Member Bower: Alright, well thank you. Obviously we are sympathetic to the process 16 that you have to go through to finance this, and it is complicated. But our job as a Board is to 17 deal with this. Thank you for your presentation.18 19 Mr. Turner: Chair Bower, were there any members of the public wishing to speak to this item?20 21 Board Member Bower: I was just going to get to that. We didn’t have anybody present cards. 22 So I think at this point, unless there is more discussion, I will close the public hearing,and we 23 City of Palo Alto June 15, 2011 Page 43 of 50 can have motions from the Board about how to proceed. Do we have a motion? Somebody want 1 to create one? I could attempt to create one.2 3 I think I am going to move that we use Staff’s outline here that we confirm that the project meets 4 the Secretary of the Interior’s Standards for Rehabilitation. I think we want to confirm that the 5 added floor area and the bonus, what is the language we need to use for this?6 7 Mr. Backlund: Let’s see in the first one, since it is a rehabilitation that generates the bonus it is 8 that the project has enough elements for rehabbing the building to meet the definition in the 9 Municipal Code, and therefore is eligible for the bonus.10 11 Then secondly that the project with respect to preservation of the historic character of the 12 building’s exterior and interior conforms to the Secretary’s Standards. 13 14 Then the third one that the rehabilitation plan component regarding the new addition’s 15 compatibility with historic building is concluded in the positive by the Board.16 17 The four, what we have already discussed is whether the HRB should modify Staff’s 18 recommended conditions or add further conditions as you have been discussing several detailing 19 subjects to come back to the full Board.20 21 MOTION22 23 City of Palo Alto June 15, 2011 Page 44 of 50 Board Member Bower:Okay, so to start over, number one the project does meet the Secretary of 1 the Interior’s Standards for renovation. Secondly that the addition is compatible based on the 2 Secretary of the Interior’s Standards. I can’t remember your third.3 4 Mr. Backlund: Actually,the first one is indicated on page 9, is whether the scope of the 5 proposed work is adequate as a rehabilitation plan for remedying the needs of the building. 6 Therefore, the approval would generate the requested bonus.7 8 Board Member Bower: Okay, the scope of the project meets the Secretary of the Interior’s 9 Standards and thus would generate the floor area bonus.10 11 Mr. Backlund: Technically that the scope of the project meets the Municipal Code’s definition. 12 13 Board Member Bower: Should we just use your number one and recommendation on page 9?14 15 Mr. Backlund: Yes, that would be fine. I know it is a little complicated.16 17 Board Member Bower: Alright, the scope of the work proposed in the project’s historic 18 rehabilitation plan is consistent with the definition of Historic Rehabilitation set forth in the 19 Municipal Code 18.18.030(b). I won’t read the rest of that, because I think the quotation part in 20 this paragraph is in that code section, correct?21 22 Mr. Backlund: It is.23 City of Palo Alto June 15, 2011 Page 45 of 50 1 Board Member Bower: Okay. So we can say that it meets that. The second point is that the 2 project conforms to the Secretary of the Interior’s Standards and Guidelines for Rehabilitation 3 with respect to preservation of the historic character of the building’s exterior. I don’t want to 4 say at this point interior because I don’t feel we have enough information about that. So we will 5 just say the exterior.6 7 As I said the third point would be that the proposed addition meets the Rehabilitation Plan in this 8 case, conforms to the Secretary of the Interior’s Standards with respect to the compatibility of the 9 proposed addition.10 11 I would then as a fourth point say that we would like to have these details that I could articulate 12 if you –do you want me to articulate the details we would like to come back?13 14 Mr. Backlund: Yes. There have been different comments by the Board so if there could be one 15 master list of what should come back.16 17 Board Member Bower: So my fourth point in my motion is that details about the skylight, the 18 replacement windows on Forest, the glass canopy,garbage enclosure, and the location of the 19 bike rack, I am no concerned so much about the design of it but I would like to know where that 20 is, and some more detailed accounting of the interior structural elements. I just pause there, is 21 there anything that other Board Members would like to add to that list?22 23 City of Palo Alto June 15, 2011 Page 46 of 50 Mr. Backlund: Do you want to add or not the consideration of final streetlamp scenario?1 2 Board Member Bower: No, I don’t want to that. No, I am seeing no. 3 4 Mr. Backlund: Okay.5 6 Board Member Bernstein: I support having a different streetlamp than what is shown on the 7 drawing.8 9 Board Member Bower: Okay, two members would like to have that as part of our 10 considerations, so add the streetlamp to the list. I think that would be the end of my motion. So 11 elements need to come back to us for approval. Is that right Steven?12 13 Mr. Turner: Yes, is there a second to the motion?14 15 Board Member Bower: I just want to be sure that is clear motion.16 17 Mr. Turner: Well, as part of your motion you didn’t indicate how to come back to you. We have 18 discussed either a subcommittee or the full Board on the Consent Calendar.19 20 Board Member Bower: Full Board, so I amend that to say that it comes back to the full Board.21 22 Board Member Bunnenberg: Is it important to say on Consent?23 City of Palo Alto June 15, 2011 Page 47 of 50 1 Board Member Bower: No. I don’t actually want it to come back on Consent. I want it to come 2 back to the Board.3 4 Mr. Turner: Well, in terms of the project approval your recommendation is forwarded to the 5 ARB, which would then be forwarded onto eventually the City Council. The City Council 6 would make a decision on the project, and the project would be approved. There would be no 7 further action required by any Board or Commission. By returning the project to the Consent 8 Calendar you would finding that the items that you have requested are acceptable and meet your 9 original intent with the motion of looking at these. So you would not be approving anything else 10 you would finding that these details are acceptable. If they are not acceptable then you would 11 have that discussion with the applicant so that they can make the changes to the point that they 12 are acceptable to the HRB.13 14 Board Member Bower: So this is after the Council has approved the project. Am I 15 understanding that correctly?16 17 Mr. Turner: That is correct.18 19 Board Member Bower: So the applicant could come back. I am sure this applicant won’t, but 20 could come back with something that we didn’t like that we thought was incompatible. We 21 would effectively be handing off our approval before we saw elements that could come back to 22 be unacceptable. 23 City of Palo Alto June 15, 2011 Page 48 of 50 1 Mr. Turner: Well, if you find those elements that come back to you are unacceptable then the 2 applicant would have to go back and make revisions until they are acceptable to the HRB.3 4 Board Member Bower: Okay, so the project can’t just move forward even though we don’t find 5 some part of it compatible.6 7 Mr. Turner: Right. Your motion is to recommend approval of the project. So if the votes are 8 there and come back in the affirmative that recommendation will be forwarded to the ARB and 9 then eventually to the City Council with your conditions that these specific items come back to 10 the HRB for review. That doesn’t stop the project from moving forward it is merely saying that 11 the HRB would like to see certain details come back to them, and the HRB wants the opportunity 12 to find those details to be acceptable or not.13 14 Board Member Bower: Does that work? Martin.15 16 Board Member Bernstein:Thank you Chair. So just for me to understand this. If it gets then to 17 the City Council’s agenda and they vote approval of the project but it hasn’t come to the HRB 18 yet for these details can the applicant apply for a building permit?19 20 Mr. Turner: No, they cannot.21 22 Board Member Bernstein: Okay, so that would be the protection.23 City of Palo Alto June 15, 2011 Page 49 of 50 1 Mr. Backlund: I could remind the Board that there is a precedent for this that some Board 2 Members will remember. The 800 High project was approved at the City Council on the 3 condition that certain details come back to the ARB, after the Council, and that was what 4 happened. So it is a regular type of process.5 6 Board Member Bower: Okay, I am comfortable with that if other Board Members are. I would 7 like the project to move forward in Planning and as long as these details come back to us for 8 review, if it is Consent that we need, if it is the appropriate phrase, I am comfortable with that if 9 others are.10 11 Board Member Bernstein: My understanding of the Consent Calendar is if any HRB Member 12 wants to pull it from the Consent Calendar for discussion we can do that, correct?13 14 Mr. Turner: That is correct.15 16 Board Member Bower: If we have no problems then it just goes through. So that is my motion. 17 Is there a second?18 19 SECOND20 21 Board Member Smithwick: I second the motion.22 23 City of Palo Alto June 15, 2011 Page 50 of 50 MOTION PASSED (6-0-1-0, Board Member DiCicco absent)1 2 Board Member Bower: Okay, there is no discussion. So all in favor? (ayes) That is unanimous.3 4 Thank you very much. It is a great project.5 City of Palo Alto June 16, 2001 Page 1 of 27 Thursday June 16, 20111 REGULAR MEETING -8:30 AM2 City Council Chambers, Civic Center, 1st Floor3 250 Hamilton Avenue4 Palo Alto, CA 943015 ROLL CALL: 6 Board members:Staff Liaison:7 Clare Malone Prichard (Chair)Russ Reich, Senior Planner8 Heather Young (Vice Chair)9 Alexander Lew Staff:10 Grace Lee Diana Tamale, Administrative Associate11 Judith Wasserman Amy French, Manager of Current Planning12 Jason Nortz, Planner13 Clare Campbell, Planner14 15 Board Member Malone Prichard: So 668 Ramona Street. Request by Pacific Art League 16 of Palo Alto for Architectural and Historic Review of the historic rehabilitation and 17 seismic upgrade of an existing Category II historic resource generating 5,000 square feet 18 of bonus floor area, 4,959 square feet of which would be used on site, and 41 square feet 19 of which would be available as Transferable Development Rights. The zone district is 20 CD-C(P). Do we have a Staff presentation, Clare?21 22 NEW BUSINESS23 24 2.668 Ramona Street [11PLN-00007]:Request by Pacific Art League of Palo Alto for 25 Architectural and Historic Review of the historic rehabilitation and seismic upgrade of an 26 existing Category II historic resource generating 5,000 sq. ft. of bonus floor area, 4,959 27 sq. ft. of which would be used on site and 41 sq. ft. of which would be available as 28 Transferable Development Rights. Zone District: CD-C(P). Environmental Assessment: 29 Exempt from the provisions of the California Environmental Quality Act per Section 30 15331. 31 32 Ms. Clare Campbell, Planner: Good morning. This rehabilitation project was reviewed by the 33 HRB yesterday and was unanimously recommended for approval with the following added 34 condition. The details of the following items need to return to the HRB on Consent for review. 35 City of Palo Alto June 16, 2001 Page 2 of 27 The first item is the skylight details on the addition.The second floor replacement windows 1 along Forest Avenue. The glass canopy over the Forest Avenue entrance with particular 2 attention to the attachment of this canopy. The trash enclosure. The location of the bike racks. 3 Provide an alternative to the proposed streetlamp on Forest, and the details of the interior 4 structural supports required for the seismic upgrade. So these items are requested to come back 5 to Consent for the HRB review.6 7 Staff will modify the Conditions of Approval for the project to incorporate these added 8 conditions as well as include any additional conditions recommended by the HRB. Staff has 9 provided the Board at places a copy of the unmodified Conditions of Approval that were in the 10 HRB Staff Report just for your review. Again, I will consolidate all of these conditions for the 11 Council review, which is tentatively scheduled for July 11.12 13 We have a representative from the HRB. Chair David Bower is present here today to report out 14 on the discussions and recommendations from the discussion yesterday. Thank you.15 16 Board Member Malone Prichard: Good morning.17 18 Board Member Bower: Good morning Chair Prichard and Board Members. I am David Bower. 19 I am the current Chair of the Historic Resources Board. I don’t know if you received an email 20 last night but you should have received a printed version this morning of our findings. I wanted 21 to spend a few minutes just describing them. Clare has done a pretty good job of summarizing a 22 couple of the key issues we would like to see again, but primarily and most importantly the 23 City of Palo Alto June 16, 2001 Page 3 of 27 Board unanimously and enthusiastically supports the project and its efforts to rehabilitate and 1 preserve this important building. I think the Staff has identified this building as the second most 2 important historic structure in the Downtown area. The Christian Science Church across the 3 street being probably the most important.4 5 We have found that this project meets the City of Palo Alto’s Historic Rehabilitation Standards 6 as set forth in the code section 18.18.030, subparagraph B. I don’t want to read this whole thing, 7 but that was critical in order to establish for our Board the floor area bonus. We also found that 8 these plans do in fact meet the Rehabilitation Standards of the Secretary of the Interior’s 9 Guidelines. So those two critical issues were addressed yesterday at our meeting, and we again 10 enthusiastically support this project.11 12 I want to make one brief comment about the conditions. Because of the complexity of this 13 project the architectural details have not been developed completely. Our Board was concerned 14 about approving details that we couldn’t see. So we asked for the conditions that Clare just read 15 to you to be returned to us once they are developed. We don’t want to stop the project, we want 16 it to continue to move forward, but we thought it was important to see the window detail that is 17 being replaced. 18 19 There was one note in my email that is not exactly accurate. We wanted to see the details of the 20 skylight that is being added to the second story building, the highest building that you see there 21 on the model. We don’t want to review that skylight that is the interior skylight, because that is 22 really not seen from the street. So that is probably not part of the purview of our Board.23 City of Palo Alto June 16, 2001 Page 4 of 27 1 So I can answer any questions you have.2 3 Board Member Wasserman: Can you explain please what your concern was about the 4 streetlight?5 6 Board Member Bower: Board Members felt that that was too Victorian. I think we just wanted 7 to see something that was a little bit different, and other than that. I should say, I guess I will 8 talk to you about these other things. We just wanted to make sure the bike rack wasn’t 9 positioned in a way that obscured the building. Bike racks, obviously we don’t have a lot of 10 input we on. Same thing with the trash enclosure. It is not that we have a problem with where it 11 is going to be located we just want to know what it is going to look like even though it is on the 12 back of the building. Then our concern about the seismic upgrade material is that steel structure 13 we imagine, and that the architect will talk to you about further, is probably going to be visible 14 through the front windows. So we just wanted to sure that that is compatible with the building as 15 one views it from the outside. We are not concerned with the inside because that is not part of 16 the purview of our committee. The glass canopy, we just wanted to see what that looks like. It 17 wasn’t established as being clear or frosted. I am sure that prior to a building permit being 18 issued architects and engineers will figure out a way to make sure it says on the building, but we 19 just wanted to see what that was going to look like in its final form.20 21 City of Palo Alto June 16, 2001 Page 5 of 27 Board Member Wasserman: I have one other question regarding the color of the addition. I 1 know they changed the texture of the stucco to make it distinct from the original historical 2 building, but you did not require them to vary the color slightly as well?3 4 Board Member Bower: No. The existing texture is a very distinctive material finish for that 5 particular vintage of building. This new texture will be so different we felt, we didn’t really 6 discuss this very much, so I am basically giving you my opinion of this but I think the other 7 Board Members would share it. Just the texture itself will be so much smoother that you will 8 easily be able to distinguish the old and the new.9 10 Board Member Wasserman: I just want to thank the HRB for having similar concerns that we 11 do. It is refreshing to hear that. Thank you very much.12 13 Board Member Young: David, I had a quick question about the Ramona Street entrance into the 14 central tower portion. I know it is the original sized entry, and then the design proposes the pair 15 of double doors inboard. I wondered if the HRB had any reaction to that either in the pair of 16 double doors being potentially modified, or the street arch being potentially modified.17 18 Board Member Bower: As it was explained to us that revision or that change is driven by code 19 requirements for the stairway and the entry and the ADA entrance. I think that it is our 20 understanding that that arch entry would not be changed, but just that this new entry would be set 21 back. It is a compromise that our Board has to make frequently because of this ADA 22 City of Palo Alto June 16, 2001 Page 6 of 27 requirements. But the essential character of the building is still retained even though that door is 1 going to be moved back.2 3 Board Member Young: Okay. My other question had to do with the quantity of ground floor 4 punched openings on the existing building contrasted with the proposed quantity of punched 5 openings in the new Forest elevation. I wondered if you guys had any comments on that.6 7 Board Member Bower: There was a discussion about the new entry, the sidelights on either side 8 of that new door.9 10 Board Member Malone Prichard: Yes.11 12 Board Member Bower: I guess the way I would characterize it or summarize that discussion is 13 that the other architects on the Board felt that maybe that could be a little more imaginatively 14 configured, but basically our job as the Historic Resources Board is to look at how this 15 compliments or works with the existing architecture. So we didn’t really move very far down 16 that road in that discussion. We did look at it and basically felt that it was compatible and that is 17 a very key term in our purview with the rest of the building.18 19 Board Member Malone Prichard: Thank you. I just had one question. Normally the additions 20 you are looking for some differentiation, and I understand you are looking at the cement plaster 21 texture as the clue that it is something different and newer than the existing building. Was the 22 City of Palo Alto June 16, 2001 Page 7 of 27 Board pretty confident that that was sufficient? Because so many of the other details appear to 1 be matching existing.2 3 Board Member Bower: That is the issue we struggle with as a Board in every review. Two 4 things that we, I think, were comfortable with in terms of this addition. One is it is set back so 5 that the original building still remains in tact and prominent. The second is that the windows are 6 complimentary, another one of the C words that we use a lot on our Board, but not identical. 7 They are going to be aluminum frame. They will be insulated glass so the low E glass 8 reflectivity will automatically kind of pull them apart. Really it is the fact that it is set back I 9 think that was most important.10 11 Board Member Malone Prichard: Thank you. One more?12 13 Board Member Young: Sorry. The roof pitch on the new Forest three story component, in the 14 model it is shown that the I will call it west for lack of better word, has an overhanging eave but 15 the drawings are showing it as a parapet wall where the roofline dies into it. I can understand 16 there might be some building code issues that the applicant is struggling with, but from an HRB 17 perspective did you all address that as a design issue?18 19 Board Member Bower: Not really. We talked about general design. I think that that roof is so 20 high that except from the tower building here you probably wouldn’t see it. The overhang I 21 think you are talking about this, I am looking at the building and it is the right hand side here.22 23 City of Palo Alto June 16, 2001 Page 8 of 27 Board Member Young: Yes.1 2 Board Member Bower: Again, that is in the back and we didn’t really address any more than 3 that.4 5 Board Member Young: Thank you.6 7 Board Member Malone Prichard: Thanks very much for coming in. Okay, the applicant, you 8 have ten minutes to present your project.9 10 Mr. Bill Bruner, Architect, Pacific Art League: Chairperson Prichard and the Board. I will be 11 speaking to you today through the PowerPoint of the process and our results. If you will note the 12 numbers on the screen will correspond with the numbers in your packets. Do you have those? 13 You have your packets? Great.14 15 So we started looking at this project about three years ago. At that time I had been a member of 16 the Art League for close to 20 years and had thought really very little about the building. I was 17 there to take classes, do etchings, painting, all of that, and my architectural practice was not 18 involved. Back in 2007 the desire then was to sell our building and there was a huge outcry. So 19 at that point the process for doing the seismic upgrade was halted. I said, well it is still the 800 20 pound gorilla in the building is that we have a seismically unsafe building in any kind of 21 earthquake, and we have the hazard sign on the door. I said, let’s get this fixed. So I got on the 22 City of Palo Alto June 16, 2001 Page 9 of 27 Board with eight other people and I thought it would just be whizzing right through, and the first 1 year we would have it. But here it is, three years later and we are going to do it now.2 3 So let me just quickly show you the overview. Of course we are across the street here. This is 4 the view from down Ramona. Here is the roof of the existing building. We had some skylights 5 on this and the HRB, Dennis particularly, wanted us to take care and not have any additional 6 skylights that affect the look of the building. So we don’t have them there.7 8 This would be the Forest Street and then the new addition entrance. Here is the portion of the 9 Ramona streetscape proposed. Of course, our windows, and interestingly enough here if you 10 haven’t seen these and I was unaware until just a few weeks ago that this is wood detail. These 11 are made out of three-eighths by three-eighths carved wood, and one inch square tubing. So it is 12 really a false balcony. You wouldn’t want to lean on it, but it is quite interesting. The person 13 who designed and built this, designed it primarily was a cabinetmaker. So some of these details 14 like up here are these one-by fascia boards with a detail, but you can’t see it. It is not 15 architecturally scaled for being 35 feet in the air. We will fix them anyway.16 17 Here is the entrance door we have now, and you see the step up here, and then another shorter 18 step. Then when you get inside you go to a landing, you step down twice again, and then you 19 start going up a sloped floor to get into the gallery. It has not been a happy entrance for 20 especially elderly people and we have many people that have to bring all their equipment with 21 them. It is a struggle to get up. So we said let’s just make it a level entrance. So the main 22 gallery entrance is level, it is six inches lower than the gallery up the way. Here is some more 23 City of Palo Alto June 16, 2001 Page 10 of 27 detail of that which we will be taking good care of. This will be a six-inch entry. When we 1 move the step we can go straight in and that will be the level of the main gallery. We will raise 2 this level in there so that it matches that, and we will leave this at six inches down so you can 3 also get in here on the level. 4 5 Part of our desire is to retain some of the cabinetwork up in his residential portion of the 6 building. So in our library we will keep these cabinets and relocate these, because this stair will 7 be coming out. 8 9 The floor plan. Here this shows the entrance stepped back with a wider entry, and that will be a 10 detail arch there with glass below it, kind of a scala reggia feeling except it would be an 11 expanding arch there as you walk in, and offset slightly. Then we have the two bike racks in 12 here, which may be happier over here. We will see, but right now we are showing them in here.13 14 The front entrance, everything remains the same. The openings, you can see the new door 15 behind here, and then the addition in the rear. Here of course the Forest Street we will be putting 16 the panel back in here with windows in it, which is similar treatment that we can determine from 17 the 1965 drawings that Bob Peterson, the architect, did for the building when he did the original 18 remodel when we purchased the building. 19 20 So here the attempt was, well we are going to have these three arches, we will recall the ---so on 21 the front this is a defining feature, the three arches going up. They are open to the stairwell 22 beyond. So the stairwell is coming out but the space will remain. Then I thought we would 23 City of Palo Alto June 16, 2001 Page 11 of 27 recall in the memory here, kind of a contextual thing, of having the three again here. They will 1 be on a stairway, which will be the primary code requirement to exit the third floor. So these are 2 at the landings that is why they are offset slightly. Then we have some windows that will be the 3 painted aluminum windows slightly setback from the face but as much as these, and sharper 4 obviously being aluminum, a little different scale. So we feel that will differentiate it.5 6 There are other features. Here is the door from the exit stair and the two sidelights on the main 7 entrance. This would be a main entry for that part of the building. As the use varies over the 8 years we may be relying on this more as an entry, but we wanted to establish it now as a major 9 entry. There it is again. 10 11 This is the curved rain canopy. The detail I haven’t looked at. It could be case acrylic with 12 maybe a kind of a bubbly surface to it. I thought it would be a decidedly modern addition, and 13 some of the Board felt that was a good idea, but we need a detail anyway. It is primarily to keep 14 the rain off the people.15 16 The backside, the alley side. These are all steel windows, but we will have aluminum on this 17 side. So the scale will be a little larger even though the lights are similar in size. Here is the 18 feature of the wall that cuts off the gable. I would of course prefer to have the gable go down 19 and over onto at least level with our property line, but judging from what I see across the street 20 and around we need to have that two-hour wall, which is a certain number of inches or feet 21 above. We will have to clarify that, just what that will be, but we know we can’t have any 22 openings in it. That would be typical until the neighbor decides to build up too.23 City of Palo Alto June 16, 2001 Page 12 of 27 1 This is the first floor as envisioned. The pumpkin color is the alleyway now, which becomes our 2 addition at that level, galleries,and storage. If you have additional questions about any of these 3 plans we can go over them. Here is the secondary main entrance over here and the service 4 entrance on this side where we will have the trash enclosure.5 6 The second floor, again the pumpkin. Here we are showing this area, which is a rooftop deck 7 now and would have skylight over most of it, and it would be considered conditioned space. In 8 any case, in the future if it were not covered it would have to be considered a future conditioned 9 space. So we are saying that is part of the 5,000 square feet that we are asking for.10 11 Then the third floor, which is all new. The tower is there of course, accessed by a stair from the 12 second floor, which we will eliminate. We will have a low bridge that connects it to the third 13 floor here, which again is some more facility. Here are the exits code stair. 14 15 Then the roof with the skylight below, and then the new skylights here over the classroom. 16 Mechanical equipment. Here is the section, the new stair inside, just inside where the old stair 17 was here, but this of course will be code compliant. The elevator that will be a boon to the 18 building. This is the major criticism is where is the elevator. It is like a 15-foot climb to get up 19 there with all your stuff. 20 21 This is the section through looking at the addition with the bridge across here and the skylight, 22 which allows the whole area to be leased. 23 City of Palo Alto June 16, 2001 Page 13 of 27 1 Here are some massing model studies. It is the same model just photoshopped in the 2 surroundings. You can see the little bridge here, which is well down from the ridges here. So 3 the whole tower will have the sense of standing alone. It will actually be visually standing by 4 itself, which was a request and we agree with.5 6 Here is a solar array on the addition. This tree here is a major tree. It was just trimmed. It is 7 going to be a nice shading element to the south side. We are setback ten feet. This is a 12-foot 8 sidewalk here. So we have a 22-foot pedestrian zone, and we think it could be a gathering point. 9 I don’t show the light. I was thinking of the light standard here just as a gathering point with a 10 low cone of light that people would come stand by, kind of a noir feature or something. We will 11 have some planters and bench, or some other seating out there, but we will need to determine all 12 that of course.13 14 Here is looking down on it. Here of course the neighbor is here. They could come up to the 15 same height as we are so that would make our gable moot at that point or our fascia. Again the 16 massing model. This is the primary –the building will remain the same on one, two, three, and 17 even this side returning to here. So it is really four sides that we are honoring here.18 19 The color scheme would remain the same, at least the red. Right now, there is a lot of black in 20 these windows and it deadens the thing. It doesn’t draw you in. So we want to definitely make 21 this –it is the end of the cross axis zone that extends from Lytton to Forest, and we are kind of 22 one of the anchoring elements of that. So we really want people to come by. We want the traffic 23 City of Palo Alto June 16, 2001 Page 14 of 27 to come by and people to stop saying, well we didn’t know you were here. We have lived here 1 for 20 years and have never been by. 2 3 Here is a rendering of the total project and a little close-up. This is starting to suggest some kind 4 of form in cast material. I think it is an art piece. We will have to say maybe it is a percentage 5 of art, but it will definitely be with historic review on that. The green is just to show what might 6 be a solution to the structure inside, although we will probably cover the beams with gypsum 7 board so that it doesn’t –this will probably have to come in in several pieces because of its 8 length. We are removing the column in the center of that space in both cases. So it will 9 probably have to be built, actually brought in, and constructed in the space. To get a 40-foot 10 element through there is probably not –but we will see. All that is to come. That’s it. So thank 11 you very much.12 13 Board Member Malone Prichard: Thank you. So we will have questions and comments for you. 14 You might want to stay up because there may be questions for you. So let’s start with Judith. Is 15 there a member of the public here to speak? I have no cards. Okay, so Judith.16 17 Board Member Wasserman: Thank you very much. Thank you. I am delighted to see this 18 project. I am a former member of the Art League, when it was the Art League, and have been 19 known to model for classes.20 21 I had a couple of questions about the floor plan. On the first floor on Sheet 21 it looked like that 22 floor areas A and E had no daylight at all. 23 City of Palo Alto June 16, 2001 Page 15 of 27 1 Mr. Bruner: Let’s see A, yes, yes that would be true other than some bald light from the front 2 entrance, yes.3 4 Board Member Wasserman: So those are galleries and studios with no daylight.5 6 Mr. Bruner: Galleries and studies with as I say very little, but typically we will have lighting that 7 will …..8 9 Board Member Wasserman: Okay, I just wanted to clarify. There was some discussion about 10 leasing space. It wasn’t clear which space was to be leased.11 12 Mr. Bruner: The second floor.13 14 Board Member Wasserman: On page what?15 16 Mr. Bruner: Let’s see, the second floor would be ….17 18 Board Member Wasserman: Page 23?19 20 Mr. Bruner: Page 23, right. All of that space there both …21 22 Board Member Wasserman: All of the orange space?23 City of Palo Alto June 16, 2001 Page 16 of 27 1 Mr. Bruner: Yes, all of the space. Do you see the bottom comments there below the title? It 2 says existing gross floor area.3 4 Board Member Wasserman: The entire second floor is to be leased.5 6 Mr. Bruner: Yes, because we need the entire 5,000 square feet in order to manage the mortgage 7 and so forth.8 9 Board Member Wasserman: I appreciate what the issue is. It just wasn’t clear to me how. So 10 the first floor is going to be studios and galleries, and the second floor is going to be leased, and 11 the third floor is going to be studios and offices, more or less.12 13 Mr. Bruner: Partly, yes. 14 15 Board Member Wasserman: Okay. I had a question about the patio on the second floor that was 16 going to have the skylight. How are you going to deal with the solar heat gain in that 17 greenhouse?18 19 Mr. Bruner: Yes, we will need to control the heat gain and heat loss as well, with maintaining a 20 good level of light. So that is a very strong design consideration. We want to be able to have 21 that as a light source to carry out from it but without contributing to the heat load. So there are 22 methods of ….23 City of Palo Alto June 16, 2001 Page 17 of 27 1 Board Member Wasserman: Interesting problem. There was a condition from Public Works that 2 said you might be asked to plant street trees on Ramona. Is there any further development with 3 that requirement?4 5 Mr. Bruner: No. They are referring to primarily replacing a tree that was knocked down by a 6 truck coming out of alley some years back. The area where it was was cemented in, but it might 7 not behoove us to create the hazard again of that.8 9 Board Member Wasserman: So I only have really two issues. One is with the light fixture 10 shown on Sheet 31. I think you could find something more in keeping with the spirit of the 11 building perhaps, and more attractive. Also I am with Heather on where she was going with the 12 sidelights on the Forest Avenue side. I think I would pull them in to the doors. It is not a big 13 deal, but I would just pull them so that there weren’t so many punched openings one right after 14 the other.15 16 Mr. Bruner: Good point.17 18 Board Member Wasserman: I like a lot of things about your design. I like the proportions and 19 the respect that you have offered the building. I also like the way you draw the people. I think 20 they are very cool.21 22 Mr. Bruner: Thank you, thank you.23 City of Palo Alto June 16, 2001 Page 18 of 27 1 Board Member Wasserman: That is all I have to say on this one. I think it is great.2 3 Board Member Malone Prichard: Heather.4 5 Board Member Young: Thank you for your presentation. I want to echo Judith’s comments 6 about the streetlights, not just the one on the service wall on Sheet A-31 but also the one that the 7 HRB noted as too Victorian. It does look like someone is going to come out and light the 8 gaslight in that particular fixture. Especially as you are trying to make some subtle gestures that 9 this a more modern addition there are some other opportunities I think you can explore there.10 11 Mr. Bruner: Yes, I agree with you very much. We had determined that light before we saw the 12 new library lights, the light sabers in front of the library, which are quite modern. So I think we 13 can do something really in a modern vein that would be very exciting there. I wanted a little bit 14 of the French Momarf or something.15 16 Board Member Young: I also wanted to follow up on my earlier question to our HRB 17 representative, who has left. On the Forest elevation I notice that the massing is such that the 18 gable roof is not continuing all the way from Forest back to the alley.19 20 Mr. Bruner: Yes.21 22 City of Palo Alto June 16, 2001 Page 19 of 27 Board Member Young: I wonder if that perhaps gives you an opportunity to reconsider the 1 roofline such that the area over the stairs has a flat roof more like the tower element on Ramona, 2 and the ridgeline shifts over to better align with the entrance and the spaces below it.3 4 Mr. Bruner: An indentation.5 6 Board Member Young: It just might give you an opportunity to address your two-hour rating 7 and make some stronger connection to the Ramona elevation without being a sort of a left over 8 element right now where the parapet wall comes up and it dies into. I mean I agreed with David 9 that the true gable going all the way across would be preferable but if you have a two-hour 10 requirement that you are trying to meet then there might be other ways to make it a more 11 cohesive element.12 13 Then finally just if you could reexamine the Forest entrance and perhaps make it a larger single 14 opening. Also the sidelight horizontal mullion, I am not sure why it rose up above the horizontal 15 mullion in the doors. It seems to be calling attention to itself, and I am not quite sure why.16 17 Mr. Bruner: Yes, it does. That was purposeful, but I can see maybe like you are saying there is 18 a lot going on there now with the exit door. It is like one, two, three, four, five, and maybe 19 simplify it down to three elements or something.20 21 Board Member Young: I think you are very close and it is going to be a welcome addition to the 22 community. Thank you.23 City of Palo Alto June 16, 2001 Page 20 of 27 1 Mr. Bruner: You are welcome. Thank you.2 3 Board Member Malone Prichard: Alex.4 5 Board Member Lew: I did want to say first off I think this is a very nice design. I think you 6 have struck the right balance between a new addition and the historic renovation of the old 7 building. So just in general I think it all looks good.8 9 I did have a question for Staff first off, which is the six-foot setback that is required for new 10 buildings on Ramona Street. I was wondering what was the intent of that because that seems 11 kind of strange to me. Was that trying to get a wider sidewalk in the Downtown district?12 13 Mr. Riech/Nortz: It is an interesting question and we don’t necessarily really know. There are 14 several special setbacks throughout the city. Many of them are typically on busier streets, more 15 thoroughfares. We have seen some in the Downtown like the ones on Bryant Street where we 16 are trying to get wider sidewalk for a better connection to University. I don’t know that we have 17 an answer for why this was originally created. It was so long ago that little piece of history is not 18 known to us.19 20 Board Member Lew: Yes, because that doesn’t seem to make sense with an historic building 21 like this, and then also that all the building frontages here they align with the Birge Clark or the 22 City of Palo Alto June 16, 2001 Page 21 of 27 Pedro de Lemos block. So it just seems an anomaly, but I understand we have a long history of 1 zoning stuff here. Okay. So I will move on.2 3 On the building, to my mind it all looks good. I think that I guess my question for the rest of the 4 Board is just how we want to look at some of these details if we want it to come back to 5 subcommittee or Consent, or whatnot. I think in addition to the HRB’s details, the details that 6 they requested, which I think are all good I was curious if you would provide the new window 7 details. You mentioned that new aluminum windows are going to be recessed but not as much as 8 the old building. So if you have like a typical detail of that that would be useful9 10 Mr. Bruner: Yes.11 12 Board Member Lew: I would also be interested in seeing if you actually have the red roof 13 specified. I know you can get a red asphalt roof but there are not a lot of them out there.14 15 Mr. Bruner: Matching.16 17 Board Member Lew: Yes, and if you are trying to match an existing thing then I think it is even 18 harder. So I would kind of like to see that just to see that the new roof is compatible with the old 19 roof. If you have an actual sample.20 21 Mr. Bruner: Yes, like over time just the aging of the roof there it is lighter than it was then you 22 might have to have a special run or something to match it.23 City of Palo Alto June 16, 2001 Page 22 of 27 1 Board Member Lew: Yes, and I find and I have specified red roofs on projects before and it is 2 easy to find, but not necessarily in California. So I just want to make sure that you guys can 3 source something.4 5 Then I think I am in agreement with the other Board Members about the sidelights and the light 6 fixtures. I would be happy to see this project come forward. I think it is a very handsome 7 project.8 9 Mr. Bruner: Thank you.10 11 Board Member Malone Prichard: I also am in support of this project. Thank you for bringing it 12 forward. I think you have given a lot of thought to how to make it work with the existing 13 building and yet not look exactly the same. I think you have been very successful in that.14 15 I am in agreement with the other Board Members as far as the things we would like to see back, 16 the window details, the roof sample, and I would like to see the sidelights modified.17 18 Board Member Wasserman: And the solution to the fire separation at the roofline.19 20 Board Member Malone Prichard: Absolutely. In addition, I am interested in the setback area. I 21 think Staff had mentioned whether it was appropriate to put landscaping or something in there. I 22 would be interested to know what you are planning to do with the ground plane in that location.23 City of Palo Alto June 16, 2001 Page 23 of 27 1 Mr. Bruner: Yes, it would be planting either in pots or in planters. We might have something 2 more like pots that are actually designed and made by Art League people, ceramic flatwork, and 3 some colorful stuff.4 5 Board Member Malone Prichard: This is a wonderful opportunity to showcase some of the 6 things that happen at the Art League.7 8 Mr. Bruner: Yes, and a bench or seating. We will have temporary things we can bring out too of 9 course. I think it will be a popular place to sit there in the partial sun. So yes.10 11 Board Member Malone Prichard: So I would add that to the list of things we want to look at. 12 Then a question on the bike racks. You are actually showing them within the building 13 essentially. I know it is open but did you look at whether there is a place to put them on the 14 street instead, or is there a strong preference for putting them inside?15 16 Mr. Bruner: Well, it is allowed to put them on public sidewalk. I have seen that down at the 17 circle. That would certainly –the tree is there. We could put the racks on the 12-foot wide 18 sidewalk rather than take any of our space if that is allowable. I like the ones that we move them 19 up like that and lock them in place. They wouldn’t have to be covered though, right? It could 20 just be open?21 22 City of Palo Alto June 16, 2001 Page 24 of 27 Board Member Malone Prichard: I think, Clare could you confirm this? They don’t need to be 1 lockers?2 3 Ms. Campbell:I think there is a qualification that a certain percent, I think there are only two 4 spaces so I think we can work it out with our Transportation Division what the requirements 5 would be.6 7 Board Member Wasserman:You could have two at each entrance so that there were two on 8 Ramona and two on Forest. You have the space to do that. It is true, not too many people come 9 on their bicycles with their art supplies, but other people might.10 11 Mr. Bruner: We have some longstanding members that come on the bikes. They bring them 12 inside or they chain them to the post outside. You are right, it is mostly foot traffic.13 14 Board Member Malone Prichard: Then the other thing I know HRB wants to look at is the 15 detailing for the canopy at the new entrance. I would also like to see what that is made out of 16 and how it is attached.17 18 Mr. Bruner: Yes.19 20 Board Member Malone Prichard: Those are all of my comments. Anybody else have any 21 follow-ups?22 23 City of Palo Alto June 16, 2001 Page 25 of 27 MOTION1 2 Board Member Wasserman: No. I move that we approve this project with the conditions listed 3 by Clare.4 5 Board Member Malone Prichard: Before we do so I think Alex had a follow-up.6 7 SECOND8 9 Board Member Lew: Nope, I was going to make a motion. So I will second the motion.10 11 Board Member Malone Prichard: Okay. Do you have all of those comments? 