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HomeMy WebLinkAboutStaff Report 2605-6379CITY OF PALO ALTO Policy & Services Committee Special Meeting Tuesday, October 13, 2026 6:30 PM     Agenda Item     1.Discussion and Possible Recommendation to the City Council Regarding Implementation of Housing Element Program 3.9A, which is Intended to Identify Incentives at Strategic Locations to Shift the Economic Benefit of Redevelopment from Commercial Toward Home Building. CEQA Status: The Addendum to the Comprehensive Plan Environmental Impact Report (EIR), approved by the City Council on November 13, 2023, analyzed potential environmental impacts of the 6th Cycle Housing Element including Program 3.9(A). Staff Presentation POLICY & SERVICES COMMITTEE Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: Planning and Development Services Meeting Date: October 13, 2026 Report #: 2605-6379 TITLE Discussion and Possible Recommendation to the City Council Regarding Implementation of Housing Element Program 3.9A, which is Intended to Identify Incentives at Strategic Locations to Shift the Economic Benefit of Redevelopment from Commercial Toward Home Building. CEQA Status: The Addendum to the Comprehensive Plan Environmental Impact Report (EIR), approved by the City Council on November 13, 2023, analyzed potential environmental impacts of the 6th Cycle Housing Element including Program 3.9(A). RECOMMENDATION Staff recommends that the Policy and Services Committee: 1. Recommend that the City Council find that the intent of Housing Element Program 3.9(A) is being achieved and that no further amendments to reduce commercial development allowances are warranted under the program, and that the Council: a. consider any changes to the commercial linkage fee through the City's ongoing development impact fee update; and b. consider additional building standards for new office development, if still appropriate, as part of the 2028 building code update. 2. Provide direction to staff on whether to continue developing a construction labor standards ordinance, as a separate effort from Program 3.9(A), and if so, provide feedback on the scope and implementation topics identified in this report. If the Committee supports Recommendation 1, staff would prepare a consent calendar report memorializing the Committee's action for the City Council. If the Committee directs staff to continue work under Recommendation 2, staff would return to the Committee with a draft ordinance. EXECUTIVE SUMMARY This report returns to the Committee following its March 10, 2026 discussion of Housing Element Program 3.9(A), which seeks to shift the economics of redevelopment toward housing in areas where both office and residential uses are allowed. At that meeting, the Committee recommended that the City Council consider three measures for new office development: requiring project labor agreements (PLAs), adopting additional building standards, and increasing the commercial linkage fee. The PLA recommendation raises approach and implementation questions that staff believes warrant further discussion by the Committee before the matter proceeds to Council. BACKGROUND 1 The City Council adopted it on April 15, 2024, and the California Department of Housing and Community Development (HCD) certified it on August 20, 2024. In addition to identifying sites for housing, 1City of Palo Alto, 2023-2031 Housing Element (adopted April 15, 2024; certified August 20, 2024). https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/housing-element/housing- element_2023_2031/palo-alto-housing-element.pdf the Housing Element evaluates constraints to residential development and includes programs intended to reduce or remove them. 3 4 3City of Palo Alto, 2023-2031 Housing Element, Program 3.9: Conversion of Commercial Uses to Mixed-Use Development, p. 5- 22. https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/housing-element/housing- element_2023_2031/palo-alto-housing-element.pdf 4Policy and Services Committee, Agenda Item 2, Report #2512-5614, March 10, 2026. https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86692&dbid=0&repo=PaloAlto Staff presented four categories of policy tools: fees, taxes, building standards, and land use regulation. The Committee did not support a tax on commercial construction. It also concluded that further land use restrictions, such as lower commercial floor area ratios, would provide limited benefit given existing limits and could discourage redevelopment of existing buildings. The Committee expressed interest in fees and building standards, including labor requirements. The Committee unanimously passed the following motion for City Council's consideration: Senate Bill 79. SB 79 (2025) took effect on July 1, 2026. It allows residential development at increased heights and densities on qualifying sites near major transit stations.7 For approximately two weeks, SB 79 applied in Palo Alto in its full statutory form, and during that period the City received nine SB 330 preliminary applications proposing a total of 341 units. On July 15, 2026, a City ordinance took effect, as permitted by SB 79, allowing development at up to 50 percent of the capacity the statute otherwise provides. The City Council has