12 13 Mr. Turner: Let me repeat those back to you just make sure that we have everything. So you 14 want to see the new window details to come back, the modification of the sidelights, the light 15 fixtures both the lamp and the light fixture at the side of the building, a sample of the roof 16 material, you want to see what they plan to do at the ground plane in the recess at the new 17 addition, and the location of the bike racks, and the canopy details.18 19 Board Member Malone Prichard: That is it.20 21 Board Member Young: I think there might have been one more about the roof, the separation.22 23 City of Palo Alto June 16, 2001 Page 26 of 27 Board Member Malone Prichard: You are right. How to resolve the two-hour issue.1 2 Board Member Young: Are we proposing Consent or subcommittee?3 4 Board Member Malone Prichard: I would propose Consent, but actually I am not the motion 5 maker.6 7 Board Member Wasserman: I was actually thinking subcommittee but Consent would be okay. 8 What happens on Consent is that it gives us one more chance to take a look at it. Yes, let’s do it 9 on Consent.10 11 Board Member Malone Prichard: Alex, do you agree?12 13 Board Member Lew: Yes. Either way is fine with me.14 15 MOTION PASSED (4-0-1-0, Board Member Lee absent)16 17 Board Member Malone Prichard: Okay. So it is on Consent. All in favor? (ayes) Opposed? 18 None. Thank you.19 20 Board Member Wasserman: Easier than you thought.21 22 Mr. Bruner: Yes, it has been very nice, thank you. Appreciate the chance to present it.23 City of Palo Alto June 16, 2001 Page 27 of 27 1 Board Member Wasserman: It is not often we get the architect’s signature on the owner line.2 3 Board Member Malone Prichard: So we will give you a couple of minutes to setup so we will 4 take a brief break.5 WINSOR’S CABINET SHOP 668 RAMONA STREET PALO ALTO, CALIFORNIA HISTORIC STRUCTURE REPORT ................................................................................................................... Prepared for: Prepared by: Pacific Art League PAST Consultants, LLC 668 Ramona Street Petaluma, California Palo Alto, CA 94301 May 11, 2010 ©2010 PAST Consultants, LLC All Rights Reserved Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 TABLE OF CONTENTS I. EXECUTIVE SUMMARY ..................................................................................... 1 Introduction................................................................................................................ 1 Project Team.............................................................................................................. 2 Methodology and Research Materials ....................................................................... 3 Existing Conditions Summary................................................................................... 4 Proposed Rehabilitation Plan..................................................................................... 6 Acknowledgements.................................................................................................... 6 II. CONTEXTUAL HISTORY.................................................................................... 7 Introduction................................................................................................................ 7 Historical Sketch of Palo Alto: 1860 – 1930............................................................ 7 The Spanish Revival Style......................................................................................... 9 Henry R. Winsor’s Family Business.......................................................................... 10 The Palo Alto Art Club.............................................................................................. 12 The Club Occupies Winsor’s Cabinet Shop.............................................................. 13 Historical Analysis .................................................................................................... 15 III. CONSTRUCTION HISTORY .............................................................................. 17 Introduction................................................................................................................ 17 Physical Description.................................................................................................. 18 Table 1: Construction Chronology............................................................................ 26 IV. ARCHITECTURAL EVALUATION.................................................................... 29 Introduction................................................................................................................ 29 Methodology in Determining Significance Rating.................................................... 30 Character-defining Features....................................................................................... 30 Table 2: Very Significant Character-defining Features...................................... 31 Table 3: Significant Character-defining Features............................................... 34 Table 4: Contributing Character-defining Features............................................ 35 Table 5: Non-contributing Features.................................................................... 37 Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 V. EXISTING CONDITIONS ASSESSMENT.......................................................... 39 Introduction................................................................................................................ 39 Structural Framing System ........................................................................................ 39 Winsor Building: Exterior......................................................................................... 41 Winsor Building: Interior.......................................................................................... 47 VI. TREATMENT RECOMMENDATIONS.............................................................. 49 Introduction................................................................................................................ 49 Proposed Rehabilitation Sequence............................................................................. 49 VII. BIBLIOGRAPHY.................................................................................................... 51 Books......................................................................................................................... 51 Newspaper and Magazine Articles............................................................................ 51 Other Media............................................................................................................... 52 VIII. ENDNOTES.............................................................................................................. 54 APPENDIX A: 1926 Drawings of Winsor’s Cabinet Shop (6 Sheets) APPENDIX B: 1965 Drawings of the Pacific Art League Remodeling (4 Sheets) Cover Photo: Courtesy of Pacific Art League Archives Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 1 I. EXECUTIVE SUMMARY Introduction The Pacific Art League retained PAST Consultants, LLC (PAST) to produce a Historic Structure Report (HSR) for Winsor’s Cabinet Shop (Winsor Building), located at 668 Ramona Street in Palo Alto, California. Constructed in 1926 for the Winsor family’s cabinet and furniture-making operation, the building is located one block south of the National Register, Ramona Street historic district and has been occupied by the Pacific Art League since purchasing the building from the Winsor family in 1965. This HSR is divided into eight chapters. Following the Executive Summary, the report provides a Contextual History that details the circumstances in which Henry R. Winsor chose to leave his position at Dudfield Lumber Company and start his own furniture-making shop. The designer of the building itself, Henry Winsor chose a hybrid Spanish-Revival and Arts & Crafts style, likely influenced by the Spanish-styled buildings being erected on Ramona Street in the middle years of the 1920s. The Winsor family occupied the building until 1965 when it was purchased by the Palo Alto Art Club, renamed the Pacific Art League, in 1984. Thus, only two tenants have occupied the Winsor Building: Winsor’s Cabinet Shop (1926-1965) and the Pacific Art League (1965 – today), the latter having the interior spaces redesigned for art education by Robert C. Peterson, a student of Birge Clark at Stanford University and currently principal of Peterson Architects in Palo Alto. The Construction History provides a physical description of the Winsor Building and documents the various modifications to the building, including a series of repairs following the primary 1965 remodeling campaign. The Architectural Evaluation rates the significance of specific historic fabric (i.e., exterior and interior architectural features, ornamentation, finishes, materials, and methods of construction) according to a system of ranked character-defining features. The Existing Conditions Assessment describes the condition of materials systems within the building, Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 2 emphasizing the identification and condition of the building’s historic character-defining features. The Treatment Recommendations provide guidelines for retaining and rehabilitating the historic fabric of the Winsor Building. Treatment recommendations maximize the preservation of historic fabric; all recommendations follow the Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings (Standards). A Bibliography follows, which lists the sources cited. All references are provided in the last section, Endnotes, which give reference sources and provide additional historical information relative to the development of the building. Lastly, the Appendices include copies of the original drawings of Winsor’s Cabinet Shop (Appendix A – six sheets) and copies of the original drawings of the 1965 remodeling for the Palo Alto Art Club (Appendix B – four sheets). Project Team Client Pacific Art League 668 Ramona Street Palo Alto, CA 94301 Historical Consultant PAST Consultants, LLC 104 8th Street, #4 Petaluma, California 94952 Principal: Seth A. Bergstein (Architectural Historian, Conservator, HSR Author) Architect William Bruner Architect 326 Church Street Mountain View, CA 94041 Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 3 Methodology and Research Materials The project commenced on October 4, 2007, with a kickoff meeting held at the Winsor Building. PAST conducted site visits to assess and photograph the building on October 11, 16, 21, and 23, 2007. Additional visits to local historical archives occurred on these days and subsequent days in October 2007. PAST revisited the building on February 17, 2010 for a kickoff meeting with Executive Director Richard Ambrose and William Bruner, Chair of the Building Committee and architect for the proposed seismic and historic rehabilitation. In addition on this date, PAST inspected the building to address any changes to its existing condition for purposes of this HSR. PAST reviewed primary and secondary research material in libraries and repositories of public record in the following institutions: • Palo Alto Historical Association, Palo Alto, California Housed in Palo Alto’s main library at 1213 Newell Road, the archives of the Palo Alto Historical Association were freely accessible and provided the most complete historical information for this study. Items examined included Sanborn maps, historical issues (on microfilm) of the Palo Alto Times, building history files, city directories and secondary histories on Palo Alto. The staff at the Association was extremely knowledgeable and instrumental in providing information for this report. • City of Palo Alto Development Center, Palo Alto, California The City of Palo Alto’s planning department was consulted for the examination of building permit records and building files relevant to the subject property. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 4 • Pacific Art League Archives Located on-site in the Winsor Building, the author consulted numerous scrap books of the Pacific Art League (formerly the Palo Alto Art Club), which contained newspaper clippings, photographs, and histories of the organization and its numerous noteworthy and local artists. Various files also contained invoices of repairs to the building during the Pacific Art League’s occupancy. Existing Conditions Summary The exterior of the Winsor Building is in fair condition and displays most of its historic character-defining features from the 1926 design, including virtually all of its Spanish Revival detailing and the delightful carvings in the display window surrounds on the southeast corner, at the intersection of Ramona Street and Forest Avenue. The existence of most of the Winsor Building’s architectural details on the Ramona Street and Forest Avenue facades has elevated the building to Category 2 status on the City of Palo Alto’s Historic Resource Inventory. A location map of for the Winsor Building appears in Figure 1. Figure 1. Location map for Winsor Building, based on 1924 (Updated 1949) Sanborn Map. The north/south wings facing Ramona Street and the rear addition are indicated by arrows (Palo Alto Historical Association). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 5 PAST inspected the building in October 2007 and February 2010. The latter inspection revealed little changes to the building’s existing condition since 2007. However, several conditions are noted in this summary and in the Conditions Assessment chapter of this document. For example, cracks and deteriorated plaster in the front stairwell walls on the Ramona Street façade have been repaired since the 2007 inspection. These areas are noted in Chapter V: Existing Conditions Assessment, in the narrative and the associated photograph captions. Evidence of the 1929 fire reported in the Palo Alto Times remains in the roof framing of the southwest portion of the original building. The fire did not appear to mar the building’s original detail on the Ramona Street or Forest Avenue facades. As part of the fire repairs to the rear and southwest corner, a one-story addition was added to the west of the original building sometime after 1929. This rear addition is approximately 10 feet deep and runs from the outer southwest wall of the north wing, southerly to a point recessed approximately 6 feet from the building’s south façade wall on Forest Avenue. This addition is in poor condition, with evidence of movement of the addition with respect to the main building displayed in cracks where the addition meets the main building. These cracks have been filled since the original building inspection in 2007 and show evidence of new cracking through these repairs. Examination of maintenance files at the Pacific Art League’s archives located in the Winsor Building indicates that the original metal roof leaked in various locations and that a new asphalt- composition shingle roof was installed in 1981. This current roof appears to be functioning adequately at this time. The Winsor Building is classified as a Category I Building under the City of Palo Alto’s Seismic Hazards Identification Program. The building is considered an Unreinforced Masonry (URM) structure because of its hollow clay tile construction. The seismic classification of the Winsor Building was discussed in a letter from the City of Palo Alto to Stephanie Demos, Executive Director of the Pacific Art League, dated November 14, 2007.1 Various structural engineering Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 6 reports have been prepared describing the seismic hazards of the building dating back to 1996. These reports are discussed in Chapter V: Existing Conditions Assessment. Proposed Rehabilitation Plan The proposed rehabilitation plan is intended to qualify for both the Historic Rehabilitation Bonus and the Seismic Rehabilitation Bonus, as defined in Chapter 18 of the City of Palo Alto’s Municipal Code. As stated in this code, the proposed rehabilitation plan must meet with the Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings (Standards). Review of the preliminary rehabilitation design plan with architect William Bruner indicates that the proposed rehabilitation plan will restore many of the historic character-defining features of the building, while locating the new addition to the rear of the historic building. While the proposed rehabilitation design plan has not been finalized at the time of the writing of this HSR, the design plan appears to support the Standards. It should be noted that seismic retrofitting will likely necessitate the insertion of steel reinforcement within the building to take seismic loads off the original and poorly-performing hollow-clay tile and concrete frame. While the steel will be visible in the interior (not when viewed from outside), it will be clearly differentiated from the historic structure. This clear demarcation of new structure from the historic supports the Standards. Acknowledgements Steve Staiger of the Palo Alto Historical Association provided his usual gracious assistance in locating documents relevant to this study. The Pacific Art League gave the author access to historic scrapbooks and building maintenance files, which informed this project greatly. The author also thanks Robert Peterson, AIA and Guy Frazee, AIA of Peterson Architects for granting an interview to discuss the history of the building. Robert Peterson also provided copies of the original 1926 and 1965 remodeling drawings for reproduction in this report. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 7 II. CONTEXTUAL HISTORY Introduction In 1769, Gaspar de Portola, with his party of soldiers, Indian guides and clergy, camped before an immense twinned Redwood tree (“El Palo Alto”), seeking the ideal location for a new Mission. As the party explored the surrounding drainage of San Francisquito Creek, their journal entries commented on the unbridled natural beauty and bounty of the landscape.2 Although the mission was never constructed, today’s Palo Alto, with its combination of cosmopolitan culture (led by Stanford University, a leading international institution), progressive city government, and beautiful natural setting, lives up to the accolades bestowed upon it by the first non-Native explorers. Excellent histories of this prosperous city, which trace its development from native Ohlone occupation to thriving university town, have been written, such as Winslow Ward’s Palo Alto: A Centennial History (see Bibliography). Such fine historical work needs no duplication. Rather, this chapter will paint a more refined contextual picture of a thriving university town as it appeared when Henry R. Winsor decided to build his cabinet shops in the rapidly-expanding commercial district of the city. Historical Sketch of Palo Alto: 1860 - 1930 Palo Alto, like many peninsula towns of the late 1800s, was little more than an agrarian community, and smaller than its southern neighbor, Mayfield, when several key events led to its early-20th Century dominance. Before the 1860s, the notion of acquiring large tracts of peninsula land as a haven from the bustle of San Francisco attracted few big city investors. However, the completion of the San Francisco and San Jose Railroad in 1864 inspired wealthy San Franciscan business owners to acquire huge tracts of land around the new railroad’s right of way.3 In 1874, Leland Stanford, one of the “Big Four” and California’s Civil War governor, chose the Palo Alto region for the location of his stock farm, as he considered it an ideal place to raise his famous racehorses. By 1880, Stanford had amassed over 8,000 acres along the San Francisquito creek drainage. All seemed well until the death of their only child while the family Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 8 vacationed in Europe. According to the lore, Leland had a vision the night of his son’s death, in which the boy urged his father to contribute to humanity. With his wife Jane, Leland decided to fund an institution in honor of their only child. Initially, Stanford hoped to develop a complete educational system, from kindergarten through college; the famed university would become the actual realized creation. His first choice for location was the agrarian town of Mayfield. However, the town refused to close its saloons, as requested by Leland Stanford, as he felt college towns should be dry. Stanford turned to his holdings in Palo Alto to locate his university, hiring Timothy Hopkins, son of Mark Hopkins and a peninsula neighbor, to lay out the university and neighboring town. Stanford University opened on October 1, 1891. The university grew slowly but steadily, leading to Palo Alto’s incorporation on April 9, 1894. However, Leland Stanford never witnessed the ceremony, having passed in June of 1893.4 As the 19th Century drew to a close, Palo Alto was about to enter a stage of considerable growth. The lure of the burgeoning university led many Mayfield businesses to relocate to neighboring Palo Alto. Mayfield incorporated in 1903, and was already feeling its decline running hand-in- hand with Palo Alto’s rise to prominence. Despite considerable loss rendered by the 1906 San Francisco Earthquake, Palo Alto continued to grow with strong civic leadership and the attractive power of Stanford University. Mayfield’s fortunes were clearly in jeopardy; the town officially merged with Palo Alto on July 6, 1925.5 The merger led to a near doubling of Palo Alto’s population in the 1920s, when the combined population of Palo Alto and Mayfield reached approximately 7,000. During this time, the city experienced a substantial building boom, with the shopping district expanding beyond Waverly Street to the east and the construction of handsome residential districts. Prominent local architects, such as Birge Clark and Pedro de Lemos, were designing handsome buildings in a signature style that would become known as the Spanish Revival. To accommodate the bulge in population, construction continued in earnest. In 1926, the year Henry R. Winsor would design and construct the Winsor Cabinet Shop, an article in the Palo Alto Times announced, “1925 construction work exceeded the record highest by almost $1,000,000.”6 By 1930, Palo Alto’s population had ballooned to over 13,500.7 Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 9 The Spanish Revival Style Birge Clark, perhaps Palo Alto’s most important architect, described the Spanish Revival style in his memoirs, using such terms as “Early California” and “Mission Revival.” The architect describes the style as “a sort of untutored Spanish village type of architecture which is exemplified by arches – round, elliptical, and pointed; balconies recessed into the building or wrought iron balconies projecting out from the building; real or false chimneys; and above all, a tile roof, which if it could not cover the whole building, would at least slope back from the street to a ridge and look as though there might be more tile behind it.”8 The first example, designed by the style’s earliest proponent, George Washington Smith, appeared in Palo Alto in 1924, at 1336 Cowper Street.9 Clark designed his first residence in this style, the Dunker house, in 1926, noting the use of thick stucco walls to resemble adobe and the liberal use of decorative ironwork.10 Birge Clark himself would design numerous buildings in the Spanish Revival style, a design paradigm that would prove to encompass most of his important Palo Alto buildings. An outstanding example of his work in this style is the four-story Medico-Dental Building on the corner of Ramona and Hamilton streets, completed in 1928. The building was considered novel for its time with “… drive-in auto storage in its basement, the first auto garage/storage of this type in Palo Alto.”11 Designed in a sumptuous Spanish Revival style, the building utilized Clark’s characteristic “pointed and round arched windows,” extensive ceramic tile in the multi- story lobby and copious amounts of decorative ironwork. Clark commented that the Medico- Dental Building, “established the character of this block on Ramona.”12 In addition to George Washington Smith, Clark notes another architect who practiced the Spanish Revival and inspired Clark to explore this burgeoning style. Pedro de Lemos was an artist, craftsman and architect of a variety of handmade buildings in and around Palo Alto. In 1925, he designed the Gotham Shop, at 520-26 Ramona Street, the first commercial storefront building on the street, constructed shortly after the Cardinal Hotel (designed by W.H. Weeks Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 10 with Birge Clark).13 This building included a rambling courtyard that encompassed a live oak tree and contained niches, benches and handmade ceramic tile. Clark would later comment that de Lemos’ designs for the Gotham Shop inspired him to explore the Spanish Revival style fully.14 It is interesting to note that the Winsor Building, which displays stylistic elements of the Arts & Crafts and Spanish Revival styles, was constructed during the same period as Birge Clark’s and Pedro de Lemos’ signature buildings on Ramona Street one block to the north. Henry R. Winsor’s Family Business Unlike Birge Clark and Pedro de Lemos, very little biographical information exists regarding Henry R. Winsor. He is not featured as one of the more prominent Palo Alto residents at that time. City directories from 1918 and 1919 list Henry Winsor as employed by Dudfield Lumber Company, located on Alma Street and Forest Avenue, one of the region’s larger building supply companies at that time.15 Around 1920, Mr. Winsor left the Dudfield Lumber Company to pursue his own furniture-making business, placing his first advertisement for “built-in furniture” in the Palo Alto Times on April 20, 1920.16 He apparently operated his business from his home at 668 Ramona Street for nearly six years, before beginning construction on the Winsor Building. Given the rapid expansion of Palo Alto in the mid-1920s, the Times regularly announced new building permits, with amounts, that were taken out in the City. On August 28, 1926, the first permit for Winsor’s Cabinet shop appears.17 Henry R. Winsor designed the building in two sections, constructing the north wing first. Wells Goodenough was the builder. The original drawings for Winsor’s Cabinet Shop, dated 1926, are included as Appendix A.18 Henry Winsor chose elements of the Mission or Spanish Revival style for his detailing, undoubtedly influenced by the impressive Clark and de Lemos buildings being constructed on Ramona Street, merely one block to the north. On October 30, 1929 a fire struck the rear of the building along Forest Avenue, and ravaged the structure’s south wing on the corner of Forest Avenue and Ramona Street. Henry Winsor’s son, Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 11 Mervyn Winsor, then only seven years old, discovered the blaze. According to the Times flames were “shooting high into the air” by the time firemen arrived.19 Although the Times article announced that Winsor’s was “completely burned,” interviews conducted with Mervyn Winsor in the mid-1990s indicate otherwise. Mervyn stated that fire only destroyed a rear section of the building (that stood in the position of the current rear addition to the west) and only partially destroyed the cabinet-making shop, which occupied the building’s southern wing.20 One of the building’s earliest views located, likely from the 1940s – 1950s, appears below as Figure 2. Figure 2. Circa 1940s-1950s view of Winsor’s Cabinet Shop (Palo Alto Historical Association).21 Figure 3 below depicts an additional view. Figure 3. View of Winsor’s Cabinet Shop in the 1950s (Palo Alto Historical Association).22 Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 12 The Winsor family lived in the apartment above the cabinet shop, which was accessed via the front stairs. The operation became a family business with sons Alvin and Mervyn eventually joining Henry Winsor.23 The Winsors sold the building directly to the Palo Alto Art Club in 1965.24 The Palo Alto Art Club Although Birge Clark and Pedro de Lemos were not involved in the construction of the Winsor Building, they were among the founders of an informal art club that would continue to be one of Palo Alto’s art centers to this day. On February 12, 1921 nationally-renowned sculptor A. Phinister Proctor held a meeting in his home for the purposes of developing an art club in Palo Alto. By the end of February, the Palo Alto Art Club was formed, with charter members including Palo Alto’s budding architectural talents, Birge Clark and Pedro de Lemos (also curator of the Stanford Museum).25 Additional charter members that connected Palo Alto art with architecture included Stanford University Professor A. B. Clark and his wife, Grace Birge Clark. Professor Clark himself was a talented architect, head of the Stanford Art Department and Birge Clark’s father. Membership encompassed representatives of virtually all of the visual arts, and included: printmaker Mary Denison Thomas, Frank Duveneck Jr. (son of international artist Frank Duveneck), Stella McKee, art teacher at Palo Alto High School, and James Swinerton, nationally-famous cartoonist and painter. Meetings began immediately in members’ homes for sketch groups, art discussions (or chalk talks), art instruction, and for engaging the community with a host of artistic talent that lived in the area.26 After only several years, it became clear that the Club’s membership was growing quickly. In 1926 noted sculptor, painter and woodcut-maker, Elizabeth Norton, was elected president. An integral leader and member of the Palo Alto Art Club her entire life, Elizabeth Norton was able to secure the Club’s first Palo Alto location, at 340 Melville Avenue, in 1939.27 The Club embraced all of the visual arts, including photography: the Palo Alto Camera Club joined the group at the Melville Avenue location in 1946. By the 1950s, enrollment had reached 400, with Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 13 11 weekly art classes offered. The group quickly outgrew its first location. With Board approval in 1953, the Club moved into the Unitarian Church (partially designed by Bernard Maybeck – now demolished). By October of 1954, the Palo Alto Art Club had grown to 600 members.28 It was becoming clear that newer and larger quarters would be needed. The Club Occupies Winsor’s Cabinet Shop In the early 1960s club president Lucille Ostrum, a real estate broker connected to the community, sold the Unitarian Church for $79,000, enabling the purchase of Winsor’s Cabinet Shop.29 The club hired Robert C. Peterson, an architect who studied with Birge Clark, to design a master plan for the Art Club in its new location and to oversee the building’s conversion. Jane O’Neill, a “firecracker of a president,” rallied a considerable volunteer effort to increase membership and raise funds for the renovation.30 As part of this campaign, the Club published an elegant brochure to increase awareness and raise funds. The brochure opened with renderings of old club locations and a sparkling face lift for Winsor’s Cabinet Shop; scans of these images appear as Figures 4 and 5.31 Figures 4 & 5. Scans of the opening pages of 1965 publicity brochure (Pacific Art League Archives). On August 13, 1965 the Palo Alto Times announced that an “obscure downtown business building will soon be transformed into Palo Alto’s ‘castle of art.’” The Times article noted the Club’s plans to occupy Winsor’s Cabinet Shop and presented the reader with a sketch of the building as it would appear after restoration. The Club endeavored, as it did with the Maybeck wing of the old Unitarian Church, to retain and restore as much of the building as possible. The sale price of the building was $92,500.32 Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 14 For the article, the Times photographed the building shortly after its purchase. These images appear as Figures 6 and 7. Figures 6 & 7. Views of Winsor’s Cabinet Shop shortly after purchase in 1965. These images accompanied the August 13, 1965 article in the Palo Alto Times (Pacific Art League Archives). The Club’s plans to occupy the Winsor Building actually were announced in the San Jose Mercury News in January of the same year. The paper declared, “A new home for the fast- growing Palo Alto Art Club has been announced – in a Spanish-style building which the club will restore as a symbol of a vanishing era.” The following accompanied the article (Figure 8).33 Figure 8. Image that accompanied the 1965 San Jose Mercury News article, showing the southwest building corner at the intersection of Ramona Street and Forest Avenue. On the Forest Avenue façade, the first floor display window and an upper-level sash window are shown with arrows (Pacific Art League Archives). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 15 Robert C. Peterson, AIA, principal of Peterson Architects of Palo Alto, maintains copies of both the 1926 Winsor Cabinet Shop drawings and the 1965 remodeling drawings. When he arrived to design the master plan in 1965, he noted that the building was unpainted: the pebble stucco finish was dark gray from dirt and grime. The splash marks seen beneath the windows in the historical photographs are where runoff has washed away the darker areas of grime.34 The Palo Alto Art Club changed its name to the Pacific Art League in 1984 and continues to occupy the building. Historical Analysis The Palo Alto Historic Resources Board nominated the building in 1978 as a Category 3 historic resource. The City has since upgraded the Winsor Building to Category 2 status. As defined by the Palo Alto Municipal Code, a Category 2 Building is: Category 2: A "Major Building" of regional importance. These buildings are meritorious works of the best architects, outstanding examples of an architectural style, or illustrate stylistic development of architecture in the state or region. A major building may have some exterior modifications, but the original character is retained. The period of significance is 1926 – 1965 and spans the occupancy dates for the building’s historic use as a furniture manufacturing shop and residence. This date period follows standard National Register criteria, which establishes a period of significance based on a historic resource’s most significant historic use. For this building, the most significant use would be the building’s original use, as Winsor’s Cabinet Shop, constructed in 1926. In 1965, the Winsor Building was bought and occupied by the Palo Alto Art Club. Thus the period of significance would include the dates of the Winsor occupancy, 1926 to 1965. Only two tenants have occupied the Winsor Building – a relatively uncommon occurrence for commercial buildings in Palo Alto. Regarding National or California Register eligibility, the Winsor Building may possibly be significant at the national and state levels under National Register Criterion C (California Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 16 Criterion 3): Design and Construction. The following is a brief discussion about the criteria categories, as applied to this building. 35 National Register Criterion A (California Criterion 1) relates the resource to a specific historic event. Although Winsor’s Cabinet Shop opened to meet the demand of an expanding Palo Alto in the mid-1920s, it is unlikely that the building would qualify for its association with this event alone, as the same distinction can be made for any other Palo Alto commercial operation in business during the city’s greatest time of growth. Criterion B relates a historic resource to significant individuals in national and state history. Although Henry R. Winsor and his family manufactured interior furniture for the thriving housing and commercial markets, the Winsor family is not recorded as making significant civic contributions to Palo Alto or the local region. It is not likely that Henry Winsor or his sons would qualify under National Register Criterion B (California Criterion 2), “Significant Persons,” as they do not have national or state significance. National Register Criterion C (California Criterion 3) refers to a historic resource’s unique method of design and construction. The original Winsor’s Cabinet Shop, designed by Henry Winsor and built by local builder Wells Goodenough, may be potentially eligible as an example of the region’s vernacular Spanish Revival style. Likely influenced by the new buildings designed by Birge Clark and Pedro de Lemos one block to the north, the Winsor Cabinet Shop employed interesting elements of the local Spanish style, such as arched windows, false balconies with clay tile roofs, the illusion of thick walls rendered with a pebble stucco finish, and the elegant bent wood details found on all of the extant false balconies. Given the buiding’s proximity to the Ramona Street Architectural District, and its use of the Spanish Revival Style, the Winsor Building may potentially qualify as significant under National Register Criterion C and/or California Criterion 3. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 17 III. CONSTRUCTION HISTORY Introduction Additions and alterations to the Winsor Building are presented in Table 1, Construction Chronology, which lists the various changes to the building and their associated dates. Drawings for the 1926 Winsor Building and the 1965 remodeling appear in Appendix A and B, respectively. Appendix A includes copies of six drawings of the Winsor Building prepared by Henry Winsor. Sheet One shows a perspective sketch of the building’s north wing, located at the intersection of Ramona Street and the alley on the north edge of the site. This north wing was constructed first. Sheet Two depicts rough elevations of the completed building, indicating the placement of windows, doors and architectural detailing. Sheet Three is a plan view of the north wing; Sheet Four provides sections for the north wing, indicating concrete framing, window openings and hollow clay tile placement. Sheets Five and Six are first and second floor plans, respectively, of the south wing. The locations of the various building wings are indicated in Figure 9 below. Figure 9. Sanborn map scan showing location of the north/south wings facing Ramona Street and the rear addition, all indicated by arrows (Palo Alto Historical Association). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 18 It should be noted that the 1926 Winsor drawings are conceptual at best. The drawings are not as-built documents as one would see prepared today. As was typical building practice in the 1920s, an owner could present a set of schematic drawings to a builder who would execute the work. The 1926 Winsor Building drawings provide an indication of the overall stylistic composition of the building; rather than a record of what was constructed. However, the 1926 drawings do serve as a useful guide to determining what historic fabric is original to the building. Copies of blueprints for the 1926 building campaigns reside in the offices of Peterson Architects in Palo Alto. Appendix B includes copies of four drawings of the 1965 remodeling campaign for the Pacific Art League, by Robert C. Peterson (now principal of Peterson Architects). Included are plans and elevations of the Winsor Building, with indications of changes to be made for the new tenant. While these drawings are more detailed than those by Henry Winsor, they also should not be considered as as-built drawings. These four sheets detail the changes to the 1926 building for the 1965 remodeling campaign. These sheets also provide a glimpse at what the Winsor Building looked like prior to the 1965 remodeling. Physical Description Merely two tenants have occupied the Winsor Building: Winsor Cabinet Shop (1926-1965) and the Pacific Art League (1965 – today). Based on an examination of the 1965 remodeling drawings, it appears that the Pacific Art League occupation has installed relatively few changes to the building’s exterior from the early period as a cabinet shop. Site The Winsor Building site is bounded by an alley to the north, Ramona Street to the east, Forest Avenue to the south, and a driveway to the west. The essentially flat site was originally located in a more commercial area of the city, just two blocks south of fashionable University Avenue. Review of period Sanborn maps indicate that the surrounding blocks included similar Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 19 commercial operations, such as furniture stores, upholstering operations and laundries. The building takes advantage of its corner location, with ornate bay windows and wood railings in the Spanish Revival style (Figure 10). Figure 10. Southeast corner of building at the intersection of Ramona Street and Forest Avenue. The fence at extreme left is part of the site (PAST Consultants). Site features include the north alley intersecting Ramona Street and an open, paved area immediately behind (west) of the building (Figure 11). Figure 11. Paved driveway behind the building, looking south toward the fence along Forest Avenue (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 20 Building Exterior Ramona Street (East) Facade The building’s primary façade at 668 Ramona Street is a symmetrical composition featuring a pair of gable ends flanking a central tower. The north wing fronts Ramona Street and the north alley; the south wing fronts Ramona Street and Forest Avenue. The gable ends have rooflines perpendicular to Ramona Street, vents near their apex, and a varied fenestration pattern with arched openings. The facade has upper-story, corner false balconies sporting elegant wood railings which are hallmarks of the Spanish, or Mission Revival style. The use of arched window openings, arched vents, and an arched entrance also provide Spanish Revival stylistic elements. As it appears today, the building’s primary entrance is through an arched opening located off- center in the central tower’s Ramona Street façade. An additional entrance to retail spaces, utilizing one of the original entrances to the 1926 cabinet shop, is located on the south wing’s Ramona Street façade, between the display windows (Figure 12). Figure 12. Ramona Street façade of the building, the south wing entrance shown by an arrow (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 21 The first floor of the Ramona Street façade is dominated by a series of wood-framed, multiple- paned display windows running the length of the façade and wrapping around the corners of the building. The windows contain multiple-paned toplights that were originally operable. In the 1926 composition, the display windows flanked an entrance centered within each building wing. On the north wing, this entrance was replaced by a smaller display window during the 1965 remodeling campaign (Figure 13). The south wing, as seen in Figure 12 on the previous page, still contains the original entrance flanked by the display windows. The display window surrounds on the south wing bear a number of turned wood elements and carved decorative wood details that were possibly intended to highlight the woodworking shop within (Figure 14). Figures 13 & 14. Left view shows the three display windows of the Ramona Street façade’s north wing; the middle window installed in 1965. The left view also shows the pebble-stuccoed section of the alley (north) façade, with its false balcony and original casement window in the upper story. On the right, a view of the Ramona Street display window on the south wing, showing a series of arched decorative wood surrounds (PAST Consultants). Alley (North) Façade The alley facade displays a false balcony with a narrow window in the upper story, placed close to the east façade, to enhance the visual effect when viewed from the northeast building corner (Figure 13 above). This smaller false balcony echoes the design details of the false balconies on the Ramona Street façade with a decorative wood railing and a shallow-pitched shed roof Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 22 finished with clay tiles. The remainder of the alley (north) façade was the more service-oriented section of the building, with a service entrance near the west side of the façade and casement windows in the upper story. The pebble stucco finish changes to a flat finish several inches behind the border of the alley façade’s display window (Figures 15 & 16). Figures 15 & 16. To the left, a view of the alley (north) façade, taken from the northwest (rear) building corner. The upper-level casement windows are shown with arrows. On the right, a view of the alley (north) façade, taken from the northeast building corner, showing the change in stucco finish with an arrow (PAST Consultants). Forest Avenue (South) Façade The Forest Avenue (south) façade displays similar design elements to the Ramona Street façade, including an upper-level false balcony and a large, first-floor display window (Figure 17). Figure 17. View of Forest Avenue (south) façade, taken from the corner of Ramona Street and Forest Avenue (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 23 As seen in Figure 17 on the previous page, the opening for the upper-story windows to the rear of the Forest Avenue façade has been infilled with sash replacements installed after 1965, as the sash configuration does not match what is shown on the 1965 Peterson drawings. Similarly, the first floor opening has been boarded up with wood sometime after the 1965 remodeling campaign. The first-floor, Forest Avenue display window contains wood decorative elements rendered into a series of flattened arches capped by fans, trefoils and a dentil course (Figure 18). Figure 18. View of Forest Avenue facade display window (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 24 Rear (West) Façade A single-story addition with a shed roof was constructed on the rear (west) façade of the building and displays a band of fixed-sash windows with wood frames (Figure 19). Although the exact date of construction could not be verified, it is possible that this addition was constructed by Henry Winsor shortly after the 1929 fire. The rear addition is constructed of the same materials as the original building – hollow clay tile and concrete – and is poorly tied to the earlier building. Above this addition, a parapet wall protecting an upper-level deck was also added (Figure 20). Figures 19 & 20. Views of the rear addition constructed on the rear (west) façade (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 25 Building Interior During the Winsor era, a potential client entered the building through the central tower’s doorway and proceeded down a central hallway to Henry Winsor’s office on the left. The Winsor family lived in an apartment above the shops, accessed via a stairway left of the main entrance and running just behind the Ramona Street façade wall (Figures 21 and 22). Figures 21 & 22. On the left, the primary entrance and window to Henry Winsor’s office, viewed through the arched entrance. On the right, the stairs to the upstairs apartment (PAST Consultants). Originally, the south wing housed the manufacturing side of the business, with the north wing used for displaying completed work. The present staircase at the rear of the first floor was installed as part of the 1965 remodeling campaign. On the second floor, the apartment displays several built-in cabinets, most likely made at the cabinet shop, and hardwood floors (Figures 23 and 24). Table 1, on the next page, outlines the building’s construction chronology. Figures 23 & 24. Two views of the upstairs apartment looking northeast. The entrance to the apartment from the Ramona Street stairs is shown in both images with an arrow (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 26 Table 1. Construction Chronology 1926: Palo Alto Times announces the granting of building permits to Henry R. Winsor for construction of the Winsor Cabinet Shop. Construction was likely completed in the autumn of 1926 (Figure 25). See Appendix A for copies of original drawings. Figure 25. Early historic image of building, undated, but likely 1940s-1950s (Palo Alto Times). October 30, 1929: Palo Alto Times reports of the fire that struck the Cabinet Shop, which was housed in the south wing of the building. Evidence of fire damage remains in the roof framing of the south wing, in both the east section and in the smaller rear section currently housing the Executive Director’s office. (Figure 26). Figure 26. Fire damage in roof framing of the south wing (PAST Consultants). No Verified Date: Construction to repair fire damage included repairs to the south wing and construction of the rear addition and parapet wall present today (Figure 27). Figure 27. View of rear addition looking northeast (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 27 1965: Building remodeled for the Palo Alto Art Club. Modifications to the original building include: • Replace entrance on Ramona Street façade, north wing, with display window (Figure 28). • Install operable door in Ramona Street façade, south wing, entrance. • Replace glass in north façade first floor display window with wire glass. • Install smaller door in west entrance on alley façade; infill the larger opening with cinder block. • On rear (west) façade, north wing, remove larger doors and install vents to accommodate new furnace. Infill the openings with cinder block (Figure 29). • On rear (west) façade, south wing, remove window and install door with jalousie window toplight (Figure 30). • Install new landing in center hall entrance. • Install new concrete ramp in rear of hall. • Install rafters and gypsum board ceiling in rear addition. • Install gypsum board wall finishes onto existing hollow clay tile walls at various locations. • Install restrooms and associated sinks and infrastructure for art school remodeling. See Appendix B for copies of remodeling drawings. Figure 28. Center display window replacement on Ramona Street façade’s north wing (PAST Consultants). Figure 29. Vents, cinder block infill, and boiler exhaust on rear (west) façade of north wing (PAST Consultants). Figure 30. 1965 door and jalousie window on rear (west) façade of south wing (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 28 1967: Installation of tar-and-gravel roof and 2x6” cedar decking boards to second-floor roof deck on rear of building. Installation of tar- and-gravel roof on tower, as well as “miscellaneous repairs as directed by the P.A. Club president.”36 These repairs were likely the modification to window openings that are evident in the rear facades of the building in the vicinity of the roof deck (Figure 31). These same surfaces were re-roofed in 1981.37 Figure 31. View of roof deck, looking southeast from north wing (PAST Consultants). Date Not Verified: On Forest Avenue façade, aluminum slider windows installed in original window openings on upper floor; first-floor service entrance boarded up with wood (Figure 32). Figure 32. Replacement entry door and aluminum slider windows in south facade (PAST Consultants). 1981: Primary roofs replaced with asphalt composition shingles; new flashing and sheet metal installed at all chimneys; vents not in use closed off; gutters and downspouts replaced. The roofing replacement involved the removal of the original “corrugated metal roof.” 38 (Figure 33) Figure 33. Replacement roofing on north wing viewed from third-floor tower window (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 29 IV. ARCHITECTURAL EVALUATION Introduction This section lists and assigns significance ratings to the historic character-defining features of the Winsor Building. A character-defining feature is an aspect of a building’s design, construction, or detail that is representative of the building’s function, type, or architectural style. Generally, character-defining features include site characteristics, landscaping, specific building systems, architectural ornament, construction details, massing, materials and craftsmanship within the period of significance. For a historic resource to retain its historic significance, its character- defining features must be retained to the greatest extent possible. An understanding of a building’s character-defining features is a crucial step in developing a rehabilitation treatment plan that maximizes the retention of specific historic fabric and communicates the historic significance of a given building, structure, site or other historic resource. This section also rates the character-defining features according to their degree of significance. Significance ratings were assigned to individual character-defining features and newer elements found throughout the Winsor Building as a better method of understanding the importance of individual components. The ranking system presented on the next page identifies and rates the character-defining features as a means of understanding the building’s individual aspects or elements that contribute to its architectural and historic significance. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 30 Methodology in Determining Significance Rating Character-defining features were grouped by location throughout the building and analyzed according to significance. Individual features were identified as very significant, significant, contributing, or non-contributing. • Very Significant classifies those character-defining features that date within the period of significance of the building and communicate the greatest degree of historic integrity for the site. Their retention and restoration should be prioritized. • Significant features are often ancillary or supportive of the very significant features that contribute to the understanding of the overall design. Alteration or removal of these features may be necessary for programmatic or building system requirements; however, removal of these features should be minimized or mitigated. • Contributing features are elements of the building, or modifications to the building, that are of lower importance relative to the understanding of the original design. Alteration or removal of these features, if necessary, would have a limited effect on the integrity of the building. • Non-contributing features are elements of the building that are recent modifications and/or are constructed outside the period of significance and whose removal or alteration would not have an effect on the original integrity of a building. In some cases, removal of the non-contributing features may have a positive effect on the building’s overall integrity. Character-defining Features This section lists and ranks the character-defining features of the Winsor Building. The listings begin on the next page with a table for each significance category: • Table 2: Very Significant Character-defining Features • Table 3: Significant Character-defining Features • Table 4: Contributing Character-defining Features • Table 5: Non-contributing Features Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 31 Table 2: Very Significant Character-defining Features 1. Three-part massing consisting of a central tower flanked by the north and south wings (Figure 34). Figure 34. View of Ramona Street façade showing three-part massing and tower (PAST Consultants). 2. Thick, Spanish Revival pebble-stucco finish on Ramona Street, Forest Avenue and alley facades (Figure 35). Figure 35. Pebble stucco finish (PAST Consultants). 3. Central tower with arched openings, diamond-paned upper-level windows on Ramona Street, upper-level steel windows in tower sides, off-center entrance on Ramona Street, and crowning cement plaster parapet (Figure 36). Figure 36. Central tower with Ramona street diamond- pane windows, steel side windows, and a crowning parapet, shown by arrow (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 32 4. Fascia boards and pendants on gable ends of Ramona Street façade (Figure 37). Figure 37. Ramona Street gable end, showing fascia boards, peak “pendant” and arched vent (PAST Consultants). 5. Arched window vents on Ramona Street gable ends (Figure 37 above). 6. Stepped arched openings to light front staircase to upstairs (former) apartment (Figure 38). Figure 38. Stepped arch openings lighting front staircase behind Ramona Street façade wall, shown by arrows (PAST Consultants). 7. Upper-level false balconies on Ramona Street, Forest Avenue, and alley facades, with all associated casement windows, bent-wood rails, barrel-tiled shed roofs and roof supports (Figure 39). Figure 39. View of false balcony, with associated rails, casement windows, bent-wood rails, and barrel-tiled shed roofs (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 33 8. Original casement and fixed windows on Ramona Street, and alley façades visible from Ramona Street, examples shown by arrows (Figure 40). Figure 40. View of northeast building corner, showing Ramona Street and alley façades. Arrows indicate original casement windows (PAST Consultants). 9. 1926 south entrance on Ramona Street façade (Figure 41). Figure 41. View of southeast building corner, at Ramona Street and Forest Avenue, showing the 1926 south entrance, shown by arrow (PAST Consultants). 10. First floor display windows and associated mullions, wood surrounds, and glass on the Ramona Street, Forest Avenue, and alley facades; with the exception of the central window on the Ramona Street façade’s north wing, which was installed in 1965 (Figure 42). Figure 42. Ramona Street façade, north wing, showing display windows. The middle window was installed in 1965 (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 34 Table 3: Significant Character-defining Features 1. Front stairs to upper-level apartment (Figure 43). Figure 43. View through the tower’s arched Ramona Street entrance, showing stairs, office window and mail slot (PAST Consultants). 2. Original office window and mail slot in rear wall of stairs (Figure 43 above). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 35 Table 4: Contributing Character-defining Features 1. Rear addition, of unverified date, constructed behind the building (Figure 44). Figure 44. View of rear addition and parapet wall crowning the roof of rear addition (PAST Consultants). 2. Upper-level industrial sash windows on the rear of the alley façade (Figure 45). Figure 45. View of north alley façade, looking east toward Ramona Street, showing original upper-level windows with arrows (PAST Consultants). 3. On Forest Avenue façade, upper-level window opening and first-floor service entrance (Figure 46). Although the openings are original, the sash windows and board infill were installed at a later date. Figure 46. View of Forest Avenue façade, showing upper-level opening with replaced sash and the first- floor service entrance boarded up with wood (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 36 4. Hardwood floors in upstairs rooms (Figure 47). Figure 47. Typical view of hardwood floors in upstairs rooms. (PAST Consultants). 5. Built-in cabinets in upstairs rooms (Figure 48). Figure 48. Example of built-in cabinet in upper room (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 37 Table 5: Non-contributing Features 1. 1965 remodeling of original, northernmost Ramona Street entrance into a smaller display window (see Figure 42). 2. Modified entrance and cinder block infill on alley (north) façade, near rear (west) building corner (Figure 49). Figure 49. North alley modified entrance (PAST Consultants). 3. Modifications to rear (west) façade to accommodate 1965 furnace installations, including new furnace vent opening, associated vents and cinder block infill (Figure 50). Figure 50. North alley modified entrance (PAST Consultants). 4. On Forest Avenue façade, aluminum slider windows placed in second-story opening; and installation of wood covering over first-floor service entrance (Figure 51). Although the openings are original, the sash windows and board infill were installed at a later date. Figure 51. Modification to Forest Avenue first and second floor openings, shown by arrows (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 38 5. Roof deck and associated decking boards and trellises (Figure 52). Figure 52. View of roof deck, taken adjacent to parapet wall, looking southeast (PAST Consultants). 6. Window sash replacements in rear façade openings surrounding rear terrace (Figure 53). Figure 53. Example of sash modification, shown by an arrow (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 39 V. EXISTING CONDITIONS ASSESSMENT Introduction The building is in fair condition, due primarily to the building’s potential seismic hazards as a result of its structural framing system. With the exception of changes to the rear façade following the 1929 fire, and modification to window and door sash in several openings on the Forest Avenue facade, many original architectural details and finishes survive. Surviving exterior historic fabric includes the exterior stucco finishes (both “pebble” and flat); the false balconies on the upper stories, including the balcony roof framing, supports and railings; historic casement windows (with original glass) on all facades; first-floor display windows on the alley, Ramona Street and Forest Avenue facades; and original roof fascia boards. Structural Framing System The building’s structural framing system consists of a reinforced concrete frame infilled with hollow clay tile, a typical framing system for a structure of this vintage. Based on inspection of the building walls from the interior, it is not clear how the hollow clay tiles are connected to the concrete frame or if the reinforced concrete frame contains enough steel and shear resistance for the building to sustain the impact of moderate to severe earthquakes (Figure 54). Figure 54. Typical concrete and hollow clay tile framing detail at ceiling (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 40 Concerns about the Winsor Building’s performance in moderate to severe earthquakes have been raised in various structural engineering evaluation reports written since the mid-1990s. As discussed in this report’s executive summary, a letter from the City of Palo Alto’s Department of Planning and Community Environment to Pacific Art League Executive Director Stephanie Demos, dated November 14, 2007, outlined the seismic constraints of the Winsor Building. The letter specifically noted that the Winsor Building is classified as an Unreinforced Masonry (URM) building and that earthquake hazard signs should be placed on building entrances warning occupants that they are entering a URM building.39 Previous structural engineering reports have made similar recommendations. A report generated in 1996 stated, “The building should be expected to sustain extensive damage during a major seismic event that has a good probability of occurring in the next several decades.”40 The report also commented on the rear addition of the Winsor Building: “The clay tile walls of the room addition are very poorly constructed, cracked and extremely unsafe in their present condition.”41 A structural evaluation of the Winsor Building undertaken in 2000 echoed the 1996 report, stating “If this building is to be occupied in the long-term, it should be retrofitted to prevent severe damage in the event of a moderate to large earthquake.”42 Regarding the rear addition, the report recommends, “Remove the shed at the back of the building. It is very poorly constructed, apparently of ungrouted masonry block.”43 It should be noted that a structural engineering evaluation was not part of the scope of work for this HSR, but will be conducted prior to the Winsor Building’s rehabilitation phase. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 41 Winsor Building: Exterior Foundation The foundation support consists of a system of reinforced concrete footings and piers. Individual structural elements of the foundation were not visible and should be inspected during the building’s structural engineering evaluation, as part of the rehabilitation design phase. Walls Exterior cement plaster walls display two types of stucco finishes: pebble and flat. The exterior walls of the Ramona Street, Forest Avenue and alley facades bear the pebbled finish; the flat finish occurs on rear facades and on the portion of the alley façade that is not visible from the street (Figures 55 & 56). Figures 55 & 56. On the left, a detail of the alley façade wall, where the finish changes from pebble to flat (arrow). Several unpatched holes are also visible below the arrow. On the right, a detail of typical base spalls in original exterior pebble stucco, likely due to water splashing (PAST Consultants). The stucco finishes on the original building are in good condition, with scattered cracking, base spalls, and holes where old mounting brackets have been removed without patching the stucco. A large corner spall appears at the top of the rear (west) tower wall, above the left window. A prominent character-defining feature of the building is its front staircase that runs parallel to Ramona Street outside the main building, but is hidden by the exterior wall. Originally, this staircase led to an apartment above the cabinet shops. A series of stepped openings in the Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 42 Ramona Street façade wall light the staircase. Within the staircase, the flat stucco finish on the building wall is in poor condition with areas of cracking and voids of missing cement plaster and exposed lath. The cement plaster surrounding these exposed areas is likely deteriorated also, due to water infiltration behind the wall (Figures 57 and 58). Figures 57 & 58. On the left, a view of the front staircase from the second floor landing, showing areas of cement plaster damage (arrows). On the right, a detail of a cracked and exposed area of cement plaster. These areas have been repaired subsequent to the original inspection in 2007 (PAST Consultants). On the rear façade of the building, the flat stucco finish contains areas of cinder block infill around modified openings in the north wing’s rear (west) façade (Figure 59). The west parapet wall above the rear addition has areas of peeling paint and exposed cement plaster. In addition, exposed rebar is visible at the base of the parapet wall (Figure 60). Figures 59 & 60. On the left, a detail of the modified wall openings in the north wing’s rear (west) façade. On the right, a view of the rear (west) parapet wall and exposed rebar, indicated by an arrow (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 43 Rear Addition As discussed in previous sections, the 1929 fire attacked primarily the rear façade and the west side of the Forest Avenue facade. The rear addition present today was possibly added when the fire damage was repaired. Various construction details indicate that the rear addition was constructed later than the original building. First, the hollow clay tile of the rear addition measures 8 x 12 inches, whereas the tile used on the 1926 building walls measures 5 ½ x 11 inches (Figure 61). In addition, examination of the framing connections indicates that the original concrete framing was notched to accept the roof beam of the addition (Figure 62). Figures 61 & 62. Left is a view of the addition’s rear wall where it interfaces with the north wing’s building wall. The arrow points to the addition’s hollow clay tile unit, which is larger than the tile in the adjacent wall. Note the wide vertical crack where the two walls meet. On the right, the addition’s roof beam notched into the column of the original building (PAST Consultants). The rear addition’s building wall contains numerous cement plaster cracks, typically around windows and door frames. These cracks also correspond to visible cracks and evidence of movement of hollow clay tiles when viewed inside the addition. In Figure 61 above, a wide vertical crack where the addition wall meets the north wing’s building wall corresponds to an open crack viewed in the exterior wall (Figure 63, next page). It appears that the rear addition’s foundation may not have been tied into the existing building, as the walls of the addition bear evidence of considerable movement manifested by multiple-tile, Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 44 cracking, especially where the addition walls meet the 1926 structural walls. These cracks have been repaired since the original inspection in 2007 and displayed cracking through these repairs during the February 2010 inspection (Figures 63 & 64). Figures 63 & 64. The left view shows a crack where the rear addition’s building wall meets the north wing and corresponds to the crack shown in Figure 61 (arrow). On the right, a wide crack beneath the window on the south façade of the rear addition, indicated by an arrow. Since these photos were taken in 2007, the cracks have been repaired; however, the same cracks have appeared through the recent repairs (PAST Consultants). Roof The replacement shingle (with plywood sheathing) roofing system appears to be in good condition. Attic roof framing is in good condition with scattered areas of moisture staining, likely from water intrusion prior to the re-roofing campaign. The roof framing was inspected on the south wing only (Figure 65). Replacement gutters and downspouts appear to be adequate. Figure 65. View of attic roof framing looking east toward vent in south wing. Smoke damage is evident in various framing elements and in the arched wall vent. Note the addition of plywood sheathing (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 45 Roof fascia boards display openings and end deterioration where they meet at the corners of gable ends. Replacement fascia boards from the re-roofing campaign are unpainted. Fascia boards display end-grain deterioration, gouges, and peeling paint (Figure 66). Figure 66. View of typical fascia board condition. The middle board, likely a replaced element during the 1981 reroofing campaign, is unpainted; the boards are open where they meet at the corner (PAST Consultants). Windows and Doors Display windows and associated frames on the first story are in fair condition, with scattered areas of gouging in the wood mullions and surrounds. The window on the alley facade has replacement glass in many locations. The display windows on the southeast corner, where the Ramona Street and Forest Avenue facades meet, feature delightful turned and carved wood details and original glass. It is possible that these windows were completely gutted by the 1929 fire as the mullions and frames bear so much more architectural detail than their counterparts on the north wing (Figure 67). The sill boards are in poor condition with considerable wood decay. Figure 67. View of southeast corner display windows (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 46 The Ramona Street and alley facades contain numerous examples of extant wood casement windows. The window frames and sash typically have gouges, peeling paint, wood deterioration, and cracked or missing panes (Figure 68). Figure 68. View of extant upper-floor casement windows at northeast building corner (PAST Consultants). The false balconies and associated casement windows are important character-defining features of the building. Original windows, surrounds, rails and associated shed roofs remain at all four locations and are in good condition. The clay tile finishing the shed roofs is intact and in good condition with various chips and misaligned units (Figure 69). The bent wood rails are intact and in good condition, with scattered gouges, missing paint, and deterioration where the rails meet the exterior walls. The rails have been reinforced with steel connections at various locations (Figure 70). Figures 69 & 70. View of south wing’s Ramona Street false balcony, showing historic detailing. A steel reinforcing bar has been added to the rail, as shown by an arrow in the right image (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 47 Winsor Building: Interior The circulation patterns of the 1926 cabinet shop remain virtually unchanged on the first floor, where a central hallway leads to Henry Winsor’s original office to the left. Views of the north wing’s first floor space show the concrete framing and exposed clay tile. As discussed previously, a display window has replaced the 1926 entrance of the north wing’s Ramona Street facade (Figure 71). Figure 71. View of north wing’s interior looking northeast (PAST Consultants). A 1926 entrance remains in the center of the south wing’s Ramona Street façade, likely the same configuration as what was replaced on the north wing. The entrance has original glass and window and door surrounds, with scattered gouges and deterioration (Figure 72). Figure 72. Interior view of 1926 entrance in south wing looking toward Ramona Street (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 48 In the upstairs apartment, original built-ins and hardwood floors are in good condition, with scattered wood gouges and areas of worn finish (Figure 73). Figure 73. Hardwood floor finishes and built-ins (shown with arrows) in upstairs apartment (PAST Consultants). Building Systems The building contains the same furnace installed during the 1965 remodeling campaign for the Pacific Art League (Figure 74). The evaluation of mechanical and electrical systems was not part of this study’s scope of work and should be undertaken during the rehabilitation phase. Figure 74. View of furnace room with 1965 boiler (PAST Consultants). Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 49 VI. TREATMENT RECOMMENDATIONS Introduction The Secretary of the Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating Historic Buildings (Standards), commonly referred to as the Standards, provide a system for identifying, prioritizing and preserving extant historic fabric. The Standards recognize that buildings and their associate uses change over time, and provide guidelines for establishing the most important elevations of a building (such as a front facade), where historic integrity may be highlighted, versus less visible elevations (i.e., rear facades) for locating remodeling campaigns, or the installing of ADA entries or elevators. For the Winsor Building, which retains many historic character-defining features, the following treatment sequence adopts the Standards and emphasizes the retention of historic fabric on the most important facades: the Ramona Street and Forest Avenue facades, as well as the portion of the alley (north) which contains the pebble- stuccoed finish. Proposed Rehabilitation Sequence • Perform structural engineering assessment of building. • Based on programmatic requirements and the engineering assessment, either repair or remove the poorly-constructed rear addition. • Inspect all roof framing, coordinated with the engineering assessment. • Perform seismic retrofit the building, as required by engineering assessment. • Inspect and repair roof fascia boards and pendants at gable peaks. Historic wood repairs should entail removal of deteriorated wood sections from individual members for preparation of Dutchman installation; or the use of an epoxy wood fill/patching compound formulated for historic wood and matching in color and texture to the original surrounding wood. Repair, rather than replace as much historic wood as possible. • Inspect and repair arched vents in the Ramona Street gable ends of the north and south wings. • Inspect and locate all exterior stucco cracks, holes and spalls. Remove poor, non-binding stucco patches, or, if desired, remove poorly-matched patches. Fill in cracks and spalls, as required. All stucco repairs should match the texture of the historic stucco as closely as possible. • Repair large corner spall in rear (west) façade of central tower. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 50 • Remove all exposed concrete reinforcing bars in rear (west) façade. Repair holes in historic stucco using appropriate techniques mentioned previously. • Inspect and repair any splits, gouges, or other damage to the first floor display windows on the Ramona Street, Forest Avenue, and alley (north) facades. Historic wood repairs should entail removal of deteriorated wood sections from individual members for preparation of Dutchman installation; or the use of an epoxy wood fill/patching compound formulated for historic wood and matching in color and texture to the original surrounding wood. Prioritize the retention of original historic glass and wood surrounds of southeast corner display windows. • Inspect and restore all historic fabric related to the four false balconies on the second floor. Use Dutchman or appropriate wood fill repair methods that match the historic wood rails, shed roof supports and casement windows as closely as possible. • Inspect and restore clay barrel-tile roofs of the false balconies. If the surfaces require a new roofing membrane, remove and salvage all historic clay tiles for reinstallation. Locate replacement tiles from salvage operations or from the original manufacturer that match the original tiles in size, color and texture. • Restore 1926 Ramona Street entrance to south wing with appropriate wood repair techniques mentioned previously. • Inspect and repair historic wood casement windows in the upper stories of the Ramona Street, Forest Avenue and alley (north) facades using the appropriate wood repair techniques mentioned previously. • Inspect and repair wood diamond-pane detail on the Ramona Street, third-floor tower windows. • Inspect and repair fixed steel sash tower windows. • Inspect and repair all remaining fixed-sash wood window frames using appropriate wood repair techniques mentioned previously. • If programmatically possible, retain hardwood floor finishes on second floor. • If programmatically possible, retain original built-ins on second floor. If built-ins will be removed, photo-document and salvage them. • Clean dirt and grime from the building facades, particularly the pebble-stuccoed surfaces. Use the gentlest means possible on all cleaning methods, paying particular attention to keeping the historic stucco finishes intact. • Paint the building. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 51 VII. BIBLIOGRAPHY Books Coffman, Arthur. An Illustrated History of Palo Alto. Palo Alto, California: Lewis Osborne, 1969. Directory of Palo Alto, Mayfield, Runnymede and Stanford University. Palo Alto, California: Willis L. Hall, 1919 - 1924. MacCalla, Mandy. Historic Houses III: San Juan Neighborhood, Stanford University. Palo Alto, California: Stanford Historical Society, 2005. Miller, Guy and Enochs, H. Palo Alto Community Book. Palo Alto, California: A.H. Cranston, 1952. National Register Bulletin 15A: How to Apply the National Register Criteria for Evaluation. U.S. Department of the Interior, National Park Service, 1998. National Register Bulletin 16: How to Complete the National Register Registration Form. Washington, D.C.: National Park Service, U.S. Department of the Interior, 1991. Polk’s Palo Alto (California) City Directories. San Francisco, California: R.L. Polk & Co., 1925-1927. Winslow, Ward. Palo Alto: A Centennial History. Palo Alto, California: The Palo Alto Historical Association, 1993. Wood, Dallas E. and Norris, James. History of Palo Alto. Palo Alto, California: A.H. Cranston, 1939. Newspaper and Magazine Articles “Alvin Winsor (obituary),” Palo Alto Times, September 26, 1969. “Building Permits,” Palo Alto Times, July 26, 1926. “Building Permits,” Palo Alto Times, August 28, 1926. “Building Permits,” Palo Alto Times, October 11, 1926. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 52 “Grace Winsor (obituary),” Palo Alto Times, February 26, 1968. Morrall, June. “Club Ensured Community Interest in the Arts,” San Mateo County Times, January 13, 2000. “New Building Record Made Here,” Palo Alto Times, January 1, 1926. “P.A. Art Club Gets New Home,” San Jose Mercury News, January 13, 1965. “Palo Alto Art Club Plans Move,” Palo Alto Times, August 13, 1965. Palo Alto Times, April 20, 1920 (First advertisement for Winsor’s Cabinet Shop). Palo Alto Times, May 8, 1920 (First advertisement Winsor’s Cabinet Shop with telephone number). Palo Alto Times, January 11, 1975 (For undated historical image of Winsor’s Cabinet Shop). Palo Alto Times, May 5, 2000 (For undated historical image of Winsor’s Cabinet Shop). “Winsor Cabinet Shop Completely Burned; Laundries Damaged,” Palo Alto Times, October 30, 1929. Other Media A Story of Progress about the Palo Alto Art Club. Undated brochure (likely published in 1965). AIA Standard Agreement between Palo Alto Art Club and Robert Gawlick/Chartain Construction, dated December 16, 1980. Building Clippings Files, Palo Alto Historical Association. Building Permit Records, City of Palo Alto, 1965 – 2007. Clark, Birge M. An Architect Grows Up in Palo Alto: Memoirs of Birge M. Clark, FAIA (Copy of Autobiographical Manuscript), Archives of the Palo Alto Historical Association, Palo Alto, California, 1982. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 53 Clark, Birge M. Commercial Buildings in Palo Alto Designed by the Office of Birge M. Clark (Copy of Manuscript), Archives of the Palo Alto Historical Association, Palo Alto, California, 1976. Historic Resources Inventory: Winsor’s Cabinet Shop (DPR Form 523). Completed 1978; Revised 1985. Invoice from Delano H. Large, General Contractors, Mountain View, dated March 10, 1981. Invoice from Lefholz Construction Company, General Contractors, Menlo Park, for roofing repairs, November 28, 1967. Letter from William E. Delucchi, Coordinator of National Register Project (and PAL member), to Mildred Mario, City of Palo Alto Historic Resources Board dated April 3, 1996. Letter Report to Joe Hardagree, Pacific Art League from Comartin-Reis Seismic Risk Management, January 14, 2000. Letter to Stephanie Demos, Executive Director, Pacific Art League from Curtis Williams, AICP and Larry Perlin, Chief Building Official, City of Palo Alto Department of Planning and Community Environment, Re: 668 Ramona Street, November 14, 2007 Marshall, Francis M. Early History of the Palo Alto Art Club (unpublished manuscript), 1954. Ogle, Helen. The Pacific Art League – A Brief History. Unpublished history written by PAL member Helen Ogle, residing in the archives of the Pacific Art League. Ramona Street (Advertising Booklet Privately Published, circa 1928 - 1930). Archives of the Palo Alto Historical Association. Rinne and Peterson, Seismic Review for Pacific Art League, July 3, 1996. Sanborn Insurance Company Maps, Palo Alto, California, Sheet 4, 1924 (with updates 1924 – 1949). Archives of the Palo Alto Historical Association. The Tall Tree – The Story of Palo Alto and Its Neighbors. Palo Alto Historical Association Pamphlets, 1949 – 1983. Website: http://charityadvantage.com/Pacific_Art_LeagueBZTEZU/History.asp. Website: http://en.wikipedia.org/wiki/Mayfield,_California#History. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 54 VIII. ENDNOTES 1 Letter to Stephanie Demos, Executive Director, Pacific Art League from Curtis Williams, AICP and Larry Perlin, Chief Building Official, City of Palo Alto Department of Planning and Community Environment, November 14, 2007. This letter summarizes the seismic hazards of the Winsor Building. It lists a structural engineering report, dated March 20, 2004, which provided the support for the recommendations outlined in this letter. PAST attempted to find a copy of this report at the City of Palo Alto Development Center, but the report could not be located. The letter identifies section 16.42.070(a) of the Palo Alto Municipal Code which requires that the building owner of a Category I building notify all tenants, in writing, that the structural engineering report is available for review. The letter also quotes Section 8875.8 of the State of California Government Code, which requires that the building owner of a URM building in Seismic Zone 4 (which includes the Winsor Building site) post notice prominently on entrances to the building stating: “EARTHQUAKE WARNING. This is an unreinforced masonry building. You may not be safe inside or near during an earthquake.” 2 Winslow, Ward, Palo Alto, a Centennial History. Palo Alto, California: The Palo Alto Historical Association, 1994, p. 14. 3 Website: http://en.wikipedia.org/wiki/San_Francisco_and_San_Jose_Railroad. 4 Winslow, pp. 2-5. 5 Website: http://en.wikipedia.org/wiki/Mayfield,_California#History. 6 “New Building Record Made Here,” Palo Alto Times, January 1, 1926. 7 Census figures quoted in Winslow, p. 8. 8 Clark, Birge M., Commercial Buildings, p. 6. 9 Winslow, p. 111. 10 Clark, Birge M., Memoirs, p. 24. 11 Clark, Birge M., Commercial Buildings, p. 7. 12 Clark, Birge M., Memoirs, p. 25. Clark notes, “In fact, this block was very successful commercially, anchored by the Gotham Shop and the Homeware Store.” 13 Buchholz, Marda, Ramona Street Architectural District. Single-sheet summary by Palo Alto Historical Association. 14 In Clark’s Commercial Buildings, p. 6, he describes de Lemos as “a gifted artist and artisan, who not only designed but actually did some of the concrete work, woodcarving, and colorful decorations.” 15 Directory of Palo Alto, Mayfield, Runnymede and Stanford University (1918 – 1924). Palo Alto, California: Willis L. Hall. 16 City Directories no longer list Henry Winsor as employed by Dudfield Lumber Company after 1919. In addition, City Directories list “Winsor’s Cabinet Shop” for the first time in the 1920 – 1921 directory. 17 “Building Permits,” Palo Alto Times, August 28, 1926. The article states, “HR Winsor, owner and builder, at 660 – 668 Ramona Street, stores, $7,040.” An addition to this permit was announced in the Times on October 11, 1926, for the sum of $6,000. Around this time, HR Winsor also took out permits for “stores,” with the address listed as 652-654 Ramona Street, Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 55 indicating he owned the adjacent lot on Ramona Street as well. The permit dates and amounts for the latter address are: June 10, 1926, $6,030; and July 26, 1926, $5,979. Wells Goodenough, one of the more prolific contractors of the time, is listed as builder. 18Although Henry Winsor was a furniture designer, he was no architect. The drawings are not what one would expect by a modern architecture firm. The drawings are difficult to decipher, as several of the sheets are copies of blueprints. The first sheet shows an interesting perspective drawing of the north wing fronting the alley (north) façade. This wing was constructed first. This sheet also depicts a standing seam metal roof bordered by Mission-style barrel tiles. The second sheet presents the building’s Ramona Street elevation with both wings indicated. Various details on the building are somewhat different than what is drawn: for example, the false balconies show three corbeled supports; only one was actually installed beneath the center of each balcony. However, the 1926 drawings do confirm Henry Winsor as the designer. It should be noted that even in the mid-1920s, buildings were still being “designed” by owners who would find their favorite contractor to execute the work. This explains the various discrepancies between what was drawn and what exists on the building. 19 “Winsor Cabinet Shop Completely Burned; Laundries Damaged,” Palo Alto Times, October 30, 1929. 20 Letter from William F. Delucchi to Mildred Mario, Chairperson of Palo Alto Historic Resources Board, dated April 3, 1996. A member of the Pacific Art League, Mr. Delucchi was working on nominating the building to the National Register of Historic Places at this time. He performed document searches throughout Palo Alto and conducted interviews with Mervyn D. Winsor. He summarized his research in this letter. 21 Photo featured in the May 8, 2000 edition of the Palo Alto Times and from the archives of the Palo Alto Historical Association. 22 Photo featured in the May 29, 1999 edition of the Palo Alto Times and from the archives of the Palo Alto Historical Association. 23 Obituaries for Alvin R. Winsor (September 26, 1969) and Grace Winsor, Henry’s wife (February 26, 1968), both appearing in the Palo Alto Times. 24 William Delucchi’s letter states the deed was recorded on January 27, 1965. 25 Marshall, Francis N. Early History of the Palo Alto Art Club (unpublished), p. 1. Written in 1954, shortly before the Club moved into new quarters at the Unitarian Church. 26 Website of the Pacific Art League: http://charityadvantage.com/Pacific_Art_LeagueBZTEZU/History.asp. 27 Early History of the Palo Alto Art Club, p. 2. 28 Ibid, pp. 3-5. 29 Ogle, Helen. The Pacific Art League – A Brief History. Unpublished history located in the archives of the Pacific Art League. According to this history, the purchase price of Winsor’s was $93,000. 30 Quote from Ogle, Helen. The Pacific Art League – A Brief History. 31 The 1965 brochure was called, A Story of Progress about the Palo Alto Art Club. Copies reside in the archives of the Pacific Art League. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 Page 56 32 “Palo Alto Art Club Plans Move,” Palo Alto Times, August 13, 1965. The rendering of the building was by Club member Dan LeGear and included a proposed addition to be constructed immediately behind the existing structure fronting Forest Avenue. The addition was not built. 33 “P.A. Art Club Gets New Home,” San Jose Mercury News, January 13, 1965. 34 Interview with Robert C. Peterson, AIA and W. Guy Frazee, AIA of Peterson Architects, October 29, 2007. Robert Peterson was the Pacific Art League’s architect of record from 1965 until 2003. He recollects the unpainted nature of the building and its overall haphazard design and detailing. He also expresses concern about the building’s potentially poor seismic performance, noting a 2003 structural engineering evaluation that recommended considerable retrofitting to enable the building to sustain catastrophic earthquake loads. Peterson Architects have copies of the various drawings from the 1926 Cabinet Shop. A number of the sheets are copies of blueprints, which did not reproduce well for this report. Appendix A provides a representative sample of the original drawings. 35 National Register criteria for significance are summarized in National Register Bulletin 16: How to Complete the National Register Registration Form. Washington, D.C.: National Park Service, U.S. Department of the Interior, 1991, pp. 39-51. 36 Invoice from Lefholz Construction Company, General Contractors, Menlo Park, dated November 28, 1967. Located in the file, 668 Ramona, in the archives of the Pacific Art League. 37 Invoice from Delano H. Large, General Contractors, Mountain View, dated March 10, 1981 and located in the file, Building Renovation Info, in the archives of the Pacific Art League. 38 AIA Standard Agreement between Palo Alto Art Club and Robert Gawlick/Chartain Construction, dated December 16, 1980. This agreement listed the specifications of the roof repair and states the presence of corrugated metal roofs on the building. Contract located in the file, Building Renovation Info, in the archives of the Pacific Art League. 39 Letter to Stephanie Demos, November 14, 2007. See note 1. 40 Rinne and Peterson, Seismic Review for Pacific Art League, July 3, 1996, p. 13. 41 Ibid, p. 14. 42 Letter Report to Joe Hardagree, Pacific Art League from Comartin-Reis Seismic Risk Management, January 14, 2000, p. 1. 43 Ibid, p. 2. Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 APPENDIX A 1926 Drawings of Winsor’s Cabinet Shop (6 Sheets) Note: Sheet numbers and north arrows added for this HSR Winsor’s Cabinet Shop Final Historic Structure Report PAST Consultants, LLC May 11, 2010 APPENDIX B 1965 Drawings of the Pacific Art League Remodeling (4 Sheets) 2707.txt doc Page 1 City of Palo Alto (ID # 1741) City Council Staff Report Report Type: Action ItemsMeeting Date: 7/11/2011 July 11, 2011 Page 1 of 9 (ID # 1741) Council Priority: {ResProject:ClearLine} Summary Title: Response to Initial Vision Scenario Title: Update of SB 375/Initial Vision Scenario (IVS) for a Sustainable Communities Strategy (SCS) and Direction on City’s Preliminary Response to Regional Agencies, and Update of Regional Housing Needs Assessment (RHNA) Process From:City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that the City Council provide input regarding the Initial Vision Scenario and revisions to staff’s letter response to the regional agencies. Executive Summary On March 14, 2011, staff updated the City Council regarding the status of the Sustainable Communities Strategy (SCS) and the Regional Housing Needs Assessment (RHNA). On May 4, 2011, staff updated the Planning and Transportation Commission regarding the SCS and the Initial Vision Scenario (IVS) proposed by the Association of Bay Area Governments (ABAG) and the Metropolitan Transportation Commission (MTC). The Initial Vision Scenario (IVS) for the SCS for the Bay Area is intended to accommodate an additional 903,000 housing units and 1.2 million jobs from 2010 to 2035. The goal of the IVS, formulated by staff of ABAG and MTC, is to create development patterns and a transportation network that would result in reductions of per capita greenhouse gas (GHG) emissions by 7% by 2020 and 15% by 2035. The IVS would anticipate a total of 12,000 new households and almost 5,000 new jobs being created over that time period. Staff has developed a letter outlining the City’s serious concerns about the IVS, including the need to address job growth near transit to achieve GHG emission reductions, as well as highly unrealistic housing assumptions, the lack of consideration of numerous constraints to growth, and the lack of supportive infrastructure, particularly including transit, to accommodate such extensive levels of development. The Council will provide input to the letter to provide the City’s official comments on the IVS. The regional agencies expect to prepare 3-5 alternative scenarios for analysis in the next month, and then to release those for review by cities and July 11, 2011 Page 2 of 9 (ID # 1741) counties in the region. A preferred alternative is expected for release in early 2012 and the Sustainable Communities Strategy for the Bay Area region is to be finalized by early 2013. Background On March 14, 2011, staff updated the City Council regarding the status of the Sustainable Communities Strategy (SCS) and the Regional Housing Needs Assessment (RHNA). The staff report providing that information is included as Attachment H to this staff report. At the same meeting, staff provided an overview of the Initial Vision Scenario (IVS) for the SCS, which had been released on the prior Friday (March 11). The document was prepared jointly by the Association of Bay Area Governments (ABAG) and the Metropolitan Transportation Commission (MTC). The supplemental information for the IVS was outlined in a memo to Council on the day of the meeting and is included as Attachment G to this staff report. The Council’s immediate reaction to the Initial Vision Scenario was that it clearly does not recognize the constraints on Palo Alto in providing for new housing, and was equally inadequate at representing the accurate potential for employment growth. Council indicated that the City’s initial reaction should be at a “big picture” level, and that tweaking the details of the plan would not be a meaningful change. On April 14th, the regional agencies and several environmental groups sponsored a forum to discuss the IVS, at which approximately a dozen (of about 100 total) attendees were from Palo Alto. In reality, however, the discussion entailed only a very general look at preferences in urban form and transportation for the region, and did not help illuminate issues of specific concerns to cities and counties. Staff understands that there will be additional forums for more specific input, and will let the Council and community know when those are scheduled. The regional agencies have been receiving preliminary responses from cities and counties in late May and into June. The agencies have also received input at a number of meetings with planning and transportation officials and with other stakeholders, providing input to the development of alternative scenarios to be considered in the process. On May 4th, the Planning and Transportation Commission (PTC) considered this background and update and provided suggestions for topics to address in a letter response from the City to ABAG and MTC. These suggestions were incorporated into a letter (Attachment A) sent on May 25, 2011, and copied to the City Council. The Regional Housing Needs Assessment (RHNA) Methodology Committee, of which Councilmember Scharff is a member, has met several times now as well,and the Committee’s progress is outlined below in the Discussion section. Please also note that Attachment N provides a Glossary of Acronyms and Terms related to the regional planning process. Discussion July 11, 2011 Page 3 of 9 (ID # 1741) Initial Vision Scenario The Initial Vision Scenario (IVS) for the Sustainable Communities Strategy (SCS) for the Bay Area is intended to accommodate an additional 903,000 housing units and 1.2 million jobs from 2010 to 2035. The goal of the IVS, formulated by staff of the Association of Bay Area Governments (ABAG) and the Metropolitan Transportation Commission (MTC), is to create development patterns and a transportation network that would result in reductions of per capita GHG emissions by 7% by 2020 and 15% by 2035. The IVS attempts to do so by assigning “place types” (“transit town center,” “mixed use corridor,” etc.), that reflect Priority Development Areas (PDAs) nominated by cities and counties, plus “growth opportunity areas” (GOAs) identified but not quantified by local jurisdictions. ABAG and MTC indicate that the growth included in the PDAs and GOAs accounts for approximately 70% of regional growth through 2035. The remaining 30% of the growth was allocated to cities relative to each city’s household growth anticipated in ABAG’s Projections 2009. ABAG and MTC indicate that they believe the housing projections from the State are high, given historical trends and the recent economy, and that those numbers will be adjusted downward, perhaps substantially (though they do not indicate when). ABAG and MTC also acknowledge that the IVS does not adequately address the distribution of jobs, so that there is not a similar relationship for employment to either PDAs or to transit access. Attachment B is a summary table of the household and job totals and growth for Santa Clara County and each city within the county. An overview of the IVS is included as an attachment to the March 14, 2011 supplement (Attachment G) and the entire document is available for viewing at: http://www.onebayarea.org/plan_bay_area/. Adequacy of Place Types “Place types” are outlined on pages 13-18 in the Initial Vision Scenario (and are shown in the presentation materials in Attachment G). For Palo Alto, staff identified the California Avenue PDA as a “Transit Neighborhood,” identified downtown as a “Transit Town Center” growth opportunity area, and identified the El Camino corridor as a “Mixed Use Corridor.” Staff considered identifying downtown as an “Employment Center,” but did not since that place type seemed to exclude residential development entirely, and would seem more appropriate for a research park type of area. The maps included as Attachment E identify growth scenarios for “Transportation Analysis Zones” (TAZs) in Palo Alto and, in some cases, overlapping with other jurisdictions. These TAZs are used by the City, VTA, ABAG and others to analyze land use and transportation distributions for mapping and modeling purposes. It is fairly clear from these maps that the California Avenue PDA, downtown and the El Camino Corridor are locations noted for some substantive growth over the next 25 years. Staff has concluded that the place types identified for Palo Alto are probably okay, but they reflect increased growth over the density estimates that the City provided. ABAG has acknowledged that, to meet the overall growth targets, estimates from staff in most cities were increased. July 11, 2011 Page 4 of 9 (ID # 1741) The growth in the PDAs and GOAs shown in the Initial Vision Scenario amount to about 70% of the total Bay Area growth through 2035. Additional housing was then dispersed among the cities outside of place types to achieve the desired totals. Of concern to staff is that, for most cities, the growth in PDAs and GOAs ranges from 60-80% of the city’s total growth estimates. In Palo Alto, however, the PDA and GOAs account for only 45% of the total growth, which means that extensive housing growth (55% of the total) was identified for areas outside those designated areas. Attachment B indicates that total housing growth increases in Palo Alto are similar to those in several other Santa Clara County cities. But Attachment F compares Palo Alto growth estimates outside the PDAs and GOAs to other cities, showing a significant burden on Palo Alto to provide more housing in areas without sufficient available land and in conflict with goals to provide housing close to transit and services. The subsequent analyses indicate that many of these growth areas are within existing single-family neighborhoods. ABAG has since indicated that the growth was not intended to be specific to residential TAZs, but should be located wherever it is best accommodated, such as in the PDAs or GOAs (though those are already beyond their capacity). Housing and Employment Trends Analysis Attachment C includes tables that compare ABAG’s 2007 and 2009 jobs, housing, and population projections with those outlined in the Initial Vision Scenario. The first table shows a significant decrease in jobs over time, reflecting the general decline in employment in the region since 2001 and the severe economic decline in recent years. The IVS expects a growth of 5,000 jobs in Palo Alto from 2010-2035. There is, however, a substantial increase in housing shown over that same period, a total of 11,990 households. This would comprise an average increase of 480 households per year, whereas the City has produced approximately 200 housing units per year over the past 14 years, during a “boom” housing market. Staff believes this is an unrealistic rate of growth,particularly given the limited land resources and multiple other constraints. Analysis by Transportation Analysis Zone (TAZ) Staff has analyzed the data from the Initial Vision Scenario by TAZ (Attachment E shows the TAZs). There are 25 TAZs that encompass the IVS for Palo Alto. Thirteen (13) of those are entirely within the city limits, and another 12 are shared with other jurisdictions. The fact that a number of the TAZs are shared makes it difficult to be conclusive about any analysis, but there are several observations that are of concern to staff and that were conveyed to the regional agencies: ·Housing Ø Housing in TAZs 351, 359, 360, and 363 are highly overstated, with a total of 5,720 new households (almost half of the total for the City) in areas that are almost entirely single-family residential neighborhoods and zoned accordingly. Ø TAZ 365 is shared with Mountain View, but housing appears to be overstated, with 981 households, though the portion in Palo Alto is again a single-family zoned area. July 11, 2011 Page 5 of 9 (ID # 1741) Ø TAZ 401 includes lands east of Hwy. 101 in Palo Alto and Mountain View, including the Moffett/NASA Ames property. This TAZ includes growth of over 4,000 households, with 2,118 specifically noted in the Moffett area PDA. Thus, it appears that almost 2,000 households would be planned in the E. Bayshore and Baylands area of Palo Alto, clearly an unrealistic figure. Ø TAZ 349 household growth is shown at only 13 households, which is understated, since this area includes Stanford properties subject to the “Mayfield Agreement,” with a minimum of 180 units required of Stanford. ·Employment Ø The total employment growth for the 13 TAZs wholly in Palo Alto amounts to job growth of 5,916 jobs, which exceeds the 4,860 jobs listed for the city in the IVS. This does not include any jobs in the 12 TAZs shared with other jurisdictions. Ø TAZ 355 includes the Stanford University Medical Center (SUMC) and Stanford Shopping Center, but shows only an increase of 1,290 jobs. The SUMC expansion entails 2,000 additional jobs in itself, so the jobs are substantially understated. Ø TAZs 348 and 349 include the Stanford Research Park, and show an increase of 764 employees through 2035. With buildout of anything near the allowable 700,000 square feet of additional space in the Research Park, however, employment increases would be expected closer to 2,500 jobs for these areas. Ø TAZ 365 is a small area shared by Palo Alto and Mountain View, but shows 859 employees in areas that are generally zoned for single-family residential. Ø TAZ 360 shows employment growth of 579 employees, which again appears overstated, since the area is single-family residential. In summary, staff believes that the TAZ analysis substantially overstates the potential household growth by at least 100%, and that the employment numbers understate the job growth by at least 50%, and perhaps more once a realistic economic projection is produced. Preliminary Response to Regional Agencies Staff has developed and sent a preliminary letter (Attachment A) to ABAG and MTC, outlining the City’s first response to the Initial Vision Scenario. The letter included the following key points, developed by staff after input from the PTC and considering the initial comments of the Council on March 14th: ·The City of Palo Alto in general supports the concepts of concentrating development (employment and housing) near transit stations or along El Camino Real, qualified by the provision of adequate and enhanced transit service in those corridors. The City also supports the provision of affordable housing, and has been a leader in that realm, despite the high cost of housing in the region, the county, and the city. The City further recognizes that it plays a role in assisting the region in meeting GHG emission goals, as well as many other fiscal and social benefits of compact development. ·The City of Palo Alto should be considered a key employment center in Santa Clara County and the Bay Area, and the analysis should consider the type of jobs, the desire of July 11, 2011 Page 6 of 9 (ID # 1741) technology firms to locate here, and the GHG reduction benefits of locating jobs near transit (with reference to MTC and other studies). ·The IVS results in only a minimal decrease (2%) in GHG reductions. More extensive impacts are likely from focusing on jobs near transit or other mechanisms to reduce GHG. (PTC addition) ·The basic growth estimates based on State projections and regional assumptions need to be analyzed by independent experts to produce credible projections or ranges of projections. (PTC addition) ·The Initial Vision Scenario does not provide a reasonable evaluation of future employment increases. The IVS should recognize the City of Palo Alto as a key employment center on the Peninsula and in the Bay Area, and employment analyses should consider a) the nature and extent of jobs in Palo Alto, b) the desire of technology firms to locate in and near Palo Alto (the proximity to Stanford, Palo Alto amenities, Caltrain, industry innovators, and high quality schools), and c) the benefits of jobs being located close to transit (jobs close to transit generate higher transit use than housing near transit). References are provided to a chart from MTC supporting that relationship ·The Sustainable Communities Strategy should be based on a concept of identifying transit commute sheds, such as within the Caltrain corridor and the El Camino Real Bus Rapid Transit Corridor, in a way that establishes, for example, 30-45 minute thresholds for locating housing and employment centers linked by transit. This would help to move the concept away from a city-by-city scenario to a more subregional approach, allowing job growth where it is most attractive for employers and housing located where available land and costs are more affordable, but allowing for ready transit, bicycle or pedestrian access from housing nodes to employment centers. ·The construction of housing in Palo Alto is highly constrained by multiple factors, including but not limited to the cost of land, traffic, school capacity, and community services. Staff attached the January 9, 2008 letter (Attachment I) from Mayor Klein to ABAG appealing the city’s Regional Housing Needs Allocation (RHNA), which outlined many of those concerns. ·The housing growth estimates are severely overestimated and unrealistic, using the overstated 2009 Projections as a starting point. At least half of the potential increases in the IVS are shown in areas that are now populated primarily with single-family land uses and zoning, which are not appropriate for intensification. Any increases in housing should be limited to the identified Planned Development Area and Growth Opportunity Areas. ·Any expectations of growth for the Sustainable Communities Strategy must be tied to provision of adequate transportation, and particularly transit, infrastructure. ·Any scenario for future development should separate Stanford University’s housing impact from that of the City. Those demands for housing should not be assigned as the responsibility of Palo Alto. ·The employment growth totals conflict with (are considerably less than) the sum of growth in the Transportation Analysis Zones (TAZs). ·Staff identified the specific TAZ deficiencies discussed above. July 11, 2011 Page 7 of 9 (ID # 1741) The responses reflect comments added by the PTC, particularly for items #2 and 3 in the letter. Staff also suggests reference to the publication “Transit and Jobs in Metropolitan America” in the response item #1 in the letter. Staff requests that the Council provide input and comment to help finalize the City’s response to ABAG and MTC, which would be transmitted over the Mayor’s signature. Planning and Transportation Commission Review The PTC reviewed the Initial Vision Scenario and staff’s suggested responses on May 4, 2011. The PTC generally supported and reiterated staff’s key points. In addition, the PTC recommended that the letter include points to 1) note the minimal decrease in GHG resulting from this scenario, reinforcing the need to look at employment centers near transit and other strategies to achieve greater GHG benefits, and 2) request independent reviews of the demographic, economic, and growth assumptions underlying the preparation of the Initial Vision Scenario (and presumably the alternatives to be evaluated as well). These points were incorporated as items #2 and 3 in the letter. Responses of SCCAPO and Other Local Agencies The Santa Clara County Association of Planning Officials (SCCAPO) has met regularly during the SCS process and has formulated some initial suggestions to the regional agencies (Attachment K). SCCAPO has also compiled a survey of responses from Santa Clara County cities, which has been provided to ABAG and MTC (Attachment L). The County and the cities of Mountain View and Campbell have sent additional responses specific to their communities. Many of the themes were similar to those expressed in the Palo Alto letter, such as the need to better address job growth, the extensive constraints to housing (school capacity, infrastructure needs, traffic, etc.), and the lack of a supportive transportation network to accommodate projected development levels. Not all of the cities are aligned, however, as about half (generally those without transit stations and without extensive new housing expected) did not object to the Initial Vision Scenario. Staff notes that San Jose has, unlike prior projections, objected to the extent of housing envisioned for that city, suggesting a greater jobs allocation to balance its current housing inventory. Alternative Scenarios ABAG and MTC are expected to prepare and release 3-5 “alternative scenarios” for review, likely in July. The alternatives are expected to include variations that: 1) focus more growth in San Francisco, Oakland, and San Jose; 2) focus more on job centers near transit and housing with reasonable “commute sheds”; 3) attempt to locate more than 70% of new housing in PDAs or growth opportunity areas; and/or 4) locate more growth in areas not proximate to transit. These concepts may be presented to the ABAG and MTC executive boards in the next couple of weeks for direction. Staff will report to Council and the PTC when something is released. Regional Housing Needs Assessment (RHNA) Methodology Committee The RHNA Methodology Committee has met several times and has determined that there should be a close link between the housing criteria and the Sustainable Communities Strategy. July 11, 2011 Page 8 of 9 (ID # 1741) The current methodology under review would require each city and county to provide for 1/3 of the 2035 total in each of the three 8-year planning periods during that timeframe. There has also been discussion of “backloading” (given the current economy) to allocate less units in the 2014-2022 period and more in later years. The two primary topics of discussion have been: 1.The examples portrayed begin with the numbers used in the Initial Vision Scenario, which virtually no one buys into; and 2.The methodology generally relies on assuming 70% of the housing is provided in the PDAs and growth opportunity areas, and then various formulas may be used for the remaining 30%, with factors to be considered including prior affordable housing success, access to transit, quality of schools (not quantity), and/or others. Most of those, of course, are not favorable to Palo Alto. The attached memo from ABAG (Attachment M) was discussed at the March 26th meeting and describes some of the various options and implications. There was considerable objection and no consensus among the group. The Committee’s next meeting is on June 24th so staff and Councilmember Scharff can report the latest at the Council meeting. Due to the desire to tie the RHNA more closely to the SCS, the timeframe for the Committee’s work has been extended to September or October, at least. Resource Impacts Review of the Sustainable Community Strategy and Regional Housing Needs Assessment process involves considerable time of the Director of Planning and Community (estimated 20- 40 hours per month) and lesser time for other department staff. There are, however, no direct costs associated with the staff review. Next Steps 1.The Council letter will be forwarded to ABAG and MTC. 2.Staff will return to PTC and Council with updates and recommended actions, if timely, once the Alternative Scenarios are released (expected in July). 3.Staff and Councilmember Scharff will report to Council in September regarding status and progress regarding the RHNA Methodology Committee’s progress. 4.Staff will continue to participate in regional and countywide meetings and report back to PTC and Council. ATTACHMENTS: ·Attachment A: May 25, 2011 Letter to Ezra Rapport (ABAG) Re Initial Vision Scenario(PDF) ·Attachment B: Table 2.4 -Initial Vision Scenario: Household and Job Totals and Growth (PDF) ·Attachment C: ABAG Projections 2007, 2009 and Initial Vision Scenario Comparison (PDF) ·Attachment D: SCS Initial Vision Scenario Household and Employment Analysis per TAZ (PDF) July 11, 2011 Page 9 of 9 (ID # 1741) ·Attachment E: Maps of Initial Vision Scenario Growth (Households and Employment) by TAZ (PDF) ·Attachment F: Graph and Tables 3.2-3.10c -PDA and GOA Growth Re Total Growth (PDF) ·Attachment G: March 14, 2011 Supplemental Staff Memo Re Initial Vision Scenario (PDF) ·Attachment H: March 14, 2011 Staff Report to Council Re Sustainable Communities Strategy Update (PDF) ·Attachment I: January 9, 2008 Letter from Mayor to ABAG Re Appeal of RHNA Determination (PDF) ·Attachment J: Planning and Transportation Commission Meeting Excerpt Minutes of May 4, 2011 (PDF) ·Attachment K: June 8, 2011 Letter from Santa Clara County Planning Officials to One Bay Area (PDF) ·Attachment L: Santa Clara County Planning Officials Survey of Responses to Initial Vision Scenario (PDF) ·Attachment M: May 26, 2011 Memo from RHNA Committee (PDF) ·Attachment N: Glossary of Acronyms and Terms (PDF) ·Attachment O: Initial Vision Scenario available at: http://www.onebayarea.org/plan_bay_area/(TXT) Prepared By:Curtis Williams, Director Department Head:Curtis Williams, Director City Manager Approval: James Keene, City Manager May 27, 2011 Ezra Rapport, Executive Director Association of Bay Area Governments P.O. Box 2050 Oakland, CA 94604-2050 Ci~of Palo Alto Department of Planning and Community Environment Re: Initial Vision Scenario for Sustainable Communities Strategy Dear Mr. Rapport: On behalf of the City Manager and City of Palo staff, we appreciate the opportunity to respond to One Bay Area's Initial Vision Scenario, released on March 11, 2011. City staff has reviewed the document with the City Council and with the Planning and Transportation Commission, and has prepared the preliminary responses below. We expect to visit with the Council again on June 27, 2011, and will then forward an updated letter from the Mayor and Council. The City of Palo Alto generally supports the intent and concepts of concentrating development (employment and housing) near transit stations or along transit corridors throughout the Bay Area, including around Caltrain stations and along El Camino Real on the Peninsula, qualified by the provision of adequate and enhanced transit service in those corridors. The City also supports the provision of affordable housing in the region, and has been a leader in that realm, despite the high cost of housing in the region, particularly in Santa Clara County and Palo Alto. The City, further recognizes that it plays a role in assisting the region in meeting greenhouse gas (GHG) emission reduction goals, as well as many other fiscal and social benefits of compact development. The City believes that it has modeled many of these principles in the past and continues to do so. The Initial Vision Scenario (IVS), however, offers a plan that is highly unrealistic and in some ways contrary to many of those goals. The City of Palo Alto has several key concerns with the IVS and requests that the regional planning group substantially modify the plan in its subsequent iterations to address these issues: 1. The Sustainable Communities Strategy and future alternative scenarios sho.uld recognize that Palo Alto is a key employment center on the Peninsula and in the. Bay Area. Employment analyses should consider: a) the nature and extent of jobs in Palo Alto (high percentage of technology professionals), b) the desire of technology firms to locate in and near Palo Alto (proximity to Stanford, Palo Alto amenities, Caltrain stops, the synergy of industry innovators, and high quality schools), and c) the benefits of jobs being located close to transit. According to Metropolitan Transportation Commission (MTC) studies, jobs close to transit generate at least twice the rate of transit use than housing near transit (see attached chart). A greater focus on locating jobs near transit is likely to produce significant benefits for GHG reduction. Planning 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2441 650.329.2154 Printed with soy-based inks on 100% recycled pa~r processed without chlorine Transportation 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2520 650.617.3108 Building 285 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2496 650.329.2240 Lel.lr:r to Ezl'Il R iJpporl: '\1ay 20 J J 2. The Initial Vision Scenario is expected to result in only a 2% decrease per capita in GHG emissions for the region by 2035 (10% under the "Current Regional Plans" scenario v. 12% under the IVS). The public is likely to ask "why is the IVS preferred over the existing planning scenario and is it worth the extent of change to accorrunodate such a minor reduction in GHG?" The Sustainable Corrununlties Strategy must more directly address the location of employment near transit, move away from a jurisdiction-specific approach, and should also focus on other strategies, such as pricing, to achie:ve more meaningful GHG benefits. 3. The Initial Vision Scenario (and therefore ultimately the Sustainable Corrununities Strategy) is based on housing increases and employment projections largely derived from the State of California and modified by ABAG and MTC. The models for projecting these fundamental housing and jobs figures should be thoroughly vetted by third parties to reflect many of the realities of the present and future, including economic trends and limiting constraints such as land cost and availability, needed infrastructure, and diminishing capacity for schools and other public services. 4. The Initial Vision Scenario does not provide a realistic evaluation of future employment increases in Palo Alto. The IVS shows an increase of slightly less than 5,000 new jobs in Palo Alto, when the City already has plans in the process or approved (Stanford Medical Center, downtown offices, remaining capacity in the Stanford Research Park, pending occupancy of 1 million square feet of vacant space in the Researeh Park, etc.) that would account for nearly that many jobs by 2020. 5. The construction of housing in Palo Alto is highly constrained by multiple factors, including but not limited to: a) the high cost and limited availability of land, b) traffic congestion, c) capacity of the Palo Alto Unified School District, and d) corrununity services. Attached is a January 9, 2008 letter from Mayor Klein to ABAG objecting to the City's most recent Regional Housing Needs Allocation (RHNA), which letter outlined many of those concerns and others. 6. The IVS and SCS and the upcoming RHNA methodology also rely heavily on ABAG's 2009 projections, which already overstate the potential housing growth in Palo Alto, as outlined in the attached 2008 letter. The SCS should provide an opportunity to move away from a city- specific approach (based on household formation) to regional and subregional growth patterns that better distinguish between employment centers and housing nodes and the means to connect the two with transit, bicycling, walking andlor shorter vehicle trips. The employment and housing linkage should be evaluated more dynamically, as appropriate locations for each are not limited by jurisdictional boundaries. 7. The housing growth estimates arc highly overestimated and unrealistic. The potential increase of 11,990 households (HH) over the 2010-2035 timeframe represents an average increase of 480 HH per year, whereas the City has produced approximately 200 housing units per year over the past 14 years, during a "boom" housing market. And as housing has grown, land resources, school capacity and other services have decreased, so that it is extremel y difficult to imagine even that level of growth continuing through 2035. The City believes that the Transportation Analysis Zone (TAZ) analysis (below) indicates that the IVS overestimates the potential household growth by at least 100%. Page 2 Letter to Ezra Rapport: May 25, 2011 8. At least half of the potential housing increases in Palo Alto are shown in areas that are now populated primarily with single-family land uses and zoning, lands which are not available or appropriate for intensification. The Sustainable Communities Strategy should be designed to strengthen existing communities, but implementation of the IVS would be contrary to that purpose. Any increases in housing growth should be limited to the City's identified Priority Development Area (PDA) and Growth Opportunity Areas (GOAs). 9. Any expectations of growth for the Sustainable Communities Strategy (SCS) must be tied to the provision of adequate transportation, and particularly transit, infrastructure. Policies of the SCS should emphasize this connection. 10. Any estimates of future growth in housing and jobs must clearly delineate what is generated on the Stanford University campus (apart from the medical center and research park). These areas are wholly within the jurisdiction of Santa Clara County. According to a tri-party agreement between the City, Stanford and the County, no part of the campus may be annexed to the City of Palo Alto, unlike many areas adjacent to other cities, where the County encourages annexations. The housing needs of the Stanford campus should not be assigned to the City of Palo Alto. 11. The City's TAZ analysis indicates several errors, omissions, and understatements of employment potential. Additionally, several of the T AZs encompass areas partly in other jurisdictions, so it is difficult to gauge precisely how much the Palo Alto jobs numbers are understated. Some of the City's specific concerns include the following: a. The employment growth totals conflict with (are considerably less than) the sum of growth in the TAZs. The total employment growth for the TAZs wholly in Palo Alto amounts to 5,916 jobs, which exceeds the 4,860 jobs listed in the IVS. This does not include any Palo Alto jobs in the 12 TAZs shared with other jurisdictions. b. TAZ 355 includes the Stanford University Medical Center (SUMC) and Stanford Shopping Center, but shows only an increase of 1,290 jobs. The current SUMC expansion, near approval by the City Council, entails over 2,000 additional jobs in itself, and future growth of the Shopping Center is expected as well. c. T AZs 348 and 349 include the Stanford Research Park, and show an increase of 764 employees through 2035. With buildout of anything near the 700,000 square feet of additional space in the Research Park, however, employment increases would be expected closer to 2,500 jobs for this area. d. TAZ 365 is a small area shared by Palo Alto and Mountain View, but shows 859 employees in areas that are generally zoned for single-family residential. e. TAZ 360 shows employment growth of 579 employees, which again appears overstated, since the area is zoned for and occupied by single-family homes. 12. The City's TAZ analysis indicates several errors, omissions, and overstatements of housing potential. Additionally, several of the TAZs encompass areas partly in other jurisdictions, so it is difficult to gauge precisely how much the Palo Alto housing numbers are overstated. Some of the City's specific concerns include the following: a. Housing in TAZs 351, 359, 360 and 363 is highly overstated, with a total of 5,720 new households (almost half of the total for Palo Alto) in areas that are almost entirely single-family residential neighborhoods and zoned accordingly. Page 3 Letter to Ezra Rapport: May 25, 2011 b. TAZ 365 is shared with Mountain View, but housing appears to be overstated, with 981 households, though the portion in Palo Alto is again a single-family zoned area. c. TAZ401 includes lands east of Hwy. 101 in Palo Alto and Mountain View, including the MoffettJNASA Ames property. This T AZ includes growth of over 4,000 households, with 2,118 specifically noted in the Moffett area PDA. Thus, it appears that almost 2,000 households would be planned in the East Bayshore and Baylands area of Palo Alto, clearly an unrealistic figure and not proximate to any transit. d. TAZ 349 household growth is shown at only 13 households, which is understated, since this area includes Stanford properties subject to the "Mayfield Agreement," with a minimum of 180 units required of Stanford. In summary, the City of Palo Alto strongly suggests that the Sustainable Communities Strategy should be based on a concept of identifying transit commute sheds, such as the Cal train corridor and the EI Camino Bus Rapid Transit corridor, in a way that establishes, for example, 30 minute commute thresholds for locating housing notes and employment centers. This would help to move the concept away from a city-by-city scenario to a more subregional approach, allowing job growth where it is most attractive for employers and near transit. Most housing could then be located where available land and costs are more affordable, but facilitating transit, bicycle or pedestrian access from the housing nodes to those cmploymcnt centers. Thank you for your consideration of the above comments and suggestions. Staff expects that the Ci2' Council will forward its comments, which may expand on those outlined, following its June 27 Council meeting. If you have any questions, please feel free to contact me at (650). 