also directed staff to continue work that would allow SB 79 to reach its full potential at sites located along California Avenue, and potentially along portions of El Camino Real and surrounding properties, by approximately mid-2027. It has not yet been determined whether the City will prepare an alternative plan under SB 79 or allow the interim provisions to remain in place until they expire under State law. The City has not received new SB 79 applications during this interim period. Budget. The City Council recently adopted the FY 2027 budget, which closed a projected General Fund deficit of $17.1 million. The City's ability to sustain services over time depends on 7Senate Bill 79 (Wiener, 2025), Chapter 512 Statutes of 2025 (Gov. Code § 65912.155 et seq.). https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202520260SB79 a stable and diverse revenue base, to which commercial development is an important contributor. Impact fee update. The City is updating its residential and non-residential development impact fees, including the commercial linkage fee. The update is supported by nexus studies that establish the maximum fees the City can legally adopt. This work is expected to return to the Policy and Services Committee later this year, with City Council consideration anticipated in early 2027. Building code update. The City updates its building code every three years in coordination with updates to the California Building Standards Code. The next update will take effect January 1, 2029, with local work to occur in 2028. ANALYSIS housing in the near term. Staff will report on the City's progress toward the program's housing objectives through the Housing Element Annual Progress Report as projects advance. 9 It found that both generated more General Fund revenue than cost. The 2016 report showed that new residents were estimated to require more in City services than new employees, but they also produced a larger net benefit to the City, due in part to Palo Alto's high residential property values. EPS noted that its analysis did not include the cost of major infrastructure investments that could accompany growth. 9Economic & Planning Systems, Fiscal Analysis of the City of Palo Alto 2030 Comprehensive Plan, 2016. https://www.paloalto.gov/files/assets/public/v/4/planning-amp-development-services/3.-comprehensive- plan/comprehensive-plan/full-comp-plan-2030_with-dec19_22-amendments.pdf Staff recommends that the Committee's interest in increasing the commercial linkage fee for office development be considered through that process. The nexus study will provide the information needed to evaluate fee levels. At that time, the Committee can weigh the benefit of a higher fee to the City's affordable housing funds against its effect on commercial development. As the EPS study showed, fee increases within a typical range are unlikely on their own to shift development from office to housing. For that reason, the linkage fee is best considered as a question of fee policy and affordable housing funding rather than as part of Program 3.9(A). 11 However, the City may still adopt stricter standards for commercial development, subject to State requirements for local code amendments. 11Assembly Bill 130 (Committee on Budget, 2025), Chapter 22 Statutes of 2025. https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202520260AB130 Since March, staff has researched how such a requirement might work in Palo Alto. That research suggests the Committee's interest may extend beyond Program 3.9(A). The program's focus is shifting development from office to housing, and labor requirements would do little toward that goal. Their value lies instead in establishing labor standards for construction in Palo Alto. For that reason, staff recommends that if the Committee wishes to pursue this work, it proceed as a separate effort from Program 3.9(A). Staff would continue this work if directed, regardless of the Committee's recommendation on Program 3.9(A). Before preparing an ordinance, staff is seeking the Committee's direction on several topics, particularly the ordinance's scope and how it would be implemented and enforced. 13 Adopted in 2023 over objections from developers and business groups, it requires apprenticeship programs and health care coverage for developments of at least 50,000 square feet, and took effect on January 1, 2024. The ordinance applies to both residential and commercial development. Attachment A summarizes the Berkeley ordinance and its results to date, and Attachment B provides the full text. Apprenticeship. During the project, each contractor would do one of the following: 13City of Berkeley, Ordinance No. 7,861-N.S., adding Chapter 13.107 to the Berkeley Municipal Code (HARD HATS Ordinance), 2023. https://berkeleyca.gov/sites/default/files/documents/2023-05- 23%20Item%2001%20Adding%20BMC%20Chapter%2013.107%20HARD%20HATS%20Ordinance.pdf • participate in a State-approved apprenticeship program that meets specified criteria; or • make hourly contributions to the California Apprenticeship Council for work performed in apprenticeable trades. Health care. Each contractor would provide health care expenditures for each construction worker, in addition to regular wages, through a