329-2321. Sincerely, ~W"~ Curtis Williams, Director Department of Planning and Community Environment Attachments: January 9, 2008 Letter from Mayor Klein to ABAG re: RHNA MTC Chart Showing Transit Ridership for Jobs v. Housing cc: City Council Planning and Transportation Commission James Keene, City Manager Doug Kimsey, Metropolitan Transportation Commission Ken Kirkey, Association of Bay Area Governments Page 4 Table 2.4: Initial Vision Scenario – Household and Job Totals and Growth by Jurisdiction Households Jobs Santa Clara County 2010 2035 Growth % Change 2010 2035 Growth % Change Campbell 16,890 21,000 4,110 24.3% 22,100 26,900 4,800 21.7%Cupertino 19,830 21,590 1,760 8.9% 30,510 35,280 4,770 15.6% Gilroy 14,330 22,120 7,790 54.3% 16,650 22,670 6,010 36.1% Los Altos 10,670 11,970 1,300 12.2% 10,250 11,510 1,260 12.3% Los Altos Hills 3,050 3,090 30 1.1% 1,840 1,940 90 5.0% Los Gatos 12,430 13,150 720 5.8% 18,270 20,700 2,420 13.3%Milpitas 19,030 38,760 19,730 103.7% 46,780 55,620 8,840 18.9% Monte Sereno 1,230 1,270 40 3.3% 400 530 130 33.1% Morgan Hill 12,400 20,040 7,640 61.6%12,700 20,810 8,110 63.9% Mountain View 32,110 50,350 18,230 56.8%50,070 64,510 14,430 28.8% Palo Alto 26,710 38,690 11,990 44.9%73,300 78,160 4,860 6.6%San Jose 305,090 435,590 130,500 42.8%342,800 593,220 250,420 73.1% Santa Clara 43,400 67,670 24,270 55.9%103,190 138,390 35,200 34.1% Saratoga 11,000 11,120 120 1.1%6,830 7,280 450 6.6% Sunnyvale 54,170 73,420 19,260 35.5%72,390 96,410 24,020 33.2% Santa Clara County Unincorporated 31,600 37,990 6,390 20.2%50,300 64,480 14,180 28.2%Countywide Total 613,940 867,820 253,880 41.3% 858,380 1,238,410 379,990 44.3% ABAG Projections 2007, 2009 and Initial SCS Vision Scenario Jobs Comparison 2010 2035 25 yr Jobs Growth Percent Change 2010 2035 25 yr Jobs Growth Percent Change Projections 2007 3,693,920 5,247,780 1,553,860 42.1% Projections 2007 77,400 92,960 15,560 20.1% Projections 2009 3,475,840 5,107,390 1,631,550 46.9% Projections 2009 76,480 82,160 5,680 7.4% Initial SCS Vision Scenario 3,271,300 4,493,300 1,222,000 37.4% Initial SCS Vision Scenario 73,303 78,163 4,860 6.6% ABAG Projections 2007, 2009 and Initial SCS Vision Scenario Households Comparison 2010 2035 25 yr Households Growth Percent Change 2010 2035 25 yr Households Growth Percent Change Projections 2007 2,696,580 3,292,530 595,950 22.1% Projections 2007 27,980 34,810 6,830 24.4% Projections 2009 2,667,340 3,302,780 635,440 23.8% Projections 2009 26,700 36,500 9,800 36.7% Initial SCS Vision Scenario 2,669,800 3,572,300 902,500 33.8% Initial SCS Vision Scenario 26,705 38,692 11,987 44.9% ABAG Projections 2007, 2009 and Initial SCS Vision Scenario Population Comparison 2010 2035 25 yr Population Growth Percent Change 2010 2035 25 yr Population Growth Percent Change Projections 2007 7,412,500 9,031,500 1,619,000 21.8% Projections 2007 64,500 78,900 14,400 22.3% Projections 2009 7,341,700 9,073,700 1,732,000 23.6% Projections 2009 61,600 84,000 22,400 36.4% Initial SCS Vision Scenario 7,348,300 9,429,900 2,081,600 28.3% Initial SCS Vision Scenario n/a n/a n/a n/a ABAG Region Population City of Palo Alto Population (Jurisdictional Boundary) ABAG Region Jobs City of Palo Alto Jobs (Jurisdictional Boundary) ABAG Region Households City of Palo Alto Households (Jurisdictional Boundary) SCS Initial Vision Scenario (IVS) Household and Employment Analysis 2010-2035 per Transportation Analysis Zones (TAZ) Employment SCS IVS for Palo Alto IVS 2010 2035 Growth % Change Jurisdiction Palo Alto 73,300 78,160 4,860 6.6% TAZ EMPLOYMENT ANALYSIS TAZ TAZ CITY TOTAL EMPLOYEES 2010 TOTAL EMPLOYEES 2035 EMPLOYEE GROWTH 2010-2035 % PERCENT CHANGE 367 CPA 1,832 2,540 708 39 366 CPA 2,528 3,879 1,351 53 362 CPA 7,307 7,540 233 3 364 CPA 793 927 134 17 363 CPA 680 1,008 328 48 360 CPA 888 1,467 579 65 361 CPA 891 932 41 5 358 CPA 949 999 50 5 357 CPA 849 889 40 5 356 CPA 10,645 11,523 878 8 359 CPA 698 1,120 422 60 349 CPA 13,593 14,148 555 4 351 CPA 4,680 5,277 597 13 Subtotal CPA only TAZ's CPA 46,333 52,249 5,916 Subtotal of TAZ's shared with other jurisdictions Shared TAZ's with other jurisdictions 69,365 77,089 7,724 Total of all TAZ's with CPA 115,698 129,338 13,640 Households SCS Ivs for Palo Alto IVS 2010 2035 Growth % Change Jurisdiction Palo Alto 26,710 38,690 11,990 44.9% TAZ HOUSEHOLDS ANALYSIS TAZ TAZ CITY TOTAL HOUSEHOLDS 2010 TOTAL HOUSEHOLDS 2035 HOUSEHOLDS GROWTH 2010-2035 % PERCENT CHANGE 367 CPA 2426 2754 328 367 366 CPA 2037 4069 2032 366 362 CPA 1720 1788 68 362 364 CPA 938 1092 154 364 363 CPA 1150 2225 1075 363 360 CPA 2184 3240 1056 360 361 CPA 2430 2536 106 361 358 CPA 1963 2050 87 358 357 CPA 1854 1944 90 357 356 CPA 4473 7085 2612 356 359 CPA 1579 2618 1039 359 349 CPA 323 336 13 349 351 CPA 2076 3270 1194 351 Subtotal CPA only TAZ's CPA 25153 35007 9854 Subtotal of TAZ's shared with other jurisdictions Shared TAZ's with other jurisdictions 13615 22057 8442 Total of all TAZ's with CPA 38768 57064 18296 891932415 949999505 849889405 11712587 190201116 873894212 1376186348735 3576405047413 730775402333 79392713417 680100832848 698112042260 319933301314 512653352094 3086348039413 1832254070839 888146757965 13593141485554 4680527759713 1079193885980 10645115238788 12635134498146 25283879135153 173211859112707 2078723833304615 Arastradero Lake Felt Lake Boronda Lake 190201116 2078723833304615 1376186348735 3576405047413 1079193885980 1832254070839 25283879135153 730775402333 79392713417 680100832848 888146757965 891932415 949999505 84988940510645115238788 698112042260 173211859112707 12635134498146 11712587 319933301314 512653352094 13593141485554 3086348039413 4680527759713 873894212 San Francisquito Creek San Francisquito Creek Buckeye Creek Matadero Creek Charleston Slough Matadero Creek San Francisquito Creek San Francisquito Creek San Francisquito Creek Matadero Creek Barron Creek Barron Creek Barron Creek Adobe CreekAdobe Creek Adobe Creek Adobe CreekAdobe Creek Adobe Cr e e k Adobe Creek Adobe Creek Cornelis Bol Park Esther Clark Park Greer Park Jerry Bowden Park John Boulware Park Mitchell ParkMitchell Park Mitchell Park Mitchell Park Mitchell Park Eleanor Pardee Park Alexander Peers Park Don JesusRamos Park Rinconada Park Don SecundinoRobles Park Juana BrionesPark Johnson Park Water QualityControl Plant Alta Mesa Memorial Park CommonArea "B" BaylandsAthletic Center The Bowl VenturaCommunityCenter Gunn High School Las Trampas Valley OhloneElementarySchool DuveneckElementarySchool Orchard AddisonElementary Main Library Art Center Walter HayesElementary School Greer Park SealePark Palo VerdeElementarySchool El CarmeloElementarySchool JL StanfordMiddle School FairmeadowElementarySchool HooverElementary Hewlett Packard Hewlett Packard Barron ParkElementary School Alta Mesa Memorial Park Alta MesaMemorial Park Juana BrionesElementarySchool Agilent nway Way Tower BaylandsInterpretiveCenter Timothy Hopkins Park Timothy Hopkins Park Castilleja School TIBCO SAP Terman Middle School Heritage Park El Camino Park TermanPark Arastradero PreserveArastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero PreserveArastradero Preserve Arastradero Preserve Palo AltoAirport JordanMiddleSchool Palo Alto HillsCountry Club Land Fill Sailing Station Hooks Island Hooks Point CompostingArea Gunn High School Foothills Park Foothills ParkFoothills ParkFoothills ParkFoothills ParkFoothills ParkFoothills ParkFoothills Park MaintenanceYard Emily Renzel Wetlands MunicipalServiceCenter Mountain View Shoreline Park Palo Alto High School Veteran's Administration Hospital Flood Gates Mountain View Shoreline Park Mountain View Shoreline Park Mountain View Shoreline Park FoothillReservoir #2 Arrillaga Property Midtown Area Cubberley Community Center VMware Byxbee Park Pearson -Arastradero Preserve Hig h w a y 2 8 0 401 373 374 365 367 366 362 364 363 360 361 358 357 356 359355 354 353 352 347 348 349 350 351 368 San Antonio Rd 280 A l a m eda de l a s P ulg a s S a n d H i l l R o a d 2 8 0 Junip e r o S e r r a Boule v a r d P a ge M i l l Road A r a s t r a d e r o R o a d E l C a m i n o R e a l San Antonio Av e n u e C h a r l e s t o n R o a d G 5 A l t a m o n t R O r e g o n E x p r e s s w a y M i d d l e f i e l d R o a d University Avenue r e e w a y 1 0 1 A l m a S t r e e t El Camino Real A l p i n e R o a d F oothi l l Expr e s s w a y H i g h w a y 2 8 0 Los Trancos Road Hi l lv i ew E a s t B a y s h o r e W e s t B a y s h o r e Fabian Central Expressway El Camino Real Bayshore Freeway El M o nte R oa d S a n d H i l l R o a d E m b a r c a d e r o R o a d East Palo Alto StanfordUniversity Menlo Park Mountain View Los Altos Los Altos Hills Portola Valley Set of 4 Numbers What do the numbers mean? 1st number on top - 2010 IVS Employee Count 2nd number from top - 2035 IVS Employee Count 3rd number from top - Difference between 2035 IVS Emp to 2010 IVS Emp Count 4th number from top - Percent increase/decrease from 2010 to 2035 IVS Emp Count TAZ Label350 3086 3480 394 13 This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend Employment Growth 2010 to 2035 per TAZ: 1 to 99 jobs 100 to 499 jobs 500 to 749 jobs 750 to 999 jobs 1000 to 1500 jobs 3046 jobs City Jurisdictional Limits Transportation Stations TAZ Boundaries 0'3585' SC S I n i t i a l V i s i o n S c e n a r i o ( I V S ) 20 1 0 t o 2 0 3 5 Em p l o y m e n t G r o w t h A n a l y s i s pe r Tr a n s p o r t a t i o n A n a l y s i s Z o n e s ( T A Z ) CITY O F PALO A L TO I N C O R P O R ATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2010 City of Palo Alto rrivera, 2011-04-26 09:54:21TAZ 1454 SCS EMP Analysis 2035 byjobsincrease (\\cc-maps\gis$\gis\admin\Personal\Planning.mdb) 17201788684 19632050874 18541944905 1952192412 3134310 323336134 14801519393 1238137914111 2426275432814 938109215416 243025361064 1200153133128 26347020779 287429791054 1116163351746 1635261698160 1136179065458 11502225107593 21843240105648 15792618103966 18383194135674 20763270119458 203740692032100 44737085261258 60946934084671 Arastradero Lake Felt Lake Boronda Lake San Francisquito Creek San Francisquito Creek Buckeye Creek Matadero Creek Charleston Slough Matadero Creek San Francisquito Creek San Francisquito Creek San Francisquito Creek Matadero Creek Barron Creek Barron Creek Barron Creek Adobe CreekAdobe Creek Adobe Creek Adobe CreekAdobe Creek Adobe Cr e e k Adobe Creek Adobe Creek Cornelis Bol Park Esther Clark Park Greer Park Jerry Bowden Park John Boulware Park Mitchell ParkMitchell Park Mitchell Park Mitchell Park Mitchell Park Eleanor Pardee Park Alexander Peers Park Don JesusRamos Park Rinconada Park Don SecundinoRobles Park Juana BrionesPark Johnson Park Water QualityControl Plant Alta Mesa Memorial Park CommonArea "B" BaylandsAthletic Center The Bowl VenturaCommunityCenter Gunn High School Las Trampas Valley OhloneElementarySchool DuveneckElementarySchool Orchard AddisonElementary Main Library Art Center Walter HayesElementary School Greer Park SealePark Palo VerdeElementarySchool El CarmeloElementarySchool JL StanfordMiddle School FairmeadowElementarySchool HooverElementary Hewlett Packard Hewlett Packard Barron ParkElementary School Alta Mesa Memorial Park Alta MesaMemorial Park Juana BrionesElementarySchool Agilent nway Way Tower BaylandsInterpretiveCenter Timothy Hopkins Park Timothy Hopkins Park Castilleja School TIBCO SAP Terman Middle School Heritage Park El Camino Park TermanPark Arastradero PreserveArastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero Preserve Arastradero PreserveArastradero Preserve Arastradero Preserve Palo AltoAirport JordanMiddleSchool Palo Alto HillsCountry Club Land Fill Sailing Station Hooks Island Hooks Point CompostingArea Gunn High School Foothills Park Foothills ParkFoothills ParkFoothills ParkFoothills ParkFoothills ParkFoothills ParkFoothills Park MaintenanceYard Emily Renzel Wetlands MunicipalServiceCenter Mountain View Shoreline Park Palo Alto High School Veteran's Administration Hospital Flood Gates Mountain View Shoreline Park Mountain View Shoreline Park Mountain View Shoreline Park FoothillReservoir #2 Arrillaga Property Midtown Area Cubberley Community Center VMware Byxbee Park Pearson -Arastradero Preserve Hig h w a y 2 8 0 401 373 374 365 367 366 362 364 363 360 361 358 357 356 359355 354 353 352 347 348 349 350 351 368 1952192412 60946934084671 1116163351746 1238137914111 1635261698160 2426275432814 203740692032100 17201788684 938109215416 11502225107593 21843240105648 243025361064 19632050874 18541944905 44737085261258 15792618103966 1200153133128 26347020779 18383194135674 287429791054 3134310 323336134 1136179065458 20763270119458 14801519393 San Antonio Rd 280 A l a m eda de l a s P ulg a s S a n d H i l l R o a d 2 8 0 Junip e r o S e r r a Boule v a r d P a ge M i l l Road A r a s t r a d e r o R o a d E l C a m i n o R e a l San Antonio Av e n u e C h a r l e s t o n R o a d G 5 A l t a m o n t R O r e g o n E x p r e s s w a y M i d d l e f i e l d R o a d University Avenue r e e w a y 1 0 1 A l m a S t r e e t El Camino Real A l p i n e R o a d F oothi l l Expr e s s w a y H i g h w a y 2 8 0 Los Trancos Road Hi l lv i ew E a s t B a y s h o r e W e s t B a y s h o r e Fabian Central Expressway El Camino Real Bayshore Freeway El M o nte R oa d S a n d H i l l R o a d E m b a r c a d e r o R o a d East Palo Alto StanfordUniversity Menlo Park Mountain View Los Altos Los Altos Hills Portola Valley Set of 4 Numbers What do the numbers mean? 1st number on top - 2010 IVS Household Count 2nd number from top - 2035 IVS Household Count 3rd number from top - Difference between 2035 IVS HH to 2010 IVS HH Count 4th number from top - Percent increase/decrease from 2010 to 2035 IVS HH Count TAZ Label350 1136 1790 654 58 This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend Household Growth 2010 to 2035 per TAZ: 1 to 99 Households 100 to 499 Households 500 to 999 Households 1000 to 1500 Households 2000 to 2700 Households 4084 Households City Jurisdictional Limits Transportation Stations TAZ Boundaries 0'3585' SC S I n i t i a l V i s i o n S c e n a r i o ( I V S ) 20 1 0 t o 2 0 3 5 Ho u s e h o l d G r o w t h A n a l y s i s pe r Tr a n s p o r t a t i o n A n a l y s i s Z o n e s ( T A Z ) CITY O F PALO A L TO I N C O R P O R ATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2010 City of Palo Alto rrivera, 2011-04-26 10:01:08TAZ 1454 SCS Household Analysis 2035 byincreasehouseholds (\\cc-maps\gis$\gis\admin\Personal\Planning.mdb) 31% 69% 46% 54% 55% 45% 14% 86% 19% 81% 41% 59% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Ho u s e h o l d G r o w t h Redwood City Mountain View Palo Alto San Jose City of Santa Clara Sunnyvale Cities % of Households Growth within Priority Development Area (PDA) & Growth Opportunity Areas (GOA) in Relation to Total Growth PDA & GOA Growth Growth outside of PDA & GOA Priority Development Area (PDA) & Growth Opportunity Area (GOA) Household Growth in relation to Total Household Growth (selected cities ) San Mateo County Households Jursidiction or Area Name Key Jurisdiction Place Type 2010 2035 Growth % Change Redwood City - TOTAL GROWTH 29,620 41,032 11,412 38.5%Downtown RWC1 Redwood City City Center 786 6,139 5,353 681%Broadway OARWC3 Redwood City Mixed-Use Corridor 1,962 2,325 363 18%Middlefield OARWC2 Redwood City Mixed-Use Corridor 2,370 2,757 387 16%Mixed Use Waterfront OARWC4 Redwood City Mixed-Use Corridor 876 1,916 1,040 119%Veterans Corridor OARWC1 Redwood City Mixed-Use Corridor 308 1,076 768 249% PDA & GOA Growth % of PDA & GOA Growth to Total GrowthPDA & GOA Growth relative to Total City Growth 6,302 14,213 7,912 69% Santa Clara County Households Jursidiction or Area Name Key Jurisdiction Place Type 2010 2035 Growth % Change Mountain View - TOTAL GROWTH 32,114 50,348 18,234 56.8% Whisman Station MVW1 Mountain View Transit Neighborhood 0 1,220 1,220 NA Downtown OAMVW1 Mountain View Transit Town Center 1,359 2,544 1,185 87% East Whisman OAMVW4 Mountain View Employment Center 104 203 99 95% El Camino Real Corridor OAMVW3 Mountain View Mixed-Use Corridor 2,561 4,121 1,560 61% Moffett Field/NASA Ames OAMVW5 Mountain View Suburban Center 166 2,283 2,118 1279% North Bayshore OAMVW6 Mountain View Suburban Center 278 2,653 2,375 853% San Antonio Center OAMVW2 Mountain View Transit Town Center 1,470 2,732 1,262 86% PDA & GOA Growth % of PDA & GOA Growth to Total Growth PDA & GOA Growth relative to Total City Growth 5,938 15,757 9,819 54% HouseholdsJursidiction or Area Name Key Jurisdiction Place Type 2010 2035 Growth % Change Palo Alto - TOTAL GROWTH 26,705 38,692 11,987 44.9% California Avenue PAL1 Palo Alto Transit Neighborhood 922 2,889 1,967 213% El Camino Real Corridor OAPAL2 Palo Alto Mixed-Use Corridor 4,272 6,116 1,845 43% University Avenue/Downtown OAPAL1 Palo Alto Transit Town Center 2,162 3,701 1,539 71% PDA & GOA Growth % of PDA & GOA Growth to Total Growth PDA & GOA Growth relative to Total City Growth 7,355 12,706 5,351 45% Households Jursidiction or Area Name Key Jurisdiction Place Type 2010 2035 Growth % Change San Jose - TOTAL GROWTH 305,087 435,585 130,498 42.8%Berryessa Station SJO5 San Jose Transit Neighborhood 1,926 8,024 6,098 317%Communications Hill SJO6 San Jose Transit Town Center 2,423 5,198 2,775 115%Cottle Transit Village SJO2 San Jose Suburban Center 59 2,989 2,930 4952%Downtown "Frame"SJO4 San Jose City Center 5,799 24,458 18,659 322%East Santa Clara/Alum Rock Corridor SJO8 San Jose Mixed-Use Corridor 2,306 6,396 4,090 177%Greater Downtown SJO1 San Jose Regional Center 3,217 10,117 6,900 215%North San Jose SJO3 San Jose Regional Center 9,488 42,128 32,640 344%West San Carlos and Southwest Expressway Corridors SJO7 San Jose Mixed-Use Corridor 8,299 16,923 8,624 104%Bascom TOD Corridor OASJO4 San Jose Mixed-Use Corridor 227 1,627 1,400 617%Bascom Urban Village OASJO5 San Jose Mixed-Use Corridor 1,089 1,889 800 73%Blossom Hill/Snell Urban Village OASJO7 San Jose Mixed-Use Corridor 519 1,619 1,100 212%Camden Urban Village OASJO6 San Jose Mixed-Use Corridor 346 1,346 1,000 289%Capitol Corridor Urban Villages OASJO8 San Jose Mixed-Use Corridor 3,692 9,892 6,200 168%Capitol/Tully/King Urban Villages OASJO11 San Jose Suburban Center 1,504 3,754 2,250 150%Oakridge/Almaden Plaza Urban Village OASJO10 San Jose Suburban Center 2,302 9,802 7,500 326%Saratoga TOD Corridor OASJO2 San Jose Mixed-Use Corridor 1,495 2,595 1,100 74%Stevens Creek TOD Corridor OASJO1 San Jose Mixed-Use Corridor 1,066 4,966 3,900 366%Westgate/El Paseo Urban Village OASJO9 San Jose Suburban Center 559 3,059 2,500 447%Winchester Boulevard TOD Corridor OASJO3 San Jose Mixed-Use Corridor 2,026 4,026 2,000 99% PDA & GOA Growth % of PDA & GOA Growth to Total Growth PDA & GOA Growth relative to Total City Growth 48,341 160,807 112,466 86% HouseholdsJursidiction or Area Name Key Jurisdiction Place Type 2010 2035 Growth % Change Santa Clara - TOTAL GROWTH 43,403 67,672 24,269 55.9% Central Expressway Focus Area OASCL5 Santa Clara City Center 0 4,000 4,000 NA El Camino Real Focus Area OASCL1 Santa Clara Mixed-Use Corridor 1,305 2,183 878 67% Great America Parkway Focus Area OASCL6 Santa Clara Urban Neighborhood 0 3,400 3,400 NA Lawrence Station Focus Area OASCL3 Santa Clara Transit Neighborhood 0 6,194 6,194 NA Santa Clara Station Focus Area OASCL2 Santa Clara City Center 167 3,502 3,335 1997% Tasman East Focus Area OASCL4 Santa Clara Transit Neighborhood 0 1,805 1,805 NA PDA & GOA Growth % of PDA & GOA Growth to Total Growth PDA & GOA Growth relative to Total City Growth 1,472 21,084 19,612 81% Households Jursidiction or Area Name Key Jurisdiction Place Type 2010 2035 Growth % Change Sunnyvale - TOTAL GROWTH 54,170 73,425 19,255 35.5%Downtown & Caltrain Station SUN2 Sunnyvale Transit Town Center 1,353 5,321 3,968 293%El Camino Real Corridor SUN3 Sunnyvale Mixed-Use Corridor 9,466 14,680 5,214 55%Lawrence Station Transit Village SUN1 Sunnyvale Transit Neighborhood 1,465 2,354 888 61%East Sunnyvale ITR OASUN3 Sunnyvale Mixed-Use Corridor 1 601 600 60000%Moffett Park OASUN1 Sunnyvale Employment Center 0 0 0 NAPeery Park OASUN2 Sunnyvale Employment Center 0 0 0 NAReamwood Light Rail Station OASUN4 Sunnyvale Employment Center 0 0 0 NATasman Station ITR OASUN5 Sunnyvale Mixed-Use Corridor 202 805 603 299% PDA & GOA Growth % of PDA & GOA Growth to Total Growth PDA & GOA Growth relative to Total City Growth 12,487 23,761 11,273 59% TO: City of Palo Alto Memorandum HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT ID#: 1348 DATE: MARCH 14, 2011 REPORT TYPE: ACTION SUBJECT: Item No.6: Release of Initial Vision Scenario by ABAGIMTC The staff 'report for this item indicated that the Association of Bay Area Governments (ABAG) and the Metropolitan Transportation Commission (MTC) were scheduled to release an Initial Vision Scenario for the Sustainable Communities Strategy (SCS).on March 11,2011. The report was released last Friday and staff has quickly, but less than comprehensively, reviewed the documents and supporting information. The full report and background is available online at: htt.p:llwww.onebayarea.org!spotlight.htm. While staffhas not had adequate time to substantially digest or analyze the materials, the summary below outlines pertinent representations from ABAG and MTC regarding the Initial Vision Scenario. Intent of Initial Vision Scenario The Initial Vision Scenario is intended to: • Incorporate the 25-year regional housing need encompassed in the SCS; • Provide a preliminary set of housing and employment growth numbers at regional, CO\.U1ty, jurisdictional, and sub-jurisdictional levels; and • Be evaluated against the greenhouse gas reduction target as well as additional perfonnance targets adopted for the SCS. Attachment A is a memo from ABAG and MTC introducing the Initial Vision Scenario to their respective boards and the public, and Attachment B is an overview of the document, inclu~ng a number of tables outlining potential growth under this scenario of land liSe and transportation patterns. The agencies (ABAG and MTC) indicate that the Initial Vision Scenario is meant to start the conversation about the SCS among local jurisdictions, regional agencies, and other interested stakeholders. This scenario proposes a future development pattern that depends upon a strong economy, sufficient funding for affordable housing and supportive public infrastructure and transportation investments. The proposed distribution of housing focuses on areas close to transit stations and corridors. This focused growth pattern is also intended to preserve open space and agricultural land in the Bay Area. ID#: 1348 Page 1 of 3 The agencies further present that this step in the SCS process is designed to solicit comment primarily from local elected officials and their constituents. This input will inform the development of the detailed scenarios to be drafted by the summer of 2011. Through integrated regional land use, housing, and transportation investments, the Initial Vision Scenario proposes a sustainable pattern of regional growth intended to maximize the reduction of greenhouse gas emissions while accommodating the entire region's housing need through 2035. In this scenario, which is "unconstrained" in terms of financial and other resources to support housing growth, Priority Development Areas (PDAs), Infill Opportunity Areas (areas not designated as PDAs, but that share many of the same attributes), and transit corridors would accommodate a major share of housing growth. The Overview (Attachment B) specifies that the Initial Vision Scenario would meet the regional housing target and achieves an incremental improvement over current regional plans with the.- reduction of greenhouse gas emissions (GHG) per capita by 12 percent in 2035. Thus, it falls short of the 15% GHG per capita reduction target in 2035 established by the California Air Resources Board. So other infrastructure and transportation demand management strategies must be evaluated in order for the region to achieve the GHG target. As outlined in the discussion below of potential Palo Alto and Santa Clara County growth in this scep.ario, the PDAs and other areas have been targeted for extensive housing, rather than job, growth. The agencies believe that strategies to encourage more job growth in PDAs and near transit nodes would substantially improve the performance of the targets, especially the greenhouse gas emi~sions target. These strategies will be the subject of the upcoming detailed scenarios analysis, and are clearly a critical area of interest to Palo Alto. Scenario Growth Concepts for Palo Alto and Santa Clara Comty For Palo Alto, the "place types" factored into the Vision Scenario include the California Avenue Area PDA, the Bl Camino Real corridor, and the University Avenue transit area. The initial Vision Scenario, however, describes a development pattern "unconstrained" by public service limitations, fiscal, transportation, or other infrastructure, and is focused primarily on housing growth rather than jobs. Attachment C is a slide presentation made last week by ABAG and MTC to their boards, including background for the Initial Vision Scenario, along with potential growth numbers for the region, each county, and each city. The regional agencies make a point of not calling these numbers "proj ections," rather a growth scenario to begin further discussions. Of particular interest are the following potential housing and job employment numbers: • The Bay Area would grow by approximately 900,000 households from 2010-2035, designed to house enough residents to avoid any increase in net in-commuting. • The Bay Area population would grow by approximately 2 million people in that period. • Bay Area employment would increase by 1.2 million new jobs in that period. • Santa Clara County would grow by approximately 250,000 households from 2010-2035, an increase of about 41 %, the largest county growth in the region. • Santa Clara County employment would increase by approximately 380,000 jobs in that period, an increase of over 44%, the largest county growth in the region. • The City of Palo Alto would grow by just less than 12,000 households from 2010-2035, an increase of almost 45%, the sixth largest increase in households for a city in Santa Clara County, excluding San Jose. ID#: 1348 Page 2 of 3 To: MTC Planning Committee, ABAG Administrative Committee Fr: ABAG and MTC Executive Directors Re: Initial Vision Scenario ATTACHMENT A Date: March 4, 2011 The Initial Vision Scenario starts the conversation on the Sustainable Communities Strategy among local jurisdictions, regional agenoies, and other interested stakeholders. This soenario proposes a future development pattern that depends upon a strong economy, sufficient funding for affordable housing and supportive public infrastructure and transportation investments. The proposed distribution of housing focuses on areas close to transit that have been identified by local jurisdictions. This focused growth pattern preserves opell space and agricultural land in the Bay Area This important step in the Sustainable Communities Strategy process Lilt designed to solicit oomment primarily from local elected officials and their constituents. This input will inform the development of the detailed scenarios to be drafted by the summer of2011. Through integrated regional land USCJ housingt and transportation investments. the Initial Vision Scenario proposes a sustainable pattern of regional growth that maximizes the reduction of greenhouse gas emissions while accommodating the entire region's housing need through 2035. In this scenario, which is-unconstrained in tenus of financial and other resources to support housing growth, Priority Development Areas (PDAs), InfiU Opportunity Areas (areas not designated as PDAs, but that share many of the same attributes), and transit corridors accommodate a major share of housing growth. The development of the transportation network in the region by 2035 is aligned with those areas. As such the transportation network for the Initial Vision Scenario is based on Transportation 2035, but also includes improved transit headways to serve increased growth in PDAs and Infill Opportunity Areas. The attached maps show the Priority Development and Intill Opportunity Areas for the region and for each county .. The Initial Vision Scenario relies on input from local jurisdictions and the characteristics of the places they identified for the distrl~ution of growth. The Initial Vision Scenario differs from previous forecasts (Projections 2007, 2009,2011) in identifying places to accommodate an additional demand for 267,000 households beyond Projections 2011 so that the current phenomenon of6>6>in-commuting" from adjoining regions does not worsen in the future. These prior forecasts were derived from Census Tracts. This scenario was constructed uti1i2:ing a detailed place-based approach, meaning that growth was distributed in speoific neighborhoods or geographic locations based on their characteristics. Between November 2010 and January 2011 J MTC and ABAO received input from local planners on the capacity for sustainable growth in PDAs and new Infill Opportunity Areas to supplement the information gathered through the PDA Assessment. To the extentpossible~ MTC and ABAG staffused local estimates of growth to meet the housing target. However, this scenario includes addi1ional housing units in some PDAs or IniUl Opportunity Areas beyond the number submitted by local jurisdictions. The Initial Vision Scenario assumes a growth of 903,000 households up to 3.6 million. and 1.2 million jobs up to 4.5 million by 2035 compared to today. About 95 percent of new households are accommodated within the urb~ footprint. PDAs and Infill Opportunity Areas include about two thirds of household growth in the region. At the county Ieve~ San Francisco, Santa Clara, Alameda and Contra Costa are projected to absorb a m~or share of the total increase in the number of households, at nearly 80%. They also absorb the majority of the regio!1.'s job growth, also nearly 80010. It should be noted that the Initial Vision Scenario does not substantially reallocate jobs to PDAs and assumes continued job growth in employment campuses dispersed throughout the region. Major cities take the lead in the projected growth of housing in the region. San Jose, San Francisco, and Oakland are projected to produce one third of the housing needed by 2035 by building upon their regional centers and intensifying transit corridor development. At the same time, medium-sized cities that range from city centers to transit towns (FremoI}~ Santa Rosa, Berkeley, Hayward) RichmondJ Concord, and Santa Clara) would accommodate 17 percent of the regional total. When assessed against the performance targets adopted by the regional agencies, the Initial Vision Scenario reflects significant progress towards the sustainability and equity targets of the region. The Initial Vision Scenario meets the regional housing target and achieves an incremental improvement over our current regional plans with the reduction of greenhouse gas emissions (OHO) per capita by 12 percent in 2035. Thus~ it falls short of the 15% GHG per capita reduction target in 2035 established by California Air Resources Board. As expected, we will need to evaluate other infrastructure and transportation demand management strategies in order for the regIon to achieve the GHG target. The performance of the Initial Vision Scenario on healthy and safe communities, equitable access, and transportation system effectiveness targets is mixed, indicating some improvements over previous trends and previous forecasts. These results point to the need for additional policies and strategies to meet the regional perfonnance targets. In particular, strategies that will encourage more job growth in PDAs and near transit nodes would substantially improve the perfonnance of the targets, especially the greenhouse gas emissions target. These strategies will be the subject of the upcoming detailed scenarios analysis. The complete report on the Initial Vision Scenario with detailed analysis, data, and maps will be released for public review and presented at your March 11,2011 joint meeting. Steve Heminger HCOMMITm\Plarullng Committee\20 L l\March 11 \Initial Vision Scenario M Memo Fina12-28-11 dkvl.doc 2 ATTACHMENT B lin Overview of the Initial Vision Scenario In 2008, Senate Bi11375 (Steinberg) was enacted. The state law requires that our Regional Transportation Plan contain a Sustainable Communities Strategy (together, Plan Bay Area) that integrates land-use planning and transportation planning. For the 25-year period covered by Plan Bay Area_ the Sustainable Cornnlunities Strategy must identify areas within the nine-county Bay Area sufficient to house all of the region's population, including all economic segments of the population. It must also attempt to coordinate the resulting land .. use pattern with the transportation network so as to reduce per capita greenhouse-gas emissions from personal-use vehicles (automobiles and light trucks). The Initial Vision Scenario for Plan Bay Area is a first-cut proposal that identities the areas where the growth in the regionts population might be housed. This proposal builds upon a rich legacy of integrative planning in the Bay Area. For over a decade, the region and its local governments have been working together to locate new housing in compact fonus near jobs, close to services and amenities. and adjacent to transit so that the need to travel long distances by personal vehicle is reduced. Compact development within the existing urban footprint also takes development pressure off the region's open space and agrlculturallands. We have referred to this type of efficient development as "focused. growtht"and the regional program that supports it is called FOCUS. (See Table 1.) Planning for New Housing and Supporting Iufrastructure The Initial Vision Scenario is constructed by looking first at the Bay Area's regional housing needs over the next 25 years. This analysis was performed using demographic projections of household growth. It is not a forecast of the region. a.nd does not take into account many factors that constrain the fegion's supply of new housing units, such as limitations in supporting infrastructure~ affordable housing subsidies, and market factors. The principal purpose of the Initial Vision Scenario is to articulate how the region could potentially grow over time in a sustainab1e manner, and to orient policy and program development to achieve the first phases of implementation. Under the assumptions of the Initial Vision Scenario, the Bay Area is anticipated to grow by over 2 million people, from about 7,350,000 today to about 9,430,000 by the year 2035. This popUlation growth would :require around 902,000 new housing units. The Initial Vision Scenano proposes where these new-unitS might be accommodated. (See Tables 2 -12.) This Initial Vision Scenario is designed around places for growth identified by local jurisdictions. These places are defined by their chaT8cter, scale, density, and the expected housing units to be built over the long term. Using "place types:' areas with similar characteristics and physical and social qualities) ABAG asked local governments to 1 identifY general development aspirations for areas within their jurisdictions. These places were mostly the Priority Development Areas (PDAs) already identified through the FOCUS program. They also included additional Growth Opportunity Areas, some similar to PDAs and others with different sustainabitity criteria. Based on local visions, plans and growth estimates, regional agencies distributed housing growth across the region, focusing on PDAs and Growth Opportunity Areas. ABAG in some cases supplemented the local forecast with additional units based on the typical characteristics of the relevant locally-selected p]ace type. ABAG also distributed additional units to take advantage of significant existing and planned transit investment, and it assigned some units to locally identified areas that present regionally significant development opportunities .fur greater density. The Initial Vision Scenario accommodates 97 percent of new households within the existing urban footprint. Only 3 percent of the forecasted new homes require "greenfield development" (building on previously undeveloped lands). Priority Development Areas and Growth Opportunity Areas contain about 70 percent of the total growth (743~OOO households). Among . counties, three take the lion's share of growth: Santa Clara, Alameda and Contra Costa absorb a little over two-thirds of the total. These same counties also are anticipated to take the majority of the region'sjob growth (64 percent). (See Tables 13 -22.) The region's three major cities do a lot of the heavy lifting. Thirty .. two percent of the forecast and proposed housing growth occurs in San Jose, San Francisco and Oakland. Seventeen percent goes to medium-sized cities like Fremont, Santa Rosa, Berkeley) Hayward, Concord, and Santa Clara. The analysis embodied in the Initial Vision Scenario is founded on the location of housing. Employment forecasting and distribution in this Scenario is not directly related to land use policy. Employment location can have a strong influence on travel demand. vehicle miles traveled, and vehicle greenhouse .. gas emissions. In light of these factors and considering economic competitiveness, transit sustainability, and a balanced relationship between employment and housing) regional agenci~ will be embarking. with local partners, on further analysis regarding appropriate employment locations in relation to future honsing growth and the transportation network. This wiJ] inform the development of the detailed scenarios. The Initial Vision Scenario reflects the transportation investments from MTC's current Regional Transportation (known as the Transportation 2035 Plan). To support the increased housing growth, it also includes some tentatively proposed improvements to the region's transit network. These include increased frequencies on over 70 local bus and several express bus routes, improved rail headways on BART, eBART, Caltrain, Muni Metro, VTA light .. rail, and Altamont Commuter Express, and more dedicated bus lanes in San Francisco and Santa Clara counties, all resulting in overall growth in transit capacity. However, the Bay Area's transit system is fmancially unsustainable with operators unable to afford to run the current service levels into the future, much less expanded. headways contemplated under the Initial Vision Scenario. MTC's Transit Sustainability Project will propose a more sustainable transit system for inclusion in the detailed scenarios to be tested. 2 Measuring Performance Against Targets The Initial Vision Scenario results in a 12 percent per capita greenhouse gas emissions reduction from personal~use vehicles in 2035, compared to a 2005 base year. This reduction falls short of the region's state-mandated 15 percent per capita greenhouse gas emissions reduction target. It's clear that additional strategies will need to be employed if we want to attain the greenhouse gas targets, and other targets previously adopted by ABAG and MTC. MTC andABAG have adopted a set of Plan Bay Area performance targets to describe in specific, measureable terms the region's commitment and progress toward the "three E" principles of sustainability (Economy, Environment, and Equity). The Initial Vision Scenario meets some regional targets, including accommodating all the projected housing need by income level (in other words, no more in-commuting by workers who live in other regions); reducing the financial burden of housing and transportation on low-income households by providing more affordable housing; and housing the majority of new development within the existing urban core. Also, more residents are projected to ride transit, walk and bike more than existing residents because much of the new housing is located close to services, amenities and jobs, and adjacent to transit in complete communities. (See Figure 1 for the target results.) . The Initial Vision Scenario brings more residents into the region, thus increasing the total amount of travel. New residents will still drive for some trips. Even though vehicle miles traveled per capita in the Bay Area are projected to be lower in the Initial Vision Scenario than it is today, total miles driven within the region are projected to increase. With more Bay Area residents and more miles driven within the region, we can also expect an increase in the total number of injuries and fatalities. Health impacts from exposure to particulate emissions from automobiles and trucks are likewise projected to worsen with more driving; however, state and federal efforts to clean up heavy duty truck engines will more than off set the increases from automobiles, resulting in overall reductions sooty particulate pollution. fI} Finally, it must be said that while bringing more people into the Bay Area will increase the amount of driving and collisions within the region, it is still a net win in the larger sense. The amount of overall driving and greenhouse gas emissions statewide is certainly less than if the new residents were commuting to Bay Area jobs from communities in neighboring regions that do not offer such amenities. Next Steps The Initial Vision Scenario is offered as basis for discussion with local governments, stakeholders, and the general public about how the Bay Area can accommodate all its population growth over the next quarter century. It is by no means a fait accompli. Over the next several months we will seek input through elected official briefings, local government staff discussions, and public workshops. The comments received will assist ABAG and MTC in developing and testing a range of detailed scenarios that achieve the greenhouse gas emission reduction targets. 3 The purpose of the SCS is. to forge consensus in the Bay Area on a preferred long-tenn regibnwide growth pattern. Under SB 375, local governments are explicitly not required to update their general plans in accordance with the SCS. The SCS does not carry the same authority as Regional Housing Needs Allocation but it wilt inform the distribution of housing at the local level. The adopted SCS land development pattern will help guide regional policies and invesbnents that are made pursuant to the RegionalTransportation Plan. These regional policies and investments are intended to create financial and other incentives to implement the adopted land pattern in ·the ses. ABAG is currently working with its Housing Methodology Committee to develop a methodology for distributing regional eight-year housing targets to Bay Area local jurisdiotions; the methodology win be adopted by ABAG later this year. The Initial Vision Scenario kicks off a two-year oonversation among local jurisdictions and regional agencies on what ultintately will become the Sustainable Communities Strategy, as a part of Plan Bay Area, During that tinte, the regional· agencies will engage local agencies and the public to help identify and assess several detailed Sustainable Communities Strategy scenarios that demonstrate ways that land-use strategies, transportation investmentSt pricing and other strategies could achieve our adopted goals and targets. The scenarios also will need to address how the Bay Area's land-use plans can assist adaptation to climate change. The Sustainable Communities Strategy will need to coordinate regional agencies' initiatives and requirements related to sea-level rise, air quality, and other climate change related issues. These detailed scenarios will lead to selection of a preferred scenario early next year that would include an integrated transportation investment and land~use plan; this plan would also undergo a detailed environmental impact review that local agencies could use to streamline environmental assessments of their own local development projects as provided for in SB 375. Finally, the ABAO and MTC boards would be asked to adopt the complete Plan Bay Area, including a Sustainable Communities Strategy, by April 2013, , (See Figure 2.) The regional agencies look forward to further dialogue on these assumptions with our local government and transportation partners, stakeholders, and the general public. Attachments 4 Table 3 Initial Jlislon Scenario -Total Jobs all4 Job Growth by County Table 4 Initial Jlision ScelUlrio -Alameda County Total Households anti Household Growth by Jurisdiction Table 7 Initial 'Vision Scenario -Napa County Total Households and Household Growth by Jurisdiction TableR Initial Vision Scenario -Sa" Frllnclsco COllnty Total Households and Household Growth Table 9 Initial 'Visiol' Scenario -San Mateo County Total Households and Household Growth by Jurisdiction Table 10 Initial Vision Scenario -Santa Clara County Total Households, and Household Growth by Jurisdiction Table 11 Initial Vision Scenario -Solano County Total Households and Household Growth by Jurisdiction Little activity has occurred since the January update. The discussion below provides information regarding 1) the RHNA Housing Methodology Committee, 2) Council members meeting with the ABAG Executive Director, 3) the status of preparing a subregional housing allocation, and 4) the anticipated release of the Initial Vision Scenario by the regional agencies. RHNA Housing Methodology Committee The initial meeting of the RHNA Housing Methodology Committee was held on January 27, 2011 in San Francisco, and a second meeting was held on February 24, 2011. "fhe Committee is comprised of a total of 45 individuals, 33 of which represent local governments, with the remainder representing business, civic, housing, and environmental organizations in the region. Of those 33, five are from Santa Clara County, including council members from Mountain View and Palo Alto (Greg Scharff), and three planning directors or senior staff from San Jose, Santa Clara County, and Morgan Hill. Alternates are planning directors from Cupertino and Sunnyvale. The Silicon Valley Leadership Group is among the members of the civic organizations. The initial meeting focused primarily on providing background on State housing law and the process for establishing the methodology, how the methodology was established for the current housing period, and the relationship of the RHNA process to the Sustainable Communities Strategy. The latter discussion emphasized that the RHNA process will now run simultaneous with the term of the Regional Transportation Plan (8-year periods) and both will be integral elements of the SCS. Two memos from ABAG are attached (Attachments B and C) that provide overviews of relevant housing law and the methodology that was used to establish the numbers for 2007-2014. "fhere was also some discussion about what issues and factors might be considered to contribute to the consideration of the housing methodology. There was no attempt or intent to make any decisions at this point about which are most important or would be included. At the second meeting, there was further discussion about the various criteria, as well as a description of the rationale and requirements of RHNA (Attachment D). The next meeting of the Committee is scheduled for March 24, at which time a few possible allocation formulas will be presented for discussion. Meeting with ABAG Executive Director On February 28, 2011, Councilmembers Burt, Scharff and Schmid, Planning and Transportation Commission chair Tuma, the City Manager, and the Planning Director met with the Ezra Rapport, Executive Director of ABAG, to discuss issues related to the RHNA methodology and the approach to the Sustainable Communities Strategy. Mr. Rapport spoke to many of the issues of concern to the City (e.g., housing and employment projections, housing allocation process, and a sustainable transit network). He emphasized the need to establish an initial vision that focuses on "places" appropriate to accommodate increased development proximate to transit, rather than evaluating projections of housing units or employment increases. Mr. Rapport categorized the SCS as a framework for discussion of the important land use and transportation issues the region must address to maintain its leadership role in the economy and environment of the state. He asked that the City of Palo Alto and other cities respond to March 14, 2011 (10 # 1348) Page 2 of4 Staff expects to report on the Initial Vision Scenario upon its release in March (at the Council meeting if available by then) and will also keep the Council updated regarding the Housing Methodology Committee's work. The Planning and Transportation Commission and the Council will have an opportunity to comment and provide recommendations to the regional agencies and to consider whether to initiate any legislative or other action outside the prescribed review process. Resource Impact This report results in no immediate impact to the City. Environmental Review This update is not subject to environmental review. Courtesy Copies Planning and Transportation Commission Attachments: • Attachment A: January 10, 2011 CMR 110:11 (PDF) • Attachment B: January 20, 2011 Memo from ABAG re: RHNA Process Requirements (PDF) • Attachment C: January 20, 2011 Memo from ABAG re: Review of Last RHNA Cycle (PDF) • Attachment D: February 16, 2011 Memo from ABAG re: Rationale for the SCS and Requirements of RHNA (PDF) • Attachment E: February 10, 2011 Recommendation of Cities Association re: Subregional RHNA Process (PDF) • Attachment F: SB375 Glossary (DOCX) Prepared By: Department Head: City Manager Approval: March 14, 2011 (lD # 1348) Curtis Williams, Director Curtis Williams, Director James Keene, City Manager Page 4 of4 January 9,2008 ABAG Executive Board c/o Henry Gardner, Secretary -Treasurer Association of Bay Area Governments P.O. Box 2050 Oakland, CA 94604-2050 Dear Mr. Gardner: ~!iy~!P~A!~ Department of Planning and Community Environment The City of Palo Alto thanks you for providing us with the opportunity to review and comment on the revised Draft Regional Housing Needs Allocation (RHNA), which \Vas adopted by the ABAG Executive Board on November 15,2007. ., . . -· .. t. . . '. The City acknowledges ABAG's modification to PaloAlto's R.HNAto address t.he City'~ Sphere of Influence circumstance with the COU)1ty,ofSantaClctra and Stanford' U;niversity.:< .. However, our City Council, the Planning and Transportatioll Conlwission ati4~tatf.have a.ll·deterlnined that the RHNA of 2,860, even after the reductioli of 645 units,. is completely un~chievable in Palo Alto given the lack of available land, the higli'cost of land a¢quis'ition~andll1~ impacts of that amount of growth on the City's neighborhoods and infrastructure. Setting these requirements' that call1lot be achieved threatens the credibility and viability of important public institutions and becomes simply an exercise 'in futility. . . . Palo Alto has an extensive arid iong hlstory of leading and implem¢)J:ting affordable housing in an area highly impacted by·the 'high cost of housing. W~;-Y\f;~¥t¥Jhe first to implement inclusionary zoning in this: region and Palo. Alto Housing Corpor~t!9.11!":w.as established back in: 1970 as a non-profit affordab~e housing provider. Although the,cHy":6f Palo Alto has adop'ted' zoning and programs supporting . core concepts behind the al1oc~~'PJ1':lUethod such as smart growth, infill development, protection of open space and rural :"~~¢~$:~',:,~t?stricting urban sprawl, and transit oriented develOpment, there, should be a reasonable ~xpe~t~tip'j:i.::ofsuccess in meeting goals When assigning allabitions to cities. ·"·,,: •• i: .............. . Factors such as essential hlfr.astru6ftire needs and service reqtilf¢.~elJ:l~';;~Wl~t:)~~~~fl to be taken i~t'o consideration. Many comp'Qn~nts of the City's i)1frastructur~~ie,;ali~~ayit>;ea,pacity and an~ther critical factor is the capacity limitations ofthe",Palo Alto Uftifjed 'SQh,ool:Q:i~b1ct. The cutrent school popUlation has alreaqy pushed.. the :pres~nt . facilitles' beyond' capacity so that ' every elementary school now has multiple PP':rtables. Students. fr9ID an additional 2,86Q .housirtgunits . simply cannot be acconunodatd:fwith:the eJtis!ip'-g "Iac1litie$:'a:nd budget. Giveil that-the' s~hool district is at capacity, and there is ,no .avai,tablytunqillg ·to"a.~commddate'.the jncreasedsnid~nt population from the allocation, these requIrements 'Would -amourit to an unfu.nded'Mandate for Palo Alto. . .. ' . Planning 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2441 650.329.2154 Transportation 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2520 650.617.3108 BUilding 285 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 650.329.2496 650.329:2240 Mr. Henry Gardner Page 2 of4 January 9, 2008 As staff has indicated previously in transmittals to ABAG, the population and household growth projections for Palo Alto will not be realized and should be adjusted to reflect a population growth rate of approximately 3.0 % over the next RENA period within our jurisdictional boundary. ·ABAG's Projections 2007 assumes a popUlation growth rate of approximately 7% during the next 7 years in our jurisdictional boundary. Historically, the City of Palo Alto's popUlation has grown only by approximately 4.7% over the last thirty years. We understand that the methodology uses Sphere of Influence popUlation projections but we believe that the popUlation trend within our Sphere of Influence is proportional to the historic jurisdictional boundary population trends. Although the City has experienced a growth rate of approximately 8% during the last seven years, this has been a period when Palo Alto has constructed significant new housing development well in excess of histori~ averages and that rate cannot be sustained given Palo Alto's limited land availability and redevelopment potential. Therefore, it's very likely that the. City's popUlation growth will remain far below ABAG's projections since it will be very difficult for Palo Alto to continue the housing development it has experienced in the last seven years. During the last RHNA period, the City's population growth was largely attributable to a single development of approximately 1,000 units on the City's only remaining vacant large residential site. This City's housing growth occurred during a temporary period of substantial decline in the market for commercial development and increasing demand for housing. Taking this anomaly and extrapolating this into the future is not appropriate. By using its own overestimated Projections 2007 popUlation numbers, the RENA methodology compounds this error by assigning a 45% weight to the population projections that ABAG itself created. This logic appears circular in that the driver behind this growth appears to be the mandate from ABAG. Additionally, the City should receive credit in this RENA cycle for the 1,036 units that were built during that last RHNA period that exceeded the City's assigned allocation. The City exceeded its above moderate allocation by 1,282 units and its low allocation by 14 units with a deficit of 51 units in the very low category and 208 in the moderate category. Palo Alto has also protected and retained existing units that are more affordable and should receive further credit to offset the City's RHNA requirements. The City also continues to oppose the inclusion of an additional Transit Oriented Development (TOD) factor in the allocation methodology to the extent that it would disproportionately assign housing to cities like Palo Alto that have shown a commitment to TOD, in effect penalizing cities that have developed smart growth policies. Additional growth requirements for built out cities like Palo Alto should be predominantly TOD housing, not the core ABAG allocation plus TOD housing. The emphasis of transit use in the methodology is unrealistic at least for Palo Alto. Transit at the University and California Avenue stations is used more efficiently by commuters and not Mr. Henry Gardner Page 3 of4 January 9, 2008 .so efficiently by residents; many more people take transit TO Palo Alto than FROM Palo Alto. A greater concentration of jobs in the vicinity of transit will promote mass transit in Palo Alto more effectively than the concentration of housing. Furthennore, Palo Alto has been assigned additional units'based on transit access from the San Antonio Avenue station. However, this station is located in and serves primarily Mountain View, not Palo Alto. Also, Caltrain only services the San Antonio Caltrain station once per hour during rush hours further reducing its TOD effectiveness. Palo Alto has promoted smart growth in its Comprehensive Plan policies and its Pedestrian and Transit Oriented Development (PTOD) zoning all in the midst ofVTA reducing bus services to Palo Alto neighborhoods and with little or' no proj ected additional funding for transit to support the TOD aspects ofRHNA. However, Palo Alto's diligence and success in implementing smart growth policies, appear to have led ABAG to assume that the City has no limit to further intensifying with infill development. Given the RHNA mandate to provide housing for all income levels, it is impossible for the City to provide the 1,875 units assigned for below market rate income levels. Palo Alto prioritized affordable housing as one of the City's top five goals and built over 90 percent of the City'S very low and low income housing allocation for the last RHNA cycle. However, the current RHNA methodology uses 2000 Census income distribution data for allocating housing based on affordability, and does not reflect the City's success in building affordable housing over the last seven years. Instead, the current methodology allocated more affordable housing to Palo Alto compared to the region as a whole. Additionally, due to the extraordinary cost of land in Palo Alto, all very low and low income rental housing that has been developed recently has required significant City subsidy. The cost of low and very low income projects in Palo Alto are averaging $400,000 to $500,000 per unit. Recently the City has had to subsidize approximately 50% of the proj ect cost for most low income. and very low income proj ects. . This is in large part due to the exorbitant land costs in Palo Alto which average $10 million an acre but have been as high as $16 million an acre. In order to develop the assigned 1,234 units of low and very low income housing under current funding conditions, the City would be expected to provide a subsidy of approximately $245 to $310 million, which is clearly unrealistic and unattainable as the City struggles to maintain revenues adequate to support basic services to its residents and businesses. Given state subsidy restrictions, and because of the high land costs in Palo Alto, moderate income units are achieved only through the City's inclusionary zoning program, which requires 15 -20% affordability. As a result, approximately 70% of the ABAG allocation would need to be subsidized by Palo Alto. In order to provide the assigned 641 moderate income level units, the City would have to develop 3,205 -4,272 market rate units. The high cost to the City of providing this 'housing as well as supporting services and facilities, schools, transit and parks, is an unfunded state mandate. There may also be insufficient water resources available to serve this additional popUlation. Until there is state Mr. Henry Gardner Page40f4 January 9, 2008 subsidy available for affordable units, identifying adequate sites to meet proposed RHNA housing for lower income levels in communities like Palo Alto will be a paper exercise. The City requests that you confinn that the job growth anticipated with the proposed Stanford Shopping Center and Medical Facility expansions are included in ABAG's projections for the City's job growth for the 2007-2014 period, and the City will not be assigned these jobs a second time in a future RHNA regardless of those projects' occupancy dates. Finally, much discussion has occurred about the impact of commute emissions on climate change. Palo Alto has just concluded a comprehensive climate change impact analysis. A significant finding of that report is that 11 % of Palo Alto's C02 emissions are attributable to trips into Palo Alto. Consequently, the report indicates that even an additional 2,860 units with similar commuting characteristics would impact Palo Alto C02 emissions by less that 0.1 % or 1/1000th Palo Alto's total C02 In closing, the City requests that ABAG revise Palo Alto's RHNA to reflect a 3% population growth over the seven-year RHNA period, exclude the San Antonio station from our transit factor, adjust the transit factor to elinlinate any "double counting" and credit the City with the 1, 036 units the City built in excess of our last RHNA assignment. The City also urges ABAG to consider factors such as land costs and availability as well as community needs to provide adequate open space and essential services in developing a realistic RHNA. Given that there was no representative from the 250,000 residents of North Santa Clara County on the Housing Methodology Committee, we were not adequately represented and, therefore, unique factors prevalent in our area were not sufficiently considered in the ABAG allocations. If ABAG adopts more realistic and achievable ~A allocation goals, this will enable cities to focus on actually providing adequate housing for a diverse" population, a goal strongly supported by the City Council and the Palo Alto community. The City of Palo Alto appreciates your consideration of our appeal of the assigned allocation. Sincerely, ~, .. -?7--l$e' Larry Klein Mayor cc: Paul Fassinger, ABAG Research Director Planning and Transportation Commission 1 2 3 4 5 6 7 Verbatim Minutes May 4, 2011 EXCERPT Chair Tuma: We will move onto item two, an update of SB375 and Initial Vision Scenario and the City’s Preliminary Response. Welcome. 8 9 10 Other Items: 11 12 13 1. Update of SB375/Initial Vision Scenario and City’s Preliminary Response. Mr. Curtis Williams, Director of Planning and Community Environment: Thank you Chair Tuma and Commissioners. We are here tonight to talk to you about the Initial Vision Scenario that has been developed by the Association of Bay Area Governments, ABAG, and the Metropolitan Transportation Commission, MTC. This is in furtherance of their efforts to implement the Sustainable Community Strategy that we have talked to you about before that was required by Senate Bill 375 a couple of years ago. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Staff made a presentation a few days after this came out in March to the Council. We were scheduled to update them on the activities so we did, and this came out and we quickly put together some information. That packet was attached to your Staff Report. Since at that time we, and when I say we I mean mostly mean Roland, has been able to spend some time analyzing some of the numbers behind the proposal that the two agencies have put together. So what I am going to do tonight is I am going to flash through the presentation that One Bay Area, which is the name of this unified effort between ABAG and MTC, put together in presenting the Initial Vision Scenario. So this is not necessarily what Staff’s presentation would be if we started from scratch, but it has a lot of the basics in it. So I think it is good to do that. I am just going to hit a handful of slides out of the 30 or whatever that are in the packet. This is for the most part attached also in your packet. It was attached to the Council Report, the full presentation. Then I will talk just a little bit about some of the analysis that we have done. What we really would like to get to is I would like to have this discussion as a lead in to Staff preparing a letter to ABAG and MTC responding to the Initial Vision Scenario. So they have basically asked for responses from cities by the end of May. My guess is it is probably going to go beyond that, and I know that not a lot of cities are going to do it by the end of May. So I am figuring it is pretty much through June and we will get to the Council either late in May or early in June and talk to them about this before we send them an official letter. Then there have been a couple of recent developments since about a week ago that I want to bring you up to speed on as well. At any rate, I am not going to spend much time we did the SB375 presentation before. The intent to reduce greenhouse gases by 15 percent per capita through a combination of land use and transportation measures, linking the housing needs to RHNA, Housing Needs Allocation, to the transportation plan for the region. Those would be done at eight-year intervals basically with the beginning of the Sustainable Community Strategy being adopted in 2013, the first RHNA cycle being 2014 to 2022, and the Regional Transportation Plan being that time period as well. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 So this Initial Vision Scenario, as the agencies call it, is a starting point for a conversation about how to accommodate 900,000 new households, about 2.0 million new people, and 1.2 million new jobs in the Bay Area, and how to do that in a sustainable way. Those numbers are numbers that have generally been handed down from the state, from the Department of Finance, and they are subject to modification most likely downward in the next few months, but we don’t know how much downward. It does look like there may be some changes in those. So their starting point has been to start working from the places that Staff has identified over the last few years as our Priority Development Area. Then they asked us to look at also where there might be other opportunities for growth in like corridors, El Camino Corridor being one that has been identified by several cities and VTA as an option. Downtown we didn’t specifically note before so that was another one. Then assigning what they call Place Types to that whether it is an employment center, or a transit town center, or a transit neighborhood, or a mixed use corridor those kinds of things that have associated development intensities with them. The philosophy generally being to provide increased development intensity near transit and reducing automobile trips. So again, the sort of totals of this. This is from 2010 through 2035, and these numbers here 900,000 additional households, 2.0 million population, 1.0 million employed residents, and 1.222 million jobs. Then the total totals. They distributed these by county, and as you see Santa Clara County generally takes on most, more than any other county in terms of both jobs and housing, certainly not surprising in the jobs area, maybe a little less so in housing. Then they tried to distribute that housing in these Priority Development Areas and what they call the Growth Opportunity Areas, which again were not initially specified by cities, but they came back and asked us for those. In doing that attained about 70 percent of the growth that they are looking at for the region. So 30 percent doesn’t sort of fit within, and in fact more than 30 percent doesn’t fit within it. In order to accommodate 70 percent they increased everybody’s numbers more than what the cities had suggested might be accommodated in those areas. So they did that to get 70 percent. Thirty percent they then sort of distributed. I can’t really tell you what the formula was. I don’t understand it precisely but I know that whatever it was it worked against Palo Alto as I will show you in a minute. Then the housing distribution, you see over here the percent of the growth in housing for us. Our growth is projected at almost 12,000 new residential units, and that is about a 45 percent increase over the existing. Now you see a lot of others here. Mountain View is 57 percent. Santa Clara is 56 percent. Morgan Hill is smaller and has a lot of open space so maybe 61 percent is not as surprising. But in any event very significant numbers in terms of the increases that they are looking at. These are in terms of the Place Types. This is where that map with the pie charts was that I was telling you about. I knew I saw it somewhere. So what they have done is shown sort of how much for each city is their Priority Development Area, how much are these Additional Growth Opportunity Areas, and how much of sort of the remainder was distributed to those cities. What you see in Palo Alto up here is that less than half of our estimate is the areas that we have defined as possible growth areas. Most other cities like San Jose about 85 or 90 percent of San Jose’s is in their Defined Growth Area so they didn’t get a lot more from the region assigned there. They are a big city. Santa Clara City is almost all in the Growth Opportunity Areas. That reflects their recently adopted Master Plan. I will show you the table in a minute, but Palo Alto if we were left with just these two areas would be about 45 percent of the number that has been shown so far. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 So these are some of the Place Types. Transit town centers is one that I think we indicated might fit Downtown Palo Alto. It is kind of mixed use areas that are not really necessarily at the same scale as an Oakland or a San Jose or something like that, but is a suburban sort of center of town. Mixed use corridor, El Camino Real certainly fits into that type of criteria. Then I think we had California Avenue as the transit neighborhood. So something that is a little lesser scale but close to transit still, and mixed use, and services. What? eBART? Improved headways. Commissioner Martinez: On the second bullet. 19 20 Mr. Williams: Improved headways, eBART is how you travel electronically on BART. Got me. 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 They have these series of roadway capacity, transportation capacity. One thing I didn’t mention is this is to be sort of their unconstrained scenario. E-BART is East Contra Costa BART Extension. Thank you, Roland. This is an unconstrained scenario. So they start out and just basically say if we could have all the services, the transit, and utilities, and schools, and everything else and there weren’t any of those constraints what might happen? So this is showing the really significant increase in transit infrastructure that would correlate with this level of growth, which of course we know is not likely to be the reality. This is comparisons to those greenhouse gas – I should go back and show this. So the target for the Bay Area in 2020 is seven percent reduction, and 15 percent by 2035 in the per capita greenhouse gas. Their modeling based on this Initial Vision Scenario shows that we would be at 12 percent reduction. So we wouldn’t even be to the 15 percent that was kind of the target on this. I don’t even want to go there. We are starting to analyze the validity of that analysis and what all went into it. It is pretty difficult to do. We will do that another day. So it creates more affordable housing and brings more people into the regions. One of the reasons it says that is as you will recall we reported to you before that one of the criteria through SB375 is that each region essentially house the potential growth in its region without assuming that anybody lives outside that region, on a net basis at least. So we are not sending a lot of people who work in nine county Bay Area region over to Modesto or someplace else to live and commute from. These are other targets that have been analyzed and discussed. So the conclusion is that this produces housing and more sustainable locations if we have adequate resources and transit. It meets the 2020 greenhouse gas but not the 2035 greenhouse gas targets, and there will need to be additional land use transportation non-infrastructure strategies required. So the employment location is another issue. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 So the Initial Vision Scenario, and this is readily admitted by the agencies, is that they did not distribute the employment according to transit locations and such, and that they intend to do that. So we have not gotten to that point. They acknowledge that there is more transit benefit from employment than from residential. So I don’t think that is news to them, but I don’t know exactly how you go about getting to this point without having that critical piece plugged in there as well. So the intent on this process is for the agencies to sponsor public outreach to communities and to Councils and elected and such. Through, what now looks like it will be probably well into the summer, all these timelines here that were outlined in March are already starting to expand. I know the RHNA methodology, which says July 2011 is now September or October. They have added a few meetings to that. What they want to do is try to have that timing be a little better with the timing on this Vision Scenario exercise too. So they are developing alternatives, at least three alternatives to the Vision Scenario. I went to a meeting yesterday and saw some of the concepts that they are looking at. They make sense. Some of the things that in our bullet points here that we are indicating to you that might be good comments they seem to be responding to in terms of identifying employment centers, and identifying transit commute sheds that would feed those and not tying housing as closely to employment by jurisdiction as this does or as some prior exercises have. So there are a couple of varieties of that flavor. Then there is another one that would essentially put more of the growth in outlying jurisdictions that perhaps created sort of mixed use downtowns/employment areas, and maybe it is a possibility that – and some of them are commenting on that. Some cities are saying we want to have a mixed use downtown and build up some of that, have some more housing and hopefully employment, and you ought to consider that. So that is another one of the options they are looking at. But over the course of beginning in July I think they will be getting into that and modeling some of those scenarios more too. So in some ways they are somewhat quickly moving past the Initial Vision Scenario but I still think it is incumbent on us to make comments on what we have now and be able to look at that. Commissioner Keller reported last time about the outreach meeting that they had in Mountain View. That was something that there were probably ten or so I guess people from Palo Alto at that meeting. It did not seem to be very useful. I have reported that back to the agencies and they said they have gotten that comment from others as well. They are planning on doing additional sessions that are not sort of under the rubric of the environmental organization that sponsored that one. These are some questions that they have posed for cities to respond to, but are just ideas and thoughts. How do the growth distributions work? What to do differently? What resources would we need to support the growth? How might regional transportation dollars support that growth? 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 What further analysis we have done. There are a few tables and these maps in your Staff Report. The first table, Table 2.4 it is labeled from their report, outlines all the jurisdictions and their numbers. A second table that included we don’t have for a slide up on the screen was essentially comparing the changes in ABAG’s projections. It documents the projections 2007, projections 2009, to the Initial Vision Scenario. Those basically show that our jobs percentage keeps going down, which may be somewhat accurate at least. We know that jobs certainly have overall been reduced, but the growth would be less over those 25 years than they were previously projecting, whereas the housing keeps going higher. So in projections 2007 – oh, he does have it there. So it is this table. Essentially it shows that the housing projections 2007 for Palo Alto showed a 24.4 percent increase to 2035, and now in the Initial Vision Scenario it is up to 44.9 percent. So it sort of keeps going up and employment on the top is reduced. The other exercise was to look at transportation analysis zones. So the city is divided up for modeling purposes, other purposes, I don’t know what the other purposes are, but into transportation analysis zones but primarily for transportation modeling purposes. Then ABAG and MTC did provide us with information that wasn’t exactly along the same lines as the way we have things broken up. Some combined TAZs and some of their TAZs since they are larger actually went into either Mountain View or Menlo Park or into the county. So it was a little difficult to tell sometimes how much of the growth that was being shown was in which. In any event the table in Attachment C sort of puts in a tabular fashion what is being shown, and some of the things that we noticed. For instance under Employment the Initial Vision Scenario is showing 4,860 new jobs in Palo Alto, and then it is broken down by these TAZs. Roland added those up and for the ones that are entirely within Palo Alto there are actually closer to 6,000 jobs. So we don’t know why that is. It is clearly an error. Then there is another 7,700 that are in shared TAZs with other jurisdictions. So without knowing more about how much is at Moffett Field versus in our Baylands it is a little hard to tell. One TAZ is basically our Baylands and Moffett Field. So if you look at it from that perspective then it doesn’t …. So then the household ones were done the same way and didn’t necessarily have – again we don’t know of this number how much of that is in – there is big chunk of that like 4,000 or something that is in that TAZ that is Moffett Field to the Baylands. We are hoping that is mostly in Mountain View and not proposed in the Baylands. So that is housing. So we mapped those out and this basically shows the number of net new housing units in each of those TAZs, and color-coded to represent the numbers. The main takeaway from this that we found was yes some of the El Camino Corridor and California Avenue and Downtown certainly had sort of the highest percentage. They probably were hirer than what we gave ABAG but at any rate we understand that those are growth areas. But, in addition, in a TAZ like this is showing over 1,000 new residential units in an area that is essentially all single-family homes. We have one, two, three, like at least four of those in this, which just kind of makes no sense at all. There are areas that don’t have vacant land. There are areas that don’t have really re- developable parcels. So it looks like again they looked at some of the growth areas, really loaded those up and there were a lot left over and sort of spread that out. I think they sort of understand now that that is what happened, and that they need to find another way to allocate those units. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 There is a similar map for the employment. Again, in some of the growth areas there were some discrepancies that were found. Like in the Stanford Hospital area they are showing 1,000 more jobs or something like that. Well, the hospital has 2,000 more jobs right there and who knows what is going to happen with the shopping center. So we will point out a lot of these number crunching details. What we really would like to do tonight and for this initial letter is stay at a higher level and try to just talk more conceptually about what we think the problems are with the Initial Vision Scenario. So on pages 4 and 5 of your Staff Report, about halfway down page 4 it begins with some bullets. I am going to quickly run through those and indicate that those, with the exception of the last two on page 5, are ones that we think would be useful to convey to ABAG and MTC now at a sort of high level of analysis. Then we will probably include as attachments sort of the list of this TAZ analysis, and some of that for them. It helps sort of support our statements here. The first one is that just generally the concept of concentrating development, employment, and housing near transit stations along El Camino Real proximate to transit is a sensible, sustainable principle. The City has I think exemplified good intentions towards affordable housing in the future. We certainly approve projects that are exemplary in that respect. I think we should point that out and take credit for it. Obviously no city does enough to meet the numbers that are outlined by ABAG but we certainly do that. In the City our Comprehensive Plan statements recognize that it plays a regional role as well as just a local role. So just starting on a somewhat positive overall note that we recognize what the overall intent is here. However, I was looking at this this afternoon and thinking probably in a letter we would reorganize some of these points, but first of all that construction of housing is very highly constrained. There are a lot of cities that have some vacant land left to build housing on, not to mention they might also have general plans that call for that. We are also limited not just by the availability of land and cost of land but also by traffic, school capacity, community services, and we probably would outline a little bit more than that. We would suggest attaching, which we attached to your report, the letter that was sent to ABAG over Mayor Klein’s signature back in 2008 in response to the RHNA projections at that point to show all the various constraints that we do have, and what we felt were the inadequacies in the analysis at that time. Secondly, that again they have not looked at employment. That the scenario should look at the City of Palo Alto and Santa Clara County generally as being a real employment centers in the Bay Area, and the city on the peninsula and within Silicon Valley, and should consider the nature and extent of jobs. The desire of technology firms to locate here and why that is and why that will continue, and recognize that, and the benefits of jobs being located close to transit, which we have both in the Research Park proximate to California Avenue train station, and then Downtown and the shopping center and hospital relative to the University Avenue station. Thirdly that we should be looking more at those employment centers in a transit commute, what I call transit commute sheds, whereby people can get to and from employment. Not to say we don’t have any housing but that there are other communities that are looking to build a lot of housing and where it is more affordable to build housing, but they are ten or 15 minute train ride from Palo Alto’s employment centers. That it makes sense at least as an alternative to be really looking at that kind of a scenario that might be more efficient in terms of moving people, and in terms of providing real affordable housing or more affordable housing. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 That the housing growth estimates are severely overestimated and unrealistic. At least half of the potential units are shown in single family neighborhoods that would not happen, and are not appropriate for intensification, and that they should really be focusing their attention on the planned development area for or Priority Development Area for California Avenue and some along El Camino and Downtown, those types of areas. Then sort of lastly in terms of the broad comments would be that there really needs to be a tie between the infrastructure availability and service availability and the growth, particularly in transit area. You can’t really expect, or this is not going to have real benefits of increasing any of this intensity anywhere unless there is transit to help serve that and there is a commitment financially to make that happen. Then as I mentioned, these last couple in terms of the employment growth totals conflict, and then a specific Transportation Analysis Zone deficiencies, or something we would probably throw in a little appendix to the letter and specifically outline a number of the points that we made elsewhere in the document here. So we would like you to give us any thoughts that you have on this approach. Happy to try to answer questions. Then what we will do is try to synthesize those and put something together for a Council meeting in several weeks, and take a draft letter to them before we send it onto ABAG and MTC. Thanks. Sorry for the length of the presentation but there is a lot here. Chair Tuma: Okay, appreciate that. I think that is a lot of what this evening is about is getting us up to speed on the presentation. Did you have some comments as to or essentially one of the key things that you are looking to get out of this evening is our input into this letter and the comments. Give us some idea about the letter itself. What scope, how long do you envision the letter being, what level of detail are we talking about? 27 28 29 30 31 32 Mr. Williams: I would really like to keep it to a couple of pages. Right now they are going to get 110 letters probably from agencies and then who knows how many from individuals or from organizations. A lot of business and social justice and environmental organizations are pretty active in attending these meetings and keeping up with this. So I am sure they are going to be weighing in as well. I think if we can keep focused on some of the big picture things, like the Council said at its initial discussion something to the effect of it is not at a point where you are talking about tweaking it and a lot of details. It is kind of overall what is the concept. So I think we would like to stay at that level, make it maybe three pages at the most, and I think we will have a lot better chance of the staff of ABAG, and that is really going to be the ones who take this and run with it, so of them seriously considering it if we are pointed in our comments. 33 34 35 36 37 38 39 40 41 42 43 Chair Tuma: I think the other thing in terms of making sure that we are comprehensive in documenting our position, one of the things to bear in mind is that you are planning to attach Mayor Klein’s letter in which a lot of the same types of arguments and positions that we would 44 45 46 take in response to this Initial Vision Scenario are incorporated in that letter. So from our discussions earlier it sounds like what you really want to do is reserve the main body of the letter to kind of big hits, big arguments that we have. A lot of it will still be documented because of the attachments and other things that you will submit, but the letter itself is kind of what are our best, biggest structural type arguments. Is that fair? 1 2 3 4 5 6 Mr. Williams: That is correct. 7 8 Chair Tuma: Okay, great. So Commissioners, I would like to see if we can do this in one round, five minutes each. If there are additional comments, concerns, questions I am sure Staff would be happy to receive those in writing. So with that let’s start with Vice-Chair Lippert followed by Commissioner Keller. 9 10 11 12 13 Vice-Chair Lippert: Actually I had a host of questions that I think are particularly important in terms of framing this conversation. What is the role of the Bay Area Air Quality Management District and also the Air Board? 14 15 16 17 Mr. Williams: Well, the Bay Area Air Quality Management District is sort of operating under the umbrella of the Air Board’s direction. The Air Board in consultation with the Bay Area Air Quality Management District came up with the emissions goal of the 15 percent. That emissions target is different for the various regions around the state. I think there were eight regions the Council of Governments like ABAG that are addressing SB375. So the Air Board in consultation with the Air Quality Districts in each of those regions came up with in this case the 15 percent for the Bay Area. I think their role from now on will be mostly working with the agencies to model what the different scenarios might result in in terms of reductions. 18 19 20 21 22 23 24 25 26 Vice-Chair Lippert: The reason I ask that is it is a pretty important point, because the Air Board is really the lead agency for AB32, which SB375 is supposed to work with. So one of the I guess flaws that I see here even though SB375 links transit with land use the whole idea is to try to reduce greenhouse gas emissions here. So what we really need to be presented with are what those target are in terms of us reducing our greenhouse gas emissions, and whether we actually can achieve that through other programs before we get into looking at housing. 