health plan, a health savings account, or a cash payment at one and a half times the required rate. These payments could not be counted toward any wage requirements. Certification. The applicant would sign a declaration of compliance under penalty of perjury when the building permit is issued. Each contractor would certify its compliance to the applicant within 30 days of completing its work. At the end of the project, the applicant would certify to the City that all contractors complied. Recent Office Development Patterns To help the Committee consider where and at what scale an ordinance might apply, staff reviewed office projects permitted in Palo Alto from 2011 through January 2026, excluding the Stanford Medical Center.15 The review counts projects by the size of new construction. It does not account for existing floor area that was demolished or replaced, so it should not be read as a measure of net new office space. Table 1 summarizes the results. Table 1: Permitted Office Projects by Area and Size, 2011 to January 2026 Area Under 25,000 sq. ft. 25,000–49,999 sq. ft. 50,000–99,999 sq. ft. 100,000 sq. ft. or more Total Projects Stanford Research Park 5 2 8 5 20 California Avenue Area 6 3 2 0 11 Downtown 15 0 0 0 15 El Camino Real 4 0 1 0 5 Other Areas 5 1 0 0 6 Total 35 6 11 5 57 Most office projects in Palo Alto are small. About 61 percent were under 25,000 square feet, and all Downtown projects were at that scale. Larger projects are concentrated in the Stanford 15City of Palo Alto Planning and Development Services, building permit records for non-residential office projects, 2011 through January 2026. Research Park, which accounts for 13 of the 16 projects of 50,000 square feet or more, including all five projects of 100,000 square feet or more. The transit-served areas that were the focus of Program 3.9(A) saw three projects of 50,000 square feet or more over the period. Larger projects have also become less frequent: of the 22 projects of 25,000 square feet or more, four were permitted since 2021. Geographic scope. The Committee's motion arose from Program 3.9(A), which focused on the City's transit-served commercial areas. Given the development patterns described above, staff seeks feedback on whether an ordinance should be limited to those areas, include the Research Park, or apply citywide. Size threshold. Staff seeks feedback on whether an ordinance should apply only above a minimum project size, and whether Berkeley's 50,000 square foot threshold is an appropriate reference point given Palo Alto's development patterns. A lower threshold would reach more projects, including smaller ones whose sensitivity to added costs is not yet known. Types of development. The Committee's motion addressed office development. Berkeley's ordinance applies more broadly, to developments of at least 50,000 square feet, including housing. Extending the requirements to residential or mixed-use projects would increase construction costs for housing. Before recommending such an expansion, staff would need to analyze the effect on housing feasibility, given the City's Housing Element obligations. Staff also seeks feedback on whether the requirements should apply to City projects. Administration and enforcement. A workable program must address how compliance is verified, how complaints from workers or labor organizations are handled and resolved, whether the program is audited, what expertise is needed to review compliance documents, and how the program is funded. Verifying payroll, apprenticeship participation, and health care payments is specialized work, closer to prevailing wage compliance than to building inspection. The City's building inspection and code enforcement staff do not currently have the capacity or training for this work, and there is no existing funding for it. City-administered. City staff or consultants verify compliance, respond to complaints, and audit projects. This provides the most oversight but requires dedicated resources and a funding source, and could add time to permit processing. Berkeley follows this approach: it retained a consultant to prequalify contractors, verify health care and apprenticeship compliance, and take and investigate complaints from the public, with the City able to issue citations for noncompliance.17 Self-certification. The City collects the required certifications at permit issuance and project completion but does not independently verify them. This requires fewer resources but provides limited assurance of compliance. Civil enforcement. The ordinance is enforced through civil action by affected workers or other parties, with the City's role limited to collecting certifications. This keeps the City out of verification and dispute resolution. 17City of Berkeley, Request for Proposals, Specification No. 24-11631-C (Reissued), Labor Standards Compliance Consultant for HARD HATS, January 2024. https://berkeleyca.gov/sites/default/files/documents/24-11631-C%20(reissued)%20- %20Labor%20Standards%20Compliance%20Consultant%20for%20HARD%20HATS.pdf FISCAL/RESOURCE IMPACT STAKEHOLDER ENGAGEMENT ENVIRONMENTAL REVIEW ATTACHMENTS APPROVED BY: Memorandum To: Ordinance; 241108 3, 2026 The City of Palo Alto’s 2023-2031 Housing Element includes an objective “to reduce commercial floor area allowances or other commercial incentives at strategic locations to shift the economic benefit of redevelopment toward home building in strategic locations.” To support this objective, the City retained Economic & Planning Systems (EPS) to evaluate development feasibility and assess whether City actions could shift market preferences toward housing. The City’s Policy and Services Committee requested additional research on local labor requirements for private commercial development as a potential policy tool to advance the Housing Element objective. This memorandum evaluates Berkeley’s HARD HATS ordinance as a potential policy model for influencing private development economics in Palo Alto. EPS finds that a HARD HATS-style requirement is more likely to affect marginal, cost-sensitive projects than Class A commercial development, because large office and other complex non- residential projects already tend to rely heavily on union labor. The policy may increase compliance obligations and certain building fit-out costs for commercial projects, but it is unlikely by itself to shift high-value commercial redevelopment toward housing. This memorandum summarizes EPS research on local labor requirements for private development, with Berkeley’s Helping Achieve Responsible Development with Healthcare and Apprenticeship Training Standards (HARD HATS) ordinance serving as the principal policy example. Berkeley adopted HARD HATS in 2023 to require healthcare and apprenticeship standards for private projects of 50,000 square feet or more, including both residential and non-residential development. EPS has not identified any comparable local ordinance that targets commercial office projects or another single land use category. EPS reviewed Berkeley’s HARD HATS ordinance language, staff reports, news coverage, and interviews with City of Berkeley staff and external stakeholders to assess how the ordinance works and what it may imply for commercial development feasibility. The Key Findings below focus on three issues most relevant to Palo Alto: whether HARD HATS has affected Berkeley development activity, how the policy may alter project costs and Overview and Analysis of City of Berkeley’s HARD HATS Ordinance; Page 2 feasibility, and whether a similar requirement could materially change the economics of commercial redevelopment in Palo Alto. Key Findings Berkeley’s HARD HATS ordinance is among the first local policies to impose healthcare and apprenticeship standards on private development. The ordinance does not expressly require union labor, but developers would likely comply most efficiently by using union labor or a functionally equivalent contracting approach. Because no covered Berkeley project has yet complied with HARD HATS, the policy’s effect on development activity remains uncertain. No major commercial project has broken ground in Berkeley since 2022, and eligible residential projects to date have used California State Density Bonus Law (SDBL) concessions to avoid the requirements. HARD HATS is likely to have a smaller incremental effect on Class A commercial development than on low- and mid-rise residential or mixed-use projects. Large office and other complex non-residential projects commonly use Type I construction, steel and concrete systems, and specialized trades that already tend to be delivered with substantial union labor participation. A similar requirement in Palo Alto therefore may not substantially change labor practices for high-value commercial projects, although it could still add documentation, monitoring, and cost exposure for some project elements, such as interior fit-out, drywall, painting, and other finish work. Construction trade unions support HARD HATS because it expands the potential use of union-served construction labor by requiring healthcare coverage and qualified apprenticeship pathways. Developers object that the ordinance increases costs and weakens feasibility, particularly where projects would otherwise use non-union labor. The use of SDBL concessions to avoid HARD HATS requirements for high-density residential projects has drawn criticism from labor unions and prompted proposed state legislation, SB 1383 (Arreguín), that would limit the ability to use density bonus concessions to avoid local labor standards. HARD HATS may increase construction costs materially where it requires a project to shift from non-union labor to union labor or a comparable compliance approach. Strategic Economics estimated an 18 to 25 percent cost increase for a typical mid-rise multifamily housing project and found that the added cost would further weaken feasibility for already-challenged mid-rise projects. Berkeley’s analysis did not evaluate non-residential land uses, but the expected commercial impact is likely more limited for Class A office and other complex projects that already rely heavily on union labor. For those projects, the more relevant effects may be administrative compliance costs and reduced flexibility in contractor selection, rather than a major cost premium. Economic & Planning Systems, Inc. Page 3 Overview of HARD HATS Program The following sections explain the HARD HATS requirements, Berkeley’s anticipated compliance