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 I think you said it particularly well, which is that they are not really looking at the jobs they are looking at the housing. Whereas Commissioner Keller and you had identified it could be the jobs that are in fact driving this, but we are not looking at the jobs. We are looking at the linkages between transit and housing, and we are being imposed with this housing. What I think is happening here is that starting off with the jobs/housing imbalance that we have in this city. This is anecdotal. We have 65,000 people that live in Palo Alto but we have 100,000 jobs. So maybe the way to achieve that is to begin to look at capping, and I think our Commissioners in the last review talked about capping maybe the amount of office space we have here, so that you begin to limit the number of jobs we have here so that it is proportional to the housing, and that we only remove that cap as we see increased transit. Just throwing it out there but I think we are looking at this perhaps backwards, which is we are trying to reduce greenhouse gas emissions and the net result is that we are forced to take on more housing to begin to build onto the jobs/housing imbalance. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 The other point that I want to make here is the environmental review for this. It basically says the MPOs don’t have the ability to impose I guess the land use decisions so to speak, but yet they are imposing the numbers. Specifically SB375 promotes transparency through several public participation provisions for the development of both sustainable communities, etc. and APS, which are Alternative Planning Strategies. I think Alternative Planning Strategies are going to play a very important role here because I don’t think that the numbers are achievable so we have then look at the alternatives. That is why I am talking about alternatives here. Each MPO or Metropolitan Planning Organization must conclude at least two forms specifically for local government elected officials. Was that one of the two? The form that you went to. Mr. Williams: I suspect they would consider it to be, yes. 15 16 Vice-Chair Lippert: Okay. Additional public participation plan must include outreach to a variety of potential stakeholders including private groups, public transit entities, and provision is made for public workshops and urban simulation computer modeling if practicable. I am just going to wrap this up here. This is where the rub is. Here you are you are holding a gun to our heads or they are holding a gun to our heads. It says there must be a minimum 55-day comment period on a draft SES. I assume that this is a draft SES. 17 18 19 20 21 22 23 Mr. Williams: This is not a draft SES. 24 25 Vice-Chair Lippert: Okay. Then again it says at least two or three public hearings depending on whether the MPO is a single county or multi-county, well this is a multi-county MPO. So it is at least three public hearings for this. 26 27 28 29 Mr. Williams: Yes, and we are not anywhere close. If they stay on schedule the draft SES would be in probably early to spring of 2012. Then all that stuff kind of kicks in as far as being required. This is like they say an Initial Vision Scenario, there are going to be three alternatives, and there is going to be a preferred scenario turned into a draft. So I would expect that they would say that those things are targeted towards once there is a draft. But, nevertheless they have outreach plans and hearings scheduled for a number of these as we go through the process. 30 31 32 33 34 35 36 Vice-Chair Lippert: Okay, I have one more comment and then I can let somebody build onto that if they want. At a time when funds for public transit, at a time when transit is being cut it is really difficult to look at this as a growth plan when they are saying link transit to housing, but yet they cut service. One of the largest areas that they have identified is Gilroy. They are cutting train service to Gilroy. So what are we doing here? We are adding housing when we are cutting train service. 37 38 39 40 41 42 43 Chair Tuma: Okay. Commissioner Keller followed by Fineberg. 44 45 Commissioner Keller: So I have a couple of comments that are high level in terms of suggestions on what you might want to put in the letter in that capacity. The first is to consider the location of employment and to encourage transit-oriented development for employment. In particular to encourage what I would call transit oriented job placement as opposed to jobs sprawl. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 The second point is that in terms of housing and location of housing we should consider the price of land for housing, and the availability of land for infill development for housing, and actually do that analysis and see where that land is available. The third consideration is to consider where there is available school capacity and available land for new schools, and where increased housing development and other development will revitalize schools. The housing development should be focused on where there is school capacity and where housing development will revitalize schools like the discussion that we had a few months ago where there was somebody telling us about how new housing developments would revitalize schools. Well, that applies to certain communities but not to Palo Alto, and that is what they should consider, exactly that discussion, where that applies. The fourth item is there is a comment there about strengthen existing communities. Well, one important part of strengthening existing communities in that slide was preserve existing low- density residential neighborhoods. I would like that to be a particularly strong point. It is okay to think about increasing the density of development along transit corridors and transit stuff, but if you really want to strengthen existing communities you don’t do it by destroying existing communities by increasing the density in existing low-density residential neighborhoods. Then two other comments. One comment is that it isn’t a housing/jobs imbalance. It is a triangle of transit, housing, and jobs. We need to think of it as a triangle. We need to think about the idea that when you have jobs here and housing there that transit is used. If you look at cities that have a lot of transit use, namely the New York Metropolitan Area, they get transit use by having dense jobs area with transit leading in all directions towards that dense jobs area. You don’t increase transit use by increasing more housing in Manhattan. You look at say Chicago that has various transit uses, there is a dense jobs area and transit bringing people into that dense jobs area, and then you have surrounding neighborhoods that feed into that dense jobs area. So the whole idea that we have a jobs/housing imbalance and you need to fill it in on a city-by-city basis is basically stupid planning. It makes no sense from a land use perspective. The only sense it makes is from a fiscalization of land use perspective. If you don’t think about fiscalization, if you think about really promoting transit use that is not the strategy that you would apply. Finally, we should think about putting into our policies, written down so we can thumb it in the face of these agencies that say put more housing near transit, is we should have a policy that limits housing expansion based on both provision and use of transit. So if they say more housing means more transit use, we should measure the transit use, we should measure the provision of transit, and say well this doesn’t work. It doesn’t make any sense. Consider putting policies like that to basically show them that they are full of effluent and that they should revise their policies for things that actually make sense. Thank you. Chair Tuma: Thank you. Commissioner Fineberg followed by Martinez. 1 2 Commissioner Fineberg: I have four points I would like to make. I will go over them, naming them first and then talk as fast as I can in detail. The first is that this is a planning exercise without being constrained by reality. Second is there should be a peer review of the model to develop the statewide growth estimates. I am thinking along the lines of the study that Berkeley did on the high-speed rail ridership figures. I understand our Director said that those numbers are coming downward. Third is the scenario will be a deathblow to public education in California. The fourth is what areas does Palo Alto have to deal with anticipating this in our Comprehensive Plan and also if reality is being suspended for the planning do we get to suspend reality in our implementation of the planning, because fair is fair. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 So the first thing. It is a planning exercise without being constrained by reality. Removing the constraints is a wonderful way to go through a creative process, but this is not a creative process for a lovely vision. This is real world. Unless there can be documented ways to cover costs, it is an unfunded mandate. Unless there can be documented ways to deal with the fact that private parties already control the land, Staff has to figure out the right wording, but I would question whether the suspension of reality and real-world constraints is appropriate in a state planning process with legal requirements that are going to flow from ignoring reality. In terms of the peer review, I applaud Staff for the very detailed and accurate analysis of specific issues in Palo Alto. Good job on that. I think the City needs to also somehow question the underlying numbers of growth statewide. I don’t see where it is supportable that there is going to be a million jobs, a million new houses. We have been losing jobs. Google is hiring but the numbers just aren’t supportable. So even if they are reduced slightly if they are completely erroneous then all the effluent that is spread around there is still too much to start with. So pick your words more carefully than I just did but I think that there needs to be some significant challenge of the statewide numbers, and we might be in the opportunity to somehow generate that if we can point to the right body that would do a peer review or whatever the appropriate measurement would be. Number three, the scenario would be a deathblow to public education in California. I understand we are the City we are not the schools. I just did a quick calculation of if this scenario runs how much land would the school district need to buy and what the cost would be. I am figuring 12,000 new households, one student per new household. If we double the size of the population on each campus and build a new campus at the same size that we currently use for high school, middle school, and elementary. So that would be doubling the population on the same amount of land. We would need 50 acres for a high school for 3,000 students, 25 acres for one middle school with 2,000 students, and ten acres for seven elementary schools or 75 acres for the 7,000 elementary school students. That is 150 acres. Where would we find 150 acres to build new schools? Where would we find at $5.0 million an acre the $750 million? That is three-quarters of a billion. The school district is not going to be able to find that money. In areas that are revenue limit rather than basic aid the state budget funds that pay for development of new schools is about to run out of money. If and when that happens the underlying laws revert back to some earlier cases that the projects will not be considered fully mitigated by payment of the development impact fees. So the underlying legal structure that development happens under will change. If this rate of development happens it is simply going to be a death knell of public education. I don’t think there is any excuse to say that that is an acceptable thing to plan for. 1 2 3 4 5 6 7 8 Then the last thing was just echoing other Commissioners’ comments. I agree with what they are saying about what opportunities do we have in our Comprehensive Plan, or in our planning models to defend ourselves against unfunded mandates, against destruction of our public schools, and that is more implementation rather than in the letter. Chair Tuma: Thank you. Commissioner Martinez followed by Garber. 9 10 Commissioner Martinez: I don’t know if I can follow that. I appreciate our Planning Director really wanting to go toe-to-toe with ABAG. I want you to know we are in your corner. But can we talk first? 11 12 13 14 15 16 17 18 19 20 21 I think that in the letter that questions sort of their numbers and wanting to come up with better numbers sort of buys into this let’s build more housing and the basis. I wanted to know whether there is really, since this is the Initial Vision Scenario, a chance to really look at it in a different way, or have they gone too far down the road and there are too many communities that are also looking at this and we better sort of stick with the program and just try to win the battles that we can. Do you have a sense of that? Mr. Williams: I think it depends on what that alternative or alternatives are that you would have in mind. I think what the agencies would certainly feel that they are committed to is, assuming the state numbers didn’t change or whatever the state numbers end up being, that they sort of are assigned. By the way, they are challenging those too. They think they are high and part of their game plan here is to try to work the state down to something that seems more realistic. But assuming that they still have some big number up there I think they would feel committed that they have to find a way to accommodate that number, in some way that seems more sustainable than continuing business as usual growth into green field areas, and spreading out in ways that assure that transit won’t work. So within some of those parameters they probably feel backed up against the wall. I am not sure what you have in mind. 22 23 24 25 26 27 28 29 30 31 32 Commissioner Martinez: I am not sure what I have in mind either. As much as I love this lady, I know that every community is going to be arguing the impact on their schools, and the lack of infrastructure, and community facilities. It is something they are going to say well, welcome to the club. Similarly the argument of let’s put the housing somewhere else we are a primary job generating hub. I am not sure that sort of goes well with other communities. If we go back to our last item where Commissioner Tanaka was saying housing costs us more than an employment base would. What community would want to support us with providing housing when we are getting the benefits of providing the jobs? I am not sure that argument would go very far either. 33 34 35 36 37 38 39 40 41 42 43 44 45 46 I think if there is the possibility to look at it in a different way I would look at not just the transit– related benefits of the plan, but really the benefits of looking at all greenhouse gas emission uses especially of the automobile. If you look at certain cities like San Jose where as big as that city is there are still more people leaving the city for work than coming there. That seems like kind of an odd situation. It is not like San Francisco where they are promoting more people going there with probably more employment growth there than any of the other counties in the ABAG region. It seems to me that it would be a more reasonable planning approach to say let’s look at the places where automobile traffic is leaving the city for work, and try to concentrate the employment growth there. Maybe it is there and maybe it is in Redwood City, maybe it is in Oakland, maybe it is in Richmond. There are a lot of communities that are not creating – pardon me? Atherton. And look at really that as an alternative strategy. The Council asked us to look at a big picture and it seems to me that the big picture is not buying into this housing and jobs model too quickly. Thank you. 1 2 3 4 5 6 7 8 9 10 Chair Tuma: Commissioner Garber followed by Tanaka. 11 12 Commissioner Garber: Well, there is not a lot left to say. I think the Commissioners have had some great points and I am supportive of I think nearly all of them. The way that I read what we have been given here, the City has been given here is demand as it has been described by yourself and Commissioner Fineberg, it is unconstrained by anything. The standard model of planning is you take demand and you take supply and you see if they match. If they don’t if you want to bridge it, and if do want to bridge it what do you do? If we had all of the time and all of the money that we would need to it would seems to me at some point we need to figure out what our supply is. There is a variety of ways of understanding that which is with the existing zoning, what is it today, what is it if we were to take full advantage of how our land uses are currently disposed around the city, and compare that against this demand. Then you can really have more of a substantive conversation about how close you want to get to that. Recognizing that we don’t have all that time and money I understand why we sort of picked these points and sort of posit them as a way of mitigating the potential impacts and not abdicating ourselves from the conversation. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 So again, I think what your plan is for the letter and your details here are spot on. I think you have hit everything that I can imagine that should be in there. I would love to be able to have, as exhibits for it these sorts of supply figures and scenarios against that demand so that we could so that, but I recognize that is probably outside the scope of what needs to come back here because that is not a small task. Chair Tuma: Commissioner Tanaka. 34 35 Commissioner Tanaka: I also agree with a lot of my fellow Commissioners’ comments. I think Staff captures a lot of the big salient points. The only question I have for Staff is, I think as I was listening to all of the comments and reading this report, one thing I was wondering is what is our representation here? I thought Council Member Scharff was pretty active on this. I thought Palo Alto would have a bigger say this round versus last time when we had some pretty high numbers. Can you talk a little bit about what is our participation representation here? I think that is one of the biggest underlying – I think whatever letter we send I think we need to have our active participation in this process. 36 37 38 39 40 41 42 43 44 Mr. Williams: Thank you that is a good point I had not mentioned. So the need to distinguish between the Initial Vision Scenario, which is the Sustainable Community Strategy being 45 46 developed for the Bay Area over a 25 year period from the Regional Housing Needs Allocation, which is what we have gotten previously for a five to seven year period is now going to be an eight year period. So Council Member Scharff is on a committee that is helping to determine what the methodology will be for assigning that housing need over those eight years. He is not on a committee that is reviewing the Initial Vision Scenario and the big grand plan for the next 25 years. However, those two things are very closely tied together and sort of aligned at this point in time. The committee has had four meetings now, once a month in the last four months, I have gone to all of those. Council Member Scharff has not been able to make all of them but we have talked. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 The committee, as I mentioned, is now going to have more time to come up with a recommendation on the methodology primarily because this Vision Scenario came out and everybody is starting to see, well how can you be talking about one and saying you are going to have this many units and then you are going to be saying there are this many in 25 years, and well, if this is in eight years is only one-tenth of what the 25 year scenario that is not going to make much sense. So I think there has been some acknowledgement that maybe it is not exactly one-third, one-third, one-third. That one way to do the methodology for the RHNA process is just to take well you have a 25-year period from 2010 to 2035, and if you just divide it into thirds you essentially have your three eight-year RHNA numbers setout. Then what you have to do is decide if the income levels that go with that as part of the RHNA. I mean, if we were all in agreement for what the Vision Scenario is for 25 years that probably would be an acceptable way to go. When they brought this issue up, I and some other people said, well that is a nice idea but if you don’t buy into the Vision Scenario being anywhere close to what is realistic then no, not likely to agree. Greg, Council Member Scharff has said the same thing. So I think that is why they pushed out the housing numbers is so that we can get down the road a bit with these Alternative Vision Scenarios, get away from this one a little bit and get into some of those, and start looking at different scenarios and how those play out. At the last housing meeting they actually provided us with a spreadsheet of every city and how with the 70/30 percent split what that would mean as far as our numbers for the next, if you basically took one-third of that. Then others are saying well, maybe that makes some sense but you should sort of backload that period because of the economic times that we are in right now it is going to take awhile before you really start getting up, so you really shouldn’t do a third, maybe you should do a quarter, 25 percent, in this first eight years and then ramp up beyond that. So those kinds of discussions are going on but again Council Member Scharff is one of 45 people on that methodology committee. Then the Vision Scenario is ultimately adopted by the Executive Board of ABAG and the Executive Board of MTC. I don’t know how many people are on those, but that will be after their full assembly’s meet, which will basically be comprised of somebody, representatives, from every city in the county and region, and various other special agencies and districts. Then the groups that I am going to I attend this Regional Advisory Working Group once a month that probably has varied from anywhere from 60 or so people at the meetings to 100 or more than 100. The Santa Clara County Planning Directors is meeting at least once a month to talk about this. So you have the 15 or whatever it is cities in the county. So it has all this input from all these places. There is a mass of people and no one person or one city can really, even a San Jose or a San Francisco, can dominate this discussion. 1 2 3 Commissioner Tanaka: I guess I just wanted to make sure that we have our two cents in there. It sounds like you are doing all the things that we can do. 4 5 6 Mr. Williams: I think we are as active as we can sort of legally be active. 7 8 Commissioner Tanaka: If there is something that we can do more, right? Like if one of the Planning Commissioners should also be active in that process I think…I don’t know but anything else that would help I think would be useful. 9 10 11 12 13 14 I realize I am out of time but can I finish out my comments? Mr. Williams: It was mostly me. I was the one talking during your time. 15 16 Chair Tuma: That is fine. 17 18 Commissioner Tanaka: Thank you. I like the concept that Commissioner Martinez said about really kind of optimizing for the region versus for a city. I think really that is what you need to do. You need to optimize the dollars for the whole region not necessarily for a particular county or city. That goes with greenhouse gases as well. 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 For instance, this is not a new idea it is actually an old idea, I think Commissioner Keller actually mentioned it. East Palo Alto is right adjacent to Palo Alto so if you want a lot of affordable housing East Palo Alto is right there. It is a different county but I think a lot of these boundaries are somewhat artificial. It is not like we are Palo Alto the island off in the middle of the Pacific and no other city is near us. We are all adjacent to each other. So I think that is something that needs to be considered and that is something that could be written into the letter is the fact that by partnering across these city boundaries that are kind of artificial, because these cities are all adjacent, we really are not optimizing for the maximum benefit of all the citizens in the Bay Area, as well as for the greenhouse gases. So I think if that could be contemplated. That is one point that was not in your list of bullets. If that could be emphasized I think that would be good. I think the reality is a lot of people move to a certain area in terms of housing for the schools and they commute to their job no matter how painful that might be. So I don’t actually believe we have a housing-job imbalance. I think Commissioner Keller said it very well, about how jobs generate more transit usage than housing. I was actually reading several studies on Manhattan, as Commissioner Keller mentioned, and it is one of the greenest areas in the world because of its density. So really optimizing for greenhouse gas, trying to save our important oil, and our environment, we really want to think about this more regionally versus trying to stuff everything into a city to make everything artificially balance, which it isn’t balance. That is one of the reasons why I don’t think we should necessarily have a cap on office or commercial. Maybe it does make sense to have more jobs in this particular area than other places, especially given the fact that we don’t necessarily have room for services as some other Commissioners mentioned, in terms of the schools. You would need a lot of acreage. 1 2 3 Anyway, it looks like it is pretty comprehensive already so thank you for your work. Chair Tuma: There was a slide up there that talked about the target percentage being 15 and they thought this was going to be something like 12. Can you put that slide back up for a second? I thought I noticed something on there that just didn’t make any sense to me, and maybe we can’t. 4 5 6 7 Mr. Williams: There it is. 8 9 Chair Tuma: Right. So that is it. I didn’t read this right. I think what this says is if we stayed on the track we are on by 2035 we would achieve ten percent, and if we go with this Vision Scenario we would achieve 12 percent. Is that right? Current Regional Plans versus Initial Vision Scenario. 10 11 12 13 14 Mr. Williams: Well first of all Current Regional Plans is not sort of business as usual. Current Regional Plans is meeting ABAG’s current sort of projections for numbers and housing near transit and that. 15 16 17 18 Chair Tuma: Right. 19 20 Mr. Williams: So on that, yes under that scenario we would be ten percent reduction by 2035. The Initial Vision Scenario would be 12 percent by then. 21 22 23 Chair Tuma: Those numbers, when I look at that it just doesn’t seem to make sense. I mean they are saying that basically we would achieve 20 percent more. Twelve percent versus ten percent is 20 percent more by doing all of this. That just seems like a fundamental flaw there. 24 25 26 27 Mr. Williams: I think we reported this when we talked to you first about the whole Sustainable Communities Strategy effort is that first of all this is a per capita reduction. That the overall total greenhouse gas even with a 15 percent per capita reduction is actually I think an increase of like two percent in the total greenhouse gas emissions. That is to be offset overall because this is just part of AB32. In fact it is a relatively small, it is about nine or ten percent of the overall reduction that we are looking for in greenhouses gases statewide. Most of it is coming from vehicle standards and those kinds of improvements are where we are getting a lot of improvement. So this is sort of the last ten percent of how do we address it. 28 29 30 31 32 33 34 35 36 Chair Tuma: Okay. So I would agree several of the other Commissioners who said essentially what you have in here as sort of where you are going with this letter completely makes sense to me. I don’t see anything in there that I disagree with. I think the only question is a matter of emphasis and where do we fight the fight. To me the numbers are eventually going to come out where the numbers come out. You can have a lot of lower level discussion about that later on, and maybe I am saying something that others have said in a different way, but over and over as we have talked about this historically mostly in the context of RHNA we have always talked about how the artificial boundaries of a city limits just don’t make any sense. 37 38 39 40 41 42 43 44 45 If I were to say that there is one thing that the City would put its resources behind in terms of trying to make this whole thing make sense is to get around this notion that the subregional approach doesn’t work or you can’t have it because you can’t go across the counties, or that sort of thing. It just defies all logic. I understand that it is sort of the easy way because you say well, each municipality has its own government, and how do you get all these governments to work together. Well, I think that is the difficult question in this whole exercise but it is also the right question in this whole exercise. Maybe it has to be driven by the counties, maybe it has to be driven by some other body, I don’t know, but this notion that you are going to solve this by individual municipalities doing what they are told to do just – greenhouse gases don’t stay in one place. Jobs are not driven by housing. The fundamentals here don’t make sense. So really if I could change one thing about this whole process it would be the ability to work across boundaries on an entirely regional basis. I understand there are 45 people working this RHNA. Maybe there needs to be 45 people looking at this whole thing, and it is difficult. We have state legislatures and other bodies that are large that manage to get the job done, and this is so fundamental to the future of the Bay Area and the future of California that I think that is what is necessary. So I would say the one punch, the one thing, the one focus would be on not being constrained by municipalities, and focus on subregional or some other model. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 I have lights again from Commissioners Lippert and Keller. Do you guys have just something brief that can’t be submitted in writing? Go ahead Commissioner Lippert. Vice-Chair Lippert: First of all I think it was two years ago, 2009, I sort of warned about this tsunami coming. It was a bit melodramatic in my approach but hopefully it resonated with you. What we are seeing here in terms of this housing tsunami I never expected it to be this large, ever. I think that that is the bit that is a little overwhelming or daunting right now. 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 I want to read something. This is from the National Resources Defense Council, their take on SB375. Step one in terms of Sustainable Communities Strategies tasks is to map or identify the general location of uses, residential densities, and building intensities within the region. Presumably this will be done in the form of a land use map. That is what we are basically being provided here. SB375 does not require parcel specific maps only general locations need to be identified. That is where I am having some of the difficulty here is that it is taking our neighborhoods and it is identifying them as wholesale housing, higher density housing. I continue with this document because later on it has in here a thing called Saving Clauses. SB375 contains several important saving clauses. It provides that neither SCSs nor the APSs regulate the use of land and that neither of them supercedes the land use authority of local governments. There is no requirement for local governments to conform their land use plans to SCSs or APSs. Now this is particularly important. What we are talking about here is land use and its relationship to transit. They don’t have the ability to come in and say you are going to build so many housing units based on our local land use designations. But the one thing SB375 does is it begins to provide the cascading exemption from CEQA review. So as you begin to incorporate some very important policies for for instance below market rate housing, housing density bonuses, it begins to take sustainable construction, it begins to take off the requirements of CEQA review. So what I see as a possible scenario, and I don’t say that there is any manipulation or a bad thing going on here, all I am just saying is that the possibility is that a developer could very well come in and pick up a site let’s say that is within half a mile of a transit center like Downtown or California Avenue and say hey, I don’t need to comply with CEQA. I am doing what SB375 is requiring of me. So that is where I think the difficulty is going to be. It is not necessarily in the land use it is going to be in the CEQA review. 1 2 3 4 5 6 7 8 9 Chair Tuma: Commissioner Keller. 10 11 Commissioner Keller: I appreciate what Commissioner Lippert just said and in particular the piece of this that CEQA review doesn’t take into account is traffic. We are going to see horrendous traffic increases. In fact, that is what was done in the scenarios talked about in the One Bay Area stuff that was a few weeks ago. 12 13 14 15 16 17 18 19 20 I want to close with this, which is inspired by Commissioner Fineberg’s comment. It is a phrase, ‘willing suspension of disbelief,’ which is from Samuel Taylor Coleridge, for whom Coleridge Street in Palo Alto was named. This is from Wikipedia. Willing suspension of disbelief is a formula for justifying the use of fantastic or nonrealistic elements in literature. It was put forth in English by the poet and aesthetic philosopher Samuel Taylor Coleridge who suggested that if a writer could infuse a “human interest and semblance of truth” into a fantastic tale the reader would suspend judgment concerning the implausibility of the narrative. The phrase ‘suspension of disbelief’ came to be used more loosely in the later 20th century often used to imply that the onus was on the reader rather than the writer to achieve it. It might be used to refer to the willingness of the audience to overlook the limitations of a medium so that these do not interfere with the acceptance of those premises. The fictional premises may also lead to the engagement 21 22 23 24 25 26 27 of the mind and perhaps the proposition of thoughts, ideas, arts, and theories. 28 29 30 31 32 33 34 35 36 37 38 So what we have here is a document that is based on fiction. That intends for us to have a willing suspension of disbelief so that we will deal with the idea that based on inconsistencies, based on inappropriate assumptions on how much we should grow, they will then assign to us ABAG numbers. It is interesting that all of this only gets us one percent reduction from 2020 to 2035 in greenhouse gases. That seems to me that there is something fundamentally wrong with this. What is fundamentally wrong is the balance between housing, jobs, and transit. If don’t take into account transit and jobs, and you only take into account housing then you have not taken advantage of what you can. Thank you. Chair Tuma: Commissioner Fineberg if you could take us home. 39 40 Commissioner Fineberg: Thank you. I would like to thank Commissioner Keller for his very articulate recital on the willing suspense of disbelief. I had actually thought about it and could not recall enough about my 11th grade English Literature class to speak so eloquently to that. 41 42 43 44 45 46 The last point I would like to raise is something that the Director mentioned regarding the allocation during the three different housing cycles for affordable housing. It brought to mind that that is going to create a process that can’t occur logically. Forgive me that I don’t have these detailed numbers so I am just going to come up with some big round numbers. Let’s say if we have three periods of the seven or eight years over the cycle, and in each of those periods we will have 4,000 housing units that have to be built. Some proportion of those, help me out, will have to be affordable. Is it like 2,000 in each period? 1 2 3 4 5 6 Mr. Williams: Well, that is to be determined, but if you base it on this last go around more than half of our units are in affordable housing categories, maybe 60 percent. 7 8 9 Commissioner Fineberg: Okay, so if it is 2,000 over three periods that would be 6,000. So we are then at the end of the 35 year period going to have a shift in our population that we would have 6,000 new homes built that are extremely affordable and the 26,000 existing plus 6,000 so call it 30,000-plus. So there is going to be quantum shift in the proportion of people of very modest and limited means, and are there even enough people from surrounding areas that would occupy those homes if every neighborhood up and down the Peninsula suddenly built 30 percent affordable housing stock? At a certain point it becomes a logical impossibility. You can’t keep building 30 percent of your housing stock being that low and affordable, and maybe you change it in the fourth cycle out, but it is not a plan that could work in three cycles. You are going to run out of people. So I don’t know how – I am not trying to diminish the need or the value or the absolute dearth of affordable housing that exists right now, but it is just not a logical way to run a model. It won’t work. 10 11 12 13 14 15 16 17 18 19 20 21 22 Chair Tuma: Okay. With that Commissioners we will close that item. A couple of points of business before we wrap it up for the evening. We have minutes of March 23 and 30. Do I have a motion on that? 23 24 25 26 27 28 29 30 APPROVAL OF MINUTES: Approval of March 23 and March 30 Meeting minutes. MOTION Commissioner Keller: So moved. 31 32 33 34 SECOND Vice-Chair Lippert: Second. 35 36 37 38 MOTION PASSED (7-0-0-0) Chair Tuma: Motion by Commissioner Keller, second by Vice-Chair Lippert. All those in favor say aye. (ayes) Opposed? Passes unanimously. 39 40 41 June 8, 2011 Mr. Ken Kirkey Planning Director Association of Bay Area Governments 101 Eight Street Oakland, CA 94607 Mr. Doug Kimsey Planning Director Metropolitan Transportation Commission 101 Eight Street Oakland, CA 94607 Re: SCCAPO response to the SCS Initial Vision Scenario Dear Gentlemen, On behalf of the Santa Clara County Association of Planning Officials (SCCAPO), I want to express our appreciation for the work done by ABAG and MTC staff, as well as BAAQMD and BCDC staff and others,in completing the Initial Vision Scenario (IVS) for the Sustainable Communities Strategy (SCS) that was released on March 11, 2011.While regional and local staff naturally hold different perspectives on how to address the planning landscape in our distinctive but related communities, it is imperative that we each act on behalf of our jurisdictions through the assigned responsibilities with which we are charged, at the same time respect and consider those distinct points of view of the others, and then recognize how we must work in concert in planning the future of the Bay Area region as a diverse but interconnected community.The regional exercise platted by the SB375 legislation has made the ties between and among the agencies' staffs at the local and regional level stronger than they have ever been by the dialogue and work we are doing together. It is evident in the SCS discussions,particularly since the roll out of the IVS, that the reactions to both the requirements and the implications of SB375 are multifaceted.Local agency planners, by their education and training at the very least, appreciate the value of a regional perspective where our geographic and topographic features of the Bay Area define an incredible environmental, economic and social ecosystem.Sub-regionally, we recognize that our "unique"communities flow from one to another, such that housing, jobs, amenities and transportation blend somewhat imperceptibly across boundaries. At the same time, interest in local control by citizens within any defined jurisdiction is a very strong driver of policy and actions.While there is much to do before we can determine how successful this first effort may be,there is little doubt that we shall all be more cognizant of each others’needs and, in SCCAPO Response to SCS Initial Vision Scenario June 6, 2011 Page 2 working together, bring into the light the idea that the best interests of the greater region are extremely important for the welfare of the individual communities. Local planning staffs have been working diligently both independently and collaboratively through the SCCAPO meeting framework to understand the objectives and obligations of SB375. The release of the IVS heightened these efforts, and we have prepared this response to the IVS. It includes the summary of a survey conducted through SCCAPO. It should be noted that this survey does not necessarily represent a consolidated or formal position statement from SCCAPO.Rather, it is a collective summary of responses at this stage of the SCS process in response to the IVS figures and the specific questions posed by ABAG staff at the recent RAWG meetings to develop the next alternative scenarios.Our intent here is to simply give a reaction to the IVS as a work product that was created as a critical starting point in the SCS process. It is time to put our energies into moving the process forward. The steps that follow will be more important with the backdrop of the IVS, as it informs the input we can provide and the work we can do together to craft alternative scenarios, and ultimately a Preferred Scenario that we can all embrace. We view the unconstrained IVS as an intentional schema that arrays future jobs and housing growth across our region in a way that could achieve or nearly achieve the target greenhouse gas (GHG) reductions called for by SB375. However, it seems to address sustainability only in a technical way in that it may reduce vehicle miles traveled (VMT), but not in the sense that it recognizes that thriving communities that are sustainable must make a varied selection of decisions that balance job growth and housing production and consider all of the other amenities that make them livable communities as well. The discussions we have had at our monthly SCCAPO meetings and the results of our internal survey of communities in Santa Clara County reflect the following comments: 1.The assumption that we would house all new job-related households within our regional boundaries is not supportable. The significant changes in households and jobs in some communities appears to be attributed to this factor to some degree. 2.Significant deviations from Projections 2009, upon which most jurisdictions have relied for their planning calculations, challenge the credibility of the IVS estimates. 3.The IVS distributions of housing and jobs do not reflect the unique characteristics of the communities that make up the fabric of the subregions, or therefore the region as a whole. Applying targets from the top down is difficult at best, and insensitive to community character at least, and overall result in missing the land use opportunities that the local planning agencies can develop to the best advantage in a plan for sustainable growth through local complete community concepts. 