process, and early implementation lessons for jurisdictions considering whether labor standards would meaningfully affect commercial development feasibility. HARD HATS applies to contractors and subcontractors performing work worth more than 0.5 percent of total project cost on private projects involving at least 50,000 square feet of construction, alteration, or demolition. Covered contractors must provide qualifying healthcare expenditures and participate in approved apprenticeship training programs, or approved equivalents, for the duration of the project. These requirements apply across land uses, so the ordinance reaches commercial projects even though Berkeley’s policy record focuses primarily on housing feasibility and workforce standards. The policy requires healthcare and apprenticeship training: • Healthcare plans: Each contractor must contribute to a healthcare plan, either through an existing plan or through a plan established for the project’s covered workers. In 2026, Berkeley’s mandated “Healthcare Expenditure Rate” (to satisfy the HARD HATS healthcare requirement) is $5.07 per worker per hour for employers that contribute to a health plan or Health Savings Account (HSA), or $7.61 per worker per hour as cash in lieu of an employer-subsidized health plan or HSA. To comply with HARD HATS, contractors must demonstrate that they made qualifying healthcare contributions to their employees for 180 days before submitting their contract bid. • Apprenticeship training: A contractor must satisfy the apprenticeship training requirement through one of three options: participation in a Joint Labor-Management Apprenticeship Program; participation in an apprenticeship program accredited by the California Division of Apprenticeship Standards that meets the graduation-rate requirements listed in the ordinance; or in-lieu contributions to the California Apprenticeship Council. HARD HATS requirements generally align with the use of union labor. Developers likely will satisfy the ordinance by hiring unionized workers or entering into a Project Labor Agreement (PLA), both of which the ordinance presents as compliance pathways. Developers that do not use union labor options must submit documentation showing that the project satisfies all healthcare and apprenticeship requirements. HARD HATS is unusual because it applies labor standards to private development citywide rather than only to public projects or voluntary incentive programs. By contrast, San Francisco’s Citywide Project Labor Agreement and Los Angeles County’s Countywide Community Workforce Agreement apply to public projects, while New York City’s Affordable Neighborhoods for New Yorkers program uses incentives tied to union labor. EPS also identified apprenticeship and health insurance requirements for projects of Overview and Analysis of City of Berkeley’s HARD HATS Ordinance; Page 4 30,000 square feet or more in Hayward’s Downtown Specific Plan area, including private projects, although those requirements appear less extensive than HARD HATS. Implementation and Enforcement HARD HATS compliance monitoring has not yet been tested because no covered project has been required to comply with the ordinance. The main administrative challenge would arise when a developer does not comply through a PLA or unionized labor force, requiring the City to verify contractor-by-contractor healthcare expenditures and apprenticeship participation. The Berkeley municipal code suggests that enforcement would rely in part on project developers and contractors self-reporting compliance to the City. During preconstruction, City staff would work with a project’s general contractor and developer to verify healthcare expenditures and apprenticeship participation for projects subject to HARD HATS. City staff noted in interviews that ongoing compliance monitoring during construction would likely involve both City employees and on-site labor consultants.1 The project applicant and each contractor or subcontractor must submit documentation to the City at multiple project phases to demonstrate compliance with HARD HATS. 1. Applicant Declaration: A declaration signed by the applicant at the time of permit issuance stating intent to comply with HARD HATS. 2. Contractor Pre-Qualification Questionnaire: Each contractor on the project provides a statement and proof that they have provided healthcare expenditures for a minimum of 180 consecutive days prior to prequalification submission. 3. Contractor Satisfaction Statements: Within 30 days of completing their work on the Project, the contractor submits to the applicant a statement affirming compliance with HARD HATS. 4. Applicant Certification of Compliance: Prior to receiving a Certificate of Occupancy, the applicant submits a signed statement certifying that all contractors satisfied HARD HATS requirements. City staff must verify submitted information and perform required inspections. City staff indicated Berkeley has considered hiring a consultant or seeking support from the Alameda County Building and Construction Trades Council for verification and enforcement. Under the ordinance, the City may revoke permits, issue administrative citations, or impose fines on non-compliant contractors.2 1 Personal communication with Emily Rose of the City of Berkeley Health, Housing, and Community Services Department (6/9/26). 2 Berkeley Municipal Code 13.107.111. Economic & Planning Systems, Inc. Page 5 Cost Implications for Development Strategic Economics and Street Level Advisors completed a 2024 feasibility study evaluating how HARD HATS requirements could affect residential development feasibility in Berkeley.3 The study assumed that HARD HATS would affect hard costs similarly to a shift from largely non-union labor to union labor and found that the requirements would increase project costs by about 18 to 25 percent for mid-rise projects. Relatedly, a workforce-development literature review prepared for the City of Burbank found that prevailing-wage and skilled-and-trained workforce programs increase construction hard costs by an average of 19.5 percent.4 Smaller mid-rise residential projects, which are more likely to use non-union labor, would face a greater cost burden and feasibility impact than high-rise residential or Class A commercial projects that already rely heavily on union contractors. For high-grade commercial projects built with concrete and steel systems, a HARD HATS-style requirement would likely have a limited incremental effect on construction labor practices. However, the ordinance could still increase costs or reduce flexibility for portions of the work that are less consistently unionized, including drywall installation, painting, and other building fit-out activities, for example. Outcomes to Date and Policy Implications No private project has complied with HARD HATS since the policy became active in 2024. Some projects submitted applications before the ordinance took effect, while later residential projects used SDBL concessions to avoid compliance. Because state law supersedes local development standards, Berkeley could not reject qualified exemption requests without risking legal action. These outcomes suggest that residential developers treat HARD HATS as a meaningful cost or entitlement risk, even though the ordinance has not yet produced a tested compliance record. Three downtown Berkeley projects that would provide market-rate and affordable units sought HARD HATS exemptions as SDBL concessions. The developer of one project stated that HARD HATS would have increased project costs by about $5 million and prevented the project from moving forward. City staff also described projects that withdrew and revised applications to reduce project size below the 50,000-square-foot threshold. Together, these examples indicate that developers view HARD HATS as a significant feasibility constraint where the ordinance meaningfully changes expected labor costs or compliance obligations. Class A office construction and high-rise residential projects already tend to rely primarily on union labor because their materials, construction methods, and quality expectations require specialized trades. These projects typically use Type I construction with fire- 3 Strategic Economics. Berkeley In-Lieu Fee and Housing Policies Economic Feasibility Analysis (City of Berkeley, April 12, 2024). 4 BAE Urban Economics. Prevailing Wage and Skilled and Trained Workforce Cost/Benefit Analysis (City of Burbank, April 29, 2024). Overview and Analysis of City of Berkeley’s HARD HATS Ordinance; Page 6 resistive steel and concrete systems. The Strategic Economics study found that even a non-union general contractor on a high-rise project would likely use union trades for roughly 80 percent of the work. Accordingly, a HARD HATS-style policy would be less likely to change labor sourcing for premium commercial projects, given baseline contracting conditions. Looking Forward HARD HATS has generated developer concern in Berkeley, but its practical effect remains uncertain because compliance has largely been avoided through SDBL concessions. SB 1383, proposed by former Berkeley Mayor and current State Senator Jesse Arreguín, would prohibit concessions or incentives related to labor standards and thereby limit this avoidance pathway. As of July 2026, the bill passed the Senate and was under consideration in the Assembly. The Berkeley City Council has adopted a support position. For Palo Alto, the key policy implications of a HARD HATS-style requirement on commercial uses primarily include effects on labor-standard objectives and administrative burden. While financial feasibility might be affected for marginal projects, EPS does not anticipate that redevelopment economics would shift away from commercial uses and toward housing. EPS finds that HARD HATS is unlikely to serve as a standalone tool for discouraging high-value commercial redevelopment, but it could influence smaller projects at the margin and add compliance costs for covered projects. 13.107.010 13.107.020 13.107.030 13.107.040 13.107.050 13.107.060 13.107.070 13.107.080 13.107.090 13.107.110 13.107.111 13.107.112 13.107.113 13.107.114 13.107.115 Chapter 13.107 ESTABLISHING HEALTHCARE AND APPRENTICESHIP STANDARDS FOR PRIVATE DEVELOPMENT Sections: Title. Purpose. Definitions. Apprenticeship Requirements. Health Care Expenditures. Required Applicant and Contractor Statements. Notice and Posting. Retaliation Prohibited. Retention of Records. City Access. Implementation and Enforcement. City Undertaking Limited Promotion of General Welfare. No Preemption of Higher Standards. City Manager Regulations. Severability. 