4. The incorporation of the RHNA process into the IVS creates a troublesome quantity and timing conflict that must be reconciled if RHNA figures are to influence local Genera Plan preparations, particularly with respect to the challenges of the required Housing Elements. SCCAPO Response to SCS Initial Vision Scenario June 6, 2011 Page 3 5.Opportunities for growth are recognized in a variety of locations by local planning efforts, not only in identified PDAs or even the growth opportunity areas that have been summarized in the IVS. The input of local jurisdictions in the preparation was only a start and cannot truly reflect the complex planning nuances at the local level. 6.Transportation and transit priorities cannot be properly evaluated if the basic jobs and housing distribution assumptions are still in question. Local and subregional transportation infrastructure and transit initiatives are not accounted for in the broad-brush presentation of the IVS. In closing, we want to reiterate and emphasize that SCCAPO highly supports the regional planning dialogue that has been facilitated through the SCS process and the vision of compact sustainable growth. While we recognize the challenge this presents under the current suburban and rural fabric of Santa Clara County, we are committed to defining and developing complete communities with diverse housing, employment and transportation options that preserve the environmental health of the region and the State. You have already received from the individual jurisdictions many responses that speak to what we must do going forward together to create a plan that can be implemented and that will assure that our region’s many communities are both sustainable and livable. We look forward to providing input and working with you in the ongoing Alternative Scenarios process. Respectfully, on behalf of the members of SCCAPO, ____________________________________ Kevin L. Riley Director of Planning & Inspection City of Santa Clara H:\Dir P & I\SCCAPO\SCCAPO 2011\SCCAPO resp re IVS June 2011.doc March 2011 Draft Initial Vision Scenario SCCAPO Member Survey Results May 2011 IVS General Conclusions • Jobs Projections: mixed acceptance • Household Projections: too high or reasonable for most cities • Housing Units Allocation: too high or reasonable for most cities • Transportation Capacity: insufficient information; several indicate too low • Place Types: general acceptance Too high: Campbell County Cupertino Los Altos Hills Morgan Hill IVS Jobs Projections Too Low: Gilroy (maybe) Los Gatos Mountain View Palo Alto San Jose Close Enough Milpitas Sunnyvale Other Los Altos Too high: Campbell County Milpitas Morgan Hill Mountain View Palo Alto San Jose IVS Household Projections Too Low: Los Gatos Close Enough Cupertino Gilroy Los Altos Hills Sunnyvale Other Los Altos Too high: Campbell County Milpitas Morgan Hill Palo Alto San Jose Housing Unit Allocations Too Low: [None] Close Enough Cupertino Los Altos Hills Mountain View Sunnyvale Gilroy Other / N/A Los Altos Los Gatos Too high: [None] Transportation Capacity Too Low: County Palo Alto Gilroy Close Enough Cupertino Milpitas Morgan Hill Other/Unknown Campbell Los Altos Los Altos Hills Los Gatos Mountain View Sunnyvale “None are a Neat Fit” Campbell Place Type Designations N/A: County Cupertino Los Gatos Close Enough Los Altos Milpitas Morgan Hill Mountain View Sunnyvale Other Los Altos Hills Palo Alto Gilroy San Jose “Other place types should be considered” (economic centers) Gilroy General Recommendations Growth Distributions • Decrease household and jobs projections to reflect historical patterns, particularly in unincorporated areas • Growth constrained by lack of available land and other economic and community-based factors (e.g. schools, parks, municipal services, etc.) • Adjust IVS growth distributions to reflect local plans and constraints General Recommendations Transportation Needs • Fund expressway pavement maintenance, operations/safety and congestion-relief projects • Fund VTA list of local road projects ($700M) • Prioritize transportation funding for communities willing to accept growth • Expand BRT and VTA light rail • Secure funding for Caltrain • Expand VTA bus and local shuttle services General Recommendations Infrastructure Needs • Provide funds to increase school capacity • Target infrastructure funding for PDAs and growth opportunity areas • Fund infrastructure improvements for rural areas • Increase sewer/wastewater treatment capacity • Fund water supply, recycled water improvements • Fund flood control improvements, adaptation measures • Replace aging infrastructure General Recommendations Legislative Actions • Amend Housing Element Law to address funding for RHNA capacity, senior units, unincorporated areas • Provide more state grants to support affordable and inclusionary housing • Streamline CEQA, air quality and traffic analyses • Enact appropriate local zoning for PDAs and growth opportunity areas General Recommendations Regional Planning Support • Support sub-regional dialogue and planning coordination among County, cities, VTA/CMA on SCS and RHNA • Provide grants to support sub-regional planning, PDA plans, policy support for SCS implementation, and GHG reductions • Support transportation projects such as Caltrain and BRT • Revise population and employment projections based on realistic trends General Recommendations Open Space Preservation • Limit development and preserve open space, recreation, natural resource and agricultural lands outside of growth management boundaries • Preserve lands with Williamson Act • Complete Habitat Conservation Plans (HCP) • Establish growth boundaries and greenbelts • Expand public/private efforts (e.g. conservation easements, TDR, land trusts) Future Vision Scenario Preferred Land Use Concept • More Urban Jobs – Housing Fit 7 YES • Even More Aggressive Urban Jobs – Housing Fit : 5 YES, 1 NO • More Suburban Jobs – Housing Fit 1 YES, 3 Depends on Area, 3 NO Future Vision Scenario Unique County Aspects • Diverse urban and non-urban areas, 75% County rural • Diverse geography, economy & community identities • Center for technology innovation and synergy • Global economy, high-tech employment center • High housing/land costs, affordable housing challenge • High in-commuting from outside County • Unique transportation system by VTA, County & cities • Future impact of high speed rail • Half of water supply from local runoff, reservoirs and groundwater Future Vision Scenario Principles for Sustainable Economy • Reliable and convenient transportation options • Efficient and coordinated multi-modal transportation (VTA, BRT, Caltrain, SamTrans) • Jobs and housing growth at PDAs, growth opportunity areas and near transit • Diversity of housing for workforce, including affordable housing • Address infrastructure, schools, parks and quality of life needs Future Vision Scenario Principles for Housing Growth • Balance of housing to match employment growth • New housing near planned employment centers • Focused growth at PDAs and growth opportunity areas with good transit access • Higher density housing at transit stations and corridors • Grand Boulevard Initiative principles • Option for transfer of housing units between jurisdictions Future Vision Scenario Other Suggested Principles • Connect principle of sustainable compact urban development with support for Bay Area as a global center for innovation • Emphasize compact urban villages with complete neighborhoods and streets • Plan for transit for in-migration commuting, not just more housing • Along with identifying where growth should be directed, address where growth should NOT occur with incentives     Date: May 23, 2011  To: SCS Housing Methodology Committee  From: Ken Kirkey, ABAG Planning Director  Subject: Revised Allocation Methodology – Fair Share Factors    Overview   At the April 2011 Housing Methodology Committee (HMC), ABAG and MTC staff presented several  versions of an initial allocation methodology that attempted to incorporate the sustainability framework  that underlies the Bay Area’s Sustainable Communities Strategy (SCS) and the “fair share” principles that  are integral to the Regional Housing Needs Allocation (RHNA) process. This memo summarizes the  changes made to the allocation methodology based on the feedback provided by the HMC.    Revised Allocation Methodology   In the initial RHNA methodology proposed by ABAG and MTC for 2014‐2022, 70 percent of the region’s  total housing need will be allocated to the Priority Development Areas (PDAs) and Growth Opportunity  Areas identified by local jurisdictions, while the remaining 30 percent of the total housing need will be  allocated based on household formation growth.     At the April 2011 meeting, there was broad support from the HMC for using the PDA and Growth  Opportunity Area sustainability framework for assigning most of the RHNA allocation to jurisdictions.  However, most committee members expressed a desire to see other factors, including school quality,  employment, transit, and past RHNA performance, in the methodology for allocating the remaining 30  percent of the total need to jurisdictions.     The revised methodology example retains the use of the PDAs and Growth Opportunities for allocating  70 percent of the total housing need as Part 1: Sustainability Component, and incorporates the  suggested additional factors for the remaining 30 percent of need as Part 2: Fair Share Component. The  approach used for including each factor is described below.    Part 1: Sustainability Component  Seventy percent of the region’s total housing need is allocated based on the total household growth for  each PDA and Growth Opportunity Area over the eight‐year RHNA period, as shown in the SCS Preferred  Scenario (in this example, we are using the Initial Vision Scenario as a placeholder for the Preferred  Scenario). The total amount of growth in a jurisdiction’s PDAs and Growth Opportunity Areas is then  compared to the amount of growth forecasted for the jurisdiction based on household formation.  Jurisdictions where the growth in PDAs and Growth Opportunity Areas represents more than 125  percent will not receive additional growth, but will retain the growth assigned to these areas. All other  jurisdictions will receive additional growth based on the “fair share” factors applied to the remaining 30  percent of total housing need.      Allocation Methodology Examples  May 23, 2011  Page 2  Part 2: Fair Share Component  To ensure that each community in the region does its fair share to provide affordable housing, 30  percent of the region’s total housing need will be allocated based on household formation growth  modified by the factors suggested by the HMC: school quality, employment, transit, and past RHNA  performance. Each of these factors is described in more detail below.    School Quality  The school quality factor includes the Academic Performance Index (API) scores for 2009 for 1400 public  elementary and middle schools in the Bay Area. The API scores for each school in a jurisdiction were  averaged to provide a single school quality score for each jurisdiction in the region. Each jurisdiction  received a “score” based on its average API:    900 or above = 5   From 800 to 899 = 3   From 700 to 799 = 1    In the allocation methodology, those jurisdictions with a higher average school quality score will receive  a higher share of the region’s housing need.     Employment  The employment factor is based on National Establishment Time Series (NETS) data for 2010. The NETS  data is gathered by individual business and includes number of jobs, industry type, and location. Staff  analyzed the data to determine the number of jobs in each jurisdiction that are within a PDA or Growth  Opportunity Area and the number that are located outside one of these areas. Jurisdictions were rated  based on the total number of jobs outside of a PDA or Growth Opportunity Area. Only the jobs outside  of PDAs or Growth Opportunity Areas were considered because this factor is being used to allocate the  30 percent of total need that has not already been directed to these sustainable locations.    The score for each jurisdiction is assigned as follows:   More than 40,000 jobs outside of a PDA or Growth Opportunity Area =  5   Between 20,001 and 40,000 jobs outside of a PDA or Growth Opportunity Area = 4   Between 10,001 and 20,000 jobs outside of a PDA or Growth Opportunity Area = 3   Between 5,001 and 10,000 jobs outside of a PDA or Growth Opportunity Area = 2   Less than 5,001 jobs outside of a PDA or Growth Opportunity Area = 1    Those jurisdictions that have a higher number of jobs outside of PDAs or Growth Opportunity Areas will  receive a higher RHNA allocation.    Transit  The transit factor is based on measures of service frequency and overall coverage for an entire  jurisdiction. Service frequency is measured by average daily headways (time in minutes between transit  arrivals over a 24‐hour weekday period) in 2009 by jurisdiction. The calculation is done at the   Allocation Methodology Examples  May 23, 2011  Page 3  intersection level based on how frequently a transit vehicle arrives at that location; therefore, the  average headway only takes into account intersections within a jurisdiction that have transit stops.  Jurisdictions where the service frequency was higher than the median received a “high” score, while  jurisdictions where the service frequency was lower than the median received a “low” score.    Transit coverage is measured by the percent of intersections within a jurisdiction that have transit stops.  This information helps avoid overstating the overall availability of transit jurisdiction‐wide based on the  fact that some jurisdictions have a small number of stops that happen to have frequent transit.  Jurisdictions where the service frequency was higher than the median received a “high” score, while  jurisdictions where the service frequency was lower than the median received a “low” score.    Jurisdictions were then grouped into four categories, and given a score as shown below:   High frequency + high coverage = 5   High frequency + low coverage = 3   Low frequency + high coverage = 3   Low frequency + low coverage = 1    Those jurisdictions that have better transit service and coverage will receive a higher RHNA allocation.    RHNA Performance  This factor evaluates a jurisdiction’s performance in issuing permits to meet its RHNA allocations for very  low‐ and low‐income units for the 1999‐2006 RHNA period. The scores were calculated using the  information included in ABAG’s report A Place to Call Home: Housing in the San Francisco Bay Area  (August 2007). Jurisdictions were scored on the following scale:   0% of RHNA permitted = 5   1 – 25% of RHNA permitted = 4   26 – 50% of RHNA permitted = 3   51 – 75% of RHNA permitted = 2   76 – 100% of RHNA permitted = 1   More than 100% permitted = 0    Those jurisdictions that have permitted less of their past RHNA allocations will receive a higher RHNA  allocation for this period. This is the only factor that was not scored on a scale of 1 – 5. The inclusion of a  zero score for jurisdictions that permitted more than 100 percent of their RHNA allocations for very low‐  and low‐income households gives this factor slightly more weight in the allocation methodology.     Allocation Methodology Examples  May 23, 2011  Page 4  Combining the Factors  Each jurisdiction’s scores on the four factors listed above are summed to determine their total factor  score. For jurisdictions throughout the region, the data analysis determined that the total factor scores  range from 3 to 16. The allocation adjustment assigned to each score is as follows:    Score Allocation Adjustment  3 ‐80%  4 ‐70%  5 ‐60%  6 ‐50%  7 ‐40%  8 ‐30%  9 ‐20%  10 ‐10%  11 0%  12 10%  13 20%  14 30%  15 40%  16 50%    Depending on a jurisdiction’s score, the corresponding allocation adjustment is applied to the amount of  growth assigned to the areas outside of PDAs or Growth Opportunity Areas (from the Preferred Scenario  plus the redistribution of growth from jurisdictions that have already been assigned more than 125  percent of their household formation growth).     The amount of growth assigned to the areas outside PDAs or Growth Opportunity Areas will be reduced  for jurisdictions that have total factor scores below 11 (the median score for all jurisdictions). The  allocations will increase for jurisdictions with higher total factor scores (above 11).   Each county will  retain its control total for the growth outside of PDAs and/or Growth Opportunity Areas.    Part 3: Determining the Total Allocation   A jurisdiction’s total RHNA allocation is the sum of the Sustainability Component (units assigned to the  PDAs and Growth Opportunity Areas) plus the Fair Share Component (units assigned to the areas  outside of those sustainable places).   SUSTAINABLE COMMUNITIES STRATEGY (SB375) GLOSSARY OF TERMS AND ACRONYMS AB 32 Assembly Bill 32: The California Global Warming Solutions Act of 2006; state legislation requiring a statewide reduction in greenhouse gas emissions to 1990 levels or lower by the year 2020. ABAG Association of Bay Area Governments: A voluntary association of counties and cities in the nine-county San Francisco Bay Area. ABAG provides demographic, financial, administrative, training and conference services to local governments and businesses. A member sits on MTC. ABAG Regional Planning Committee This committee studies and submits matters to the ABAG Executive Board regarding: Plan Bay Area; environmental management, housing, and infrastructure planning; special plans and reports from planning task forces or other regional agencies; comprehensive planning policies and procedures; and such other matters as may be assigned by the Executive Board. Members include a minimum of 18 elected officials, including at least one supervisor from each member county and a city representative from each county,as well as not less than 10 citizens representing business, minority, economic development, recreation/open space, environment, public interest, housing, special districts and labor interests. BAAQMD Bay Area Air Quality Management District (Also known as the Air District, since the acronym seems to take longer to say than the full name): Regulates industry and employers to keep air pollution in check and sponsors programs to clean the air. The Air District also works with MTC, ABAG and BCDC on issues that affect transportation, land use and air quality. Bay Area Partnership Often referred to simply as “The Partnership,” this is a confederation of the top staff of various transportation agencies in the region, including MTC, public transit operators, county congestion management agencies (CMAs), city and county public works departments, ports, Caltrans and the U.S. Department of Transportation (DOT) as well as environmental protection agencies. The Partnership works by consensus to improve the overall efficiency and operation of the Bay Area’s transportation network, including developing strategies for financing transportation improvements. Bay Plan The San Francisco Bay Plan guides policies for future uses of the Bay and its shoreline. The first San Francisco Bay Plan was completed and adopted by the San Francisco Bay Conservation and Development Commission in 1968, and it is periodically updated. The two main objectives are: 1) Protect the Bay as a great natural resource for the benefit of present and future generations, and 2) Develop the Bay and its shoreline to their highest potential with a minimum of Bay filling. BCDC will be releasing a revised recommendation on amendments to the Bay Plan to Attachment F Sustainable Communities: Glossary Page 2 prepare for inevitable sea-level rise and storm surges affecting areas on and near the Bay shoreline due to climate change. BCDC San Francisco Bay Conservation and Development Commission: A state-established agency with jurisdiction over dredging and filling of San Francisco Bay and limited jurisdiction over development within 100 feet of the Bay. Call for Projects Regional agencies use this procedure to solicit competing bids from counties, cities, transit agencies, community-based organizations and other stakeholders for projects to be funded as part of long-range plans, such as Transportation 2035 or Plan Bay Area. Caltrans California Department of Transportation: The state agency that maintains and operates California’s highway system. Capital Funds Moneys to cover one-time costs for construction of new projects —such as roads, bridges, bicycle/pedestrian paths, transit lines and transit facilities —to expand the capacity of the transportation system, or to cover the purchase of buses and rail cars. CEQA California Environmental Quality Act: This statute requires state and local agencies to identify the significant environmental impacts of their actions and to avoid or mitigate those impacts, if feasible. CEQA Guidelines The Air District’s CEQA Guidelines are developed to assist local jurisdictions and lead agencies in complying with the requirements of CEQA regarding potentially adverse impacts to air quality. The primary purpose is to provide a means to identify proposed local plans and development projects that may have a significant adverse effect on air quality and public health. The Air District’s CEQA Guidelines, updated in June 2010, recommend air quality significance thresholds, analytical methodologies and mitigation measures for local agencies to use when preparing air quality impact analyses under CEQA. The updated CEQA Guidelines seek to better protect the health and well-being of Bay Area residents by addressing new health protective air quality standards, exposure to toxic air contaminants, and adverse effects from global climate change. Clean Air Plan At a public hearing on September 15, 2010, the Air District Board of Directors adopted the final Bay Area 2010 Clean Air Plan (CAP), and certified the Final Environmental Impact Report on the CAP. The 2010 CAP serves to update the Bay Area ozone plan in compliance with the requirements of the Chapter 10 of the California Health & Safety Code. In addition, the 2010 Sustainable Communities: Glossary Page 3 CAP provides an integrated, multi-pollutant strategy to improve air quality, protect public health, and protect the climate. Climate Change Climate change refers to changes in the Earth’s weather patterns, including the rise in the Earth’s average temperature due to an increase in heat-trapping or “greenhouse gases” (GHGs) in the atmosphere. Climate scientists agree that climate change is a man-made problem caused by the burning of fossil fuels like petroleum and coal. Transportation accounts for about 40 percent of the Bay Area’s GHG emissions. Climate change is expected to significantly affect the Bay Area’s public health, air quality and transportation infrastructure through sea level rise and extreme weather. CMAs Congestion Management Agencies: Countywide agencies responsible for preparing and implementing a county’s Congestion Management Program. CMAs came into existence as a result of state legislation and voter approval of Proposition 111 in 1990. Subsequent legislation made them optional. Most Bay Area counties still have them. Many CMAs double as a county’s sales tax authority. CO2 Carbon dioxide: A gas that is emitted naturally through the carbon cycle or through human activities. The largest source of CO2 globally is the combustion of fossil fuels (such as coal, oil and gas) in power plants, automobiles, industrial facilities and other sources. In the Bay Area, the single largest source of CO2 emissions, some 41 percent, comes from transportation sources. Committed Revenues Funds that are directed to a specific entity or for a specific purpose as mandated by statute or by the administering agency. Conformity A process in which transportation plans and spending programs are reviewed to ensure they are consistent with federal clean air requirements; transportation projects collectively must not worsen air quality. Congestion Pricing A policy designed to allocate roadway space more efficiently by charging drivers a fee that varies with the level of traffic on a congested roadway. (See also Value Pricing.) CTC California Transportation Commission: A state-level commission, consisting of nine members appointed by the governor, which establishes priorities and allocates funds for highway, passenger rail and transit investments throughout California. The CTC adopts the State Transportation Improvement Program, or STIP,and implements state transportation policy. Detailed Scenarios Following development of the Initial Vision Scenario, detailed scenarios that account for Sustainable Communities: Glossary Page 4 available revenues will be developed, analyzed and discussed as part of the Plan Bay Area process. (See also Initial Vision Scenario and Preferred Scenario.) EIR Environmental Impact Report: State law requires that an EIR shall be prepared if there is substantial evidence that a project may have a significant effect on the environment. A draft EIR shall be included as part of the review and approval process whenever a public hearing is held on the project. Following adoption of a final EIR by the lead agency makes a decision whether to proceed with the project. Environmental Justice This term stems from a Presidential Executive Order to promote equity for disadvantaged communities and promote the inclusion of racial and ethnic populations and low-income communities in decision-making. Local and regional transportation agencies must ensure that services and benefits, as well as burdens, are fairly distributed to avoid discrimination. Equity Analysis Consistent with federal requirements for environmental justice, MTC and ABAG will conduct an equity analysis covering Plan Bay Area to determine how the benefits and burdens of the plan’s investment strategy affect minority and low-income communities. Equity Working Group This Equity Working Group was set up to advise MTC and ABAG staff in developing of an equity analysis related to low income and minority communities of concern for Plan Bay Area. It consists of representatives from MTC’s Policy Advisory Council (PAC) and the Regional Advisory Working Group (RAWG) The group is identifying some of the key issues and challenges for the region to grow equitably to help meet the sustainability goals as Plan Bay Area is developed. (See also Equity Analysis.) Executive Working Group The Executive Working Group —including city managers, congestion management agency directors, regional agency executives, transit officials and others —was formed to provide a forum for input on technical and policy issues surrounding development of Plan Bay Area. The Executive Working Group met on June 7, 2010. Additional meeting times/locations as well as meeting materials will be posted on the OneBayArea website. FHWA Federal Highway Administration: U.S. Department of Transportation agency responsible for administering the federal highway aid program to individual states, and helping to plan, develop and coordinate construction of federally funded highway projects. FHWA also governs the safety of hazardous cargo on the nation’s highways. Financial Constraint A federal requirement that long-range transportation plans include only projects that have a reasonable expectation of being funded, based upon anticipated revenues. In other words, long- range transportation plans cannot be pie-in-the-sky wish lists of projects. They must reflect Sustainable Communities: Glossary Page 5 realistic assumptions about revenues that will likely be available during the 25 years covered in the plan. Flexible Funding Unlike funding that flows only to highways or only to transit by a rigid formula, this is money that can be invested in a range of transportation projects. Examples of flexible funding categories include the Surface Transportation Program (STP) and the Congestion Mitigation and Air Quality Improvement (CMAQ) program. FOCUS A regional planning initiative spearheaded by ABAG in cooperation with MTC, and in coordination with the Air District and BCDC. FOCUS seeks to protect open space and natural resources while encouraging infill development in existing communities (See also PCA and PDA). FPI Freeway Performance Initiative: MTC’s effort to improve the operations, safety and management of the Bay Area’s freeway network via deploying system management strategies, completing the HOV lane system, addressing regional freight issues and closing key freeway infrastructure gaps. FTA Federal Transit Administration: U.S. Department of Transportation agency that provides financial and planning assistance to help plan, build and operate rail, bus and paratransit systems. The agency also assists in the development of local and regional traffic reduction programs. Global Warming See Climate Change. Greenhouse Gases Any of the gases –including carbon dioxide, methane and ozone –whose absorption of solar radiation is responsible for the greenhouse effect, in which the atmosphere allows incoming sunlight to pass through but absorbs heat radiated back from the earth’s surface. Greenhouse gases act like a heat-trapping blanket in the atmosphere, causing climate change. HOV Lane High-Occupancy-Vehicle Lane: The technical term for a carpool lane, commuter lane or diamond lane. Initial Vision Scenario As part of Plan Bay Area, the Initial Vision Scenario articulates the Bay Area’s vision of future land uses and assesses its performance relative to statutory greenhouse gas and housing targets as well as other voluntary performance targets. The Initial Vision Scenario serves as a starting point for the development, analysis and discussion of detailed scenario alternatives that will lead to a preferred scenario by early 2012. Another reason the Initial Vision Scenario is just a starting point is because it is unconstrained by available revenues. (See also Detailed Scenarios and Preferred Scenario.) Sustainable Communities: Glossary Page 6 JPC Joint Policy Committee: This consortium coordinates the regional planning efforts of ABAG, the Air District, BCDC and MTC. Land Use Model Used by researchers and planners to identify expected population, jobs and housing growth and to understand the interactions between land use, transportation, and the economy. Models help planners analyze and test various spatial distributions of jobs, population and land uses and describe to policy-makers and the public about the relationship between land use and transportation. MPO Metropolitan Planning Organization: A federally required planning body responsible for the transportation planning and project selection in its region; the governor designates an MPO in every urbanized area with a population of over 50,000. MTC is the Bay Area’s MPO. MTC Metropolitan Transportation Commission: The transportation planning, financing and coordinating agency for the nine counties of the San Francisco Bay Area. One Bay Area One Bay Area is a new initiative meant to coordinate efforts of the Bay Area’s regional government agencies —the Association of Bay Area Governments (ABAG), the Bay Area Air Quality Management District (BAAQMD), the Bay Conservation and Development Commission (BCDC) and the Metropolitan Transportation Commission (MTC) —in partnership with the region’s 101 towns and cities to create a more sustainable future. One major effort now underway is the development of Plan Bay Area, the region’s long-range plan for sustainable land use, transportation and housing. Paratransit Door-to-door bus, van and taxi services used to transport elderly and disabled riders. Paratransit is sometimes referred to as dial-a-ride service, since trips are made according to demand instead of along a fixed route or according to a fixed schedule. PM Particulate Matter: A mixture of tiny solid and liquid particles –such as those from dust, dirt, soot or smoke –that are found in the air. When inhaled, these particles can settle deep in the lungs and cause serious health problems. PCA Priority Conservation Area: Regionally significant open spaces for which there exists a broad consensus for long-term protection and for which public funds may be invested to promote their protection. These areas must be identified through the FOCUS program. PDA Priority Development Area: Locations within existing communities that present infill Sustainable Communities: Glossary Page 7 development opportunities, and are easily accessible to transit, jobs, shopping and services. Local jurisdictions identified these locations voluntarily through the FOCUS program. Performance Measures Indicators of how well the transportation system or specific transportation projects will improve transportation conditions. Place Types A place type groups neighborhoods or centers with similar sustainability characteristics and physical and social qualities, such as the scale of housing buildings, frequency and type of transit, quality of the streets, concentration of jobs, and range of services. For Plan Bay Area, Place Types are a tool of local-regional exchange to identify places and policies for sustainable development. Bay Area jurisdictions can select a place type to indicate their desired level of growth in the Sustainable Communities Strategy. Plan Bay Area Plan Bay Area is one of our region’s most comprehensive planning efforts to date. It is a joint effort led by ABAG and MTC in partnership with BAAQMD and BCDC. All four agencies are collaborating at an unprecedented level to produce a more integrated land use-transportation plan. Planning Directors Forums These are regularly scheduled meetings of local planning directors and staff in each county. Local and countywide issues of concern are discussed, and the forums act as a platform for information sharing. Other participants include congestion management agencies (CMAs) and staff from local community and economic development and public works departments. Potential New Revenues Funds that may be available for transportation investment in the future if proposed new revenue sources are approved. These potential revenues are not included in the financially constrained portion of long-term transportation plans and Plan Bay Area. Preferred Scenario Consideration of the detailed scenario alternatives will lead to a preferred scenario by early 2012. (See also Detailed Scenarios and Initial Vision Scenario.) Program (1) verb, to assign funds to a project that has been approved by MTC, the state or another agency, and (2) noun, a system of funding for implementing transportation projects or policies. Resolution 3434 MTC adopted Resolution 3434 in December 2001 to establish clear priorities for the investment of transit expansion funds over the next decade. It focused on identifying high-priority rail and express/rapid bus improvements to serve the Bay Area’s most congested corridors. Sustainable Communities: Glossary Page 8 RAWG Regional Advisory Working Group: An advisory group set up to advise staff of ABAG, MTC, BAAQMD and BCDC on development of Plan Bay Area. Its membership includes staff representatives of local jurisdictions (CMAs, planning directors, transit operators, public works agencies) as well as representatives from the business, housing, environmental and social-justice communities. RHNA Regional Housing Need Assessment: The Regional Housing Need Assessment process is a state mandate regarding planning for housing in California. ABAG is responsible for allocating this state-determined regional housing need among all of the Bay Area’s nine counties and 101 cities. Factors used by ABAG in its allocation process include projected household growth, existing employment and projected employment growth, and projected household and employment growth near transit. RTIP Regional Transportation Improvement Program: A listing of highway, local road, transit and bicycle projects that the region hopes to fund; compiled by MTC every two years from priority lists submitted by local jurisdictions. The California Transportation Commission (CTC) must either approve or reject the RTIP in its entirety. Once the CTC approves an RTIP, it is combined with those from other regions to comprise 75 percent of the funds in the State Transportation Improvement Program or STIP. (Also see “STIP.”) RTP Regional Transportation Plan: A master plan to guide the region’s transportation investments for a 25-year period. Updated every three years, it is based on projections of growth in population and jobs and the ensuing travel demand. Required by state and federal law, it includes programs to better maintain, operate and expand transportation. The Bay Area’s most recent update of its long-range transportation plan, is known as Transportation 2035. The next RTP will be included as part of Plan Bay Area. Sales Tax Authority An agency that administers a voter-approved county transportation sales tax program; in most Bay Area counties, the congestion management agency (CMA) also serves as the sales tax authority. SB 375 Senate Bill 375 (Steinberg): SB 375 became law in 2008. It includes two main statutory requirements and a host of voluntary measures. It is designed to complement AB 32, which requires the state to reduce its GHG emissions to 1990 levels by 2020. The first requirement is to reduce per-capita carbon dioxide (CO2) emissions from cars and light duty trucks, primarily by building more compact communities with better access to mass transit and other amenities, so people have more transportation choices and do not have to drive as much. The second requirement is to house 100 percent of the region’s projected 25-year population growth, regardless of income level. Sustainable Communities: Glossary Page 9 Smart Growth A set of policies and programs designed to protect, preserve and economically stimulate established communities, while protecting valuable natural and cultural resources and limiting sprawl. STIP State Transportation Improvement Program: What the California Transportation Commission (CTC) ends up with after combining various RTIPs, as well as a list of specific projects proposed by Caltrans. Covering a five-year span and updated every two years, the STIP determines when and if transportation projects will be funded by the state. Projects included in the STIP must be consistent with the long-range transportation plan. Sustainability Sustainability means doing things and using resources in ways that protect them so they will be available for current and future generations. The “Three E” goals of sustainability are Economy, Environment and Equity. Sustainability is all about helping support a prosperous and globally competitive economy, providing for a healthy and safe environment, and producing equitable opportunities for all Bay Area residents. Sustainable Communities Strategy The Sustainable Communities Strategy (SCS) is an integrated land use and transportation plan that all metropolitan regions in California must complete under Senate Bill 375. In the San Francisco Bay Area this integration includes ABAG’s Projections and Regional Housing Needs Allocation (RHNA) and MTC’s Regional Transportation Plan (RTP). Title VI Refers to Title VI of the Federal Civil Rights Act of 1964, and requires that transportation planning and programming be nondiscriminatory on the basis of race, color and national origin. Integral to Title VI is the concept of environmental justice. TLC Transportation for Livable Communities: Program created by MTC in 1998 to fund small-scale, community-and transit-oriented projects that improve neighborhood vitality. TOD Transit-Oriented Development: A type of development that links land use and transit facilities to support the transit system and help reduce sprawl, traffic congestion and air pollution. It includes housing, along with complementary public uses (jobs, retail and services), located at a strategic point along a regional transit system, such as a rail hub. TOD Policy To promote cost-effective transit, ease regional housing shortages, create vibrant communities and preserve open space, MTC adopted a Transit-Oriented Development (TOD) Policy in 2005 that applies to transit extension projects in the Bay Area. Research shows that residents living within half a mile of transit are much more likely to use it, and that large job centers within a quarter mile of transit draw more workers on transit. Sustainable Communities: Glossary Page 10 Travel Model Used by researchers and planners for simulating current travel conditions and for forecasting future travel patterns and conditions. Models help planners and policy-makers analyze the effectiveness and efficiency of alternative transportation investments in terms of performance, such as mobility, accessibility, environmental and equity impacts. Value Pricing The concept of assessing higher prices for using certain transportation facilities during the most congested times of the day, in the same way that airlines offer off-peak discounts and hotel rooms cost more during prime tourist seasons. Also known as congestion pricing and peak- period pricing, examples of this concept include higher bridge tolls during peak periods or charging single-occupant vehicles that want to use carpool lanes. (See also Congestion Pricing.) VMT One vehicle (whether a car carrying one passenger or a bus carrying 30 people) traveling one mile constitutes a vehicle mile. VMT is one measure of the use of Bay Area freeways and roads. 2572.txt Link only Page 1 CITY OF PALO ALTO OFFICE OF THE CITY ATTORNEY July 18, 2011 The Honorable City Council Palo Alto, California Recommendation from Policy & Services Committee Regarding Adoption of Two Resolutions Calling a Special Election for November 8, 2011 Submitting to the Electorate (1) A Measure To Eliminate Binding Interest Arbitration Requirements for Disputes with Public Safety Employees by Repealing Article V of the City Charter, and (2) A Measure To Substantially Modify Binding Interest Arbitration Requirements for Disputes with Public Safety Employees by Amending Article V of the City Charter; and Adoption of an Ordinance Adding Section 2.36.040 to the Palo Alto Municipal Code to Require Impartial Mediation for Impasses in Labor Contract Negotiations On July 12, 2011, the Policy & Services Committee recommended that two resolutions proposing ballot measures to (1) repeal and (2) significantly modify binding interest arbitration, as well as an ordinance proposing mediation for impasses in labor contract disputes, be forwarded to the full Council for consideration on July 18, 2011. Final drafts of the resolutions and ordinance will be provided in a late packet on Friday, July 15, 2011. In the meantime, the draft resolutions and ordinance reviewed by the Policy and Services Committee on July 12 can be viewed in the City Clerk’s office or online at <http://www.cityofpaloalto.org/knowzone/agendas/policy.asp>. Department Head:Molly Stump, City Attorney Updated: 7/13/2011 4:44 PM by Beth Minor Page 2 CITY OF PALO ALTO OFFICE OF THE CITY COUNCIL July 18, 2011 The Honorable City Council Palo Alto, California Colleagues’ Memo from Council Members Burt and Klein to Request for the City Council to Direct the City Clerk to Reopen the Recruitment for the Planning & Transportation Commission and Contact the Remaining Two Applicants to be Interviewed at the Conclusion of the Recruitment The City Council voted on June 20, 2011 to interview three applicants for the Planning and Transportation Commission for one four-year term ending July 31, 2015. One of the applicants,Serena Torvik, has withdrawn her application. Given the fact that there are now only two applicants for the opening, we believe that the City Council should vote to direct the City Clerk to reopen the application process and contact the remaining two applicants to be interviewed at the conclusion of the recruitment. Department Head:Donna Grider, City Clerk 18 Packet Pg. 710 Updated: 7/13/2011 3:03 PM by Beth Minor Page 2 18 Packet Pg. 711