13.107.010 This Ordinance shall be known as the Helping Achieve Responsible Development with Healthcare and Apprenticeship Training Standards ("HARD HATS") Ordinance. (Ord. 7861-NS § 1, 2023) 13.107.020 The purpose of this Chapter is to address the shortage of qualified construction workers, rising labor costs, and to refine labor standards in the local construction industry. These measures are intended to improve the recruitment, training, and retention of skilled construction workers. The requirements of this Chapter ensure that larger projects within the City are awarded to contractors that participate in high quality, industry-proven apprenticeship programs, and that apprentices working under such contracts are competently trained. Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 1 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. The requirements of this Chapter also enhance the good health of construction workers working in the City, thereby increasing the pool of labor available to complete current and future projects, including City public works projects for which the City contracts on a regular basis. Together, the requirements of this Chapter will help promote the retention and growth of a skilled labor pool in the construction industry that can live as well as work in the City. (Ord. 7861-NS § 1, 2023) 13.107.030 "Applicant" shall mean any individual, person, firm, partnership, association, joint venture, corporation, entity, combination of entities or authorized representative thereof, who undertakes, proposes and/or applies to the City for, a Covered Project. "Apprenticeable Craft or Trade" is defined in California Labor Code section 1777.5. "Contractor" shall mean contractors or subcontractors of any tier that have contracted to perform work on the Covered Project in excess of ½ of one percent of the total Cost of the Covered Project. "Cost of the Covered Project" shall mean the amount determined by the Chief Building Official for purposes of setting the building permit fee in accordance with the most recent building valuation date specified in the building permit fees section of the resolution establishing fees and charges as adopted by the City Council. "Covered Project" shall mean a private development project within City limits consisting of construction, alteration, or demolition of 50,000 square feet or more of floor area which has not received its final permits, variances, approvals and/or other entitlements by the effective date of this Ordinance. "Covered Construction Worker" shall mean any construction worker employed by the Contractor at any time over the duration of the Covered Project. "City" shall mean the City of Berkeley and any implementing department or official. "Health Care Expenditures" shall mean the amount calculated by multiplying the number of hours worked by a Covered Construction Worker on the Covered Project by the hourly Health Care Expenditure Rate. "Health Care Expenditure Rate" shall mean the rate determined annually from the City of Berkeley Health and Dental Plan Monthly Premium Rates for the Kaiser HSA-Qualified Deductible HMO Plan, or a successor plan, for the applicable fiscal year. The Health Care Expenditure Rate shall be prorated on an hourly basis, and arrived at by dividing the total monthly premium for the Kaiser HSA-Qualified Deductible HMO Plan, or a successor plan, by one hundred and fifty (150), the typical number of hours worked in a month by a construction worker. "Joint Labor-Management Apprenticeship Program" shall mean an apprenticeship program jointly managed and administered by both a union and contractor or contractor association, and (i) approved by the State of California’s Division of Apprenticeship Standards; (ii) registered with the U.S. Department of Labor; or (iii) registered with a Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 2 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. State Apprenticeship Agency granted authority by the U.S. Department of Labor to register apprenticeship programs for federal purposes, pursuant to 29 CFR Part 29. "Project Labor Agreement" shall mean a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project. "Repeat Offender" shall mean an Applicant, Contractor, or entity that has received three or more violations of this Chapter within the last 24 months. (Ord. 7861-NS § 1, 2023) 13.107.040 a. During the duration of the Covered Project, each Contractor shall do at least one of the following: i. participate in a Joint Labor-Management Apprenticeship Program; ii. participate in an apprenticeship program approved by the State of California Division of Apprenticeship Standards that has a graduation rate of 50% or higher and has graduated an average of at least thirty (30) apprentices annually for the five (5) years immediately preceding the start of construction date on the Covered Project. The Contractor will also maintain at least the ratio of apprentices required by California Labor Code section 1777.5 for the duration of the Covered Project. Any change in program participation must be immediately provided to the City; or iii. make hourly contributions on a monthly basis to the California Apprenticeship Council for every hour worked by any Covered Construction Worker in any Apprenticeable Craft or Trade on the Covered Project of at least the apprenticeship contribution rate for the classification of "plumber, pipefitter, steamfitter" in Alameda County. b. A Contractor without Covered Construction Worker employees shall comply with this Section by showing a contractual obligation that its subcontractors comply with this Section. c. Contributions to an apprenticeship program or the California Apprenticeship Council shall not be credited towards compliance with BMC Chapter 13.99 (Minimum Wage). d. Applicant shall ensure that the Apprenticeship requirement in this Section is included in all construction contracts for the performance of the Covered Project. (Ord. 7861-NS § 1, 2023) 13.107.050 a. Prequalification. In order to be prequalified, each Contractor will sign and submit to the City a statement stipulating to and providing documented proof that the Contractor and its subcontractors, have provided Health Care Expenditures to or on behalf of each Covered Construction Worker for the 180 consecutive day period prior Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 3 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. to the submission of the prequalification documents ("Contractor Prequalification Questionnaire"). This requirement is in addition to the regular hourly wages paid to its employees. In the case of a Contractor that has employed no Covered Construction Workers for the 180 consecutive day period prior to the submission of the prequalification documents, said Contractor shall show a contractual obligation that its subcontractors provide Health Care Expenditures to or on behalf of each Covered Construction Worker employee for the 180 consecutive day period. b. Covered Project Duration. For purposes of the Covered Project, each Contractor shall make Health Care Expenditures to or on behalf of each Covered Construction Worker, in addition to their regular hourly wages, during periods of employment on the Covered Project (and sign a statement certifying that it will do so as part of the Contractor Prequalification Questionnaire). In the case of a Contractor that will employ no Covered Construction Workers on the Covered Project, said Contractor shall show a contractual obligation that its subcontractors will provide Health Care Expenditures on behalf of each Covered Construction Worker for the duration of the Covered Project. A Contractor shall make Health Care Expenditures on behalf of the Covered Construction Workers employed by its subcontractors in the event said subcontractors fail to make required Health Care Expenditures. c. Health Care Expenditures may be made to: (1) a health plan in which the Covered Construction Worker is enrolled at the Health Care Expenditure Rate; (2) a Covered Construction Worker’s health savings account at the Health Care Expenditure Rate; and/or (3) a Covered Construction Worker in the form of cash at one and a half (1.5) times the rate of the Health Care Expenditure Rate. d. Health Care Expenditures shall not be credited towards compliance with BMC Chapter 13.99 (Minimum Wage). e. The Applicant shall ensure that the Health Care Expenditures requirements in this Section are included in all construction contracts for the performance of the Covered Project. (Ord. 7861-NS § 1, 2023) 13.107.060 A declaration must be signed by the Applicant at the time of permit issuance for the Covered Project, attesting to compliance with this Chapter under penalty of perjury ("Applicant Declaration"). By signing the Applicant Declaration, the Applicant commits to ensuring that all Contractors on the Covered Project have and will comply with the Apprenticeship and Health Care Expenditures requirements of this Ordinance, including by ensuring that all contracts for the performance of the Covered Project so require, requiring all Contractors complete the statements established by this Section, and submitting all Contractor statements to the City within seven (7) days of receipt. Prior to executing their contract for the Covered Project, but no later than seven (7) calendar days before their first day of work on the Covered Project, each Contractor will sign and submit to the Applicant a statement stipulating that on the Covered Project it will comply with the Apprenticeship and Health Care Expenditures as set forth in this Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 4 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Chapter during the duration of the Covered Project, and that it has met the Health Care Expenditures prequalification requirements ("Contractor Prequalification Questionnaire"). Within 30 calendar days of completing their work on the Project each Contractor must sign and submit to the Applicant a statement certifying that it complied with the Apprenticeship and Health Care Expenditures requirements of this Chapter ("Contractor Satisfaction Statement"). Prior to issuance of a certificate of occupancy for the Covered Project, the Applicant shall sign and submit to the City a certification that all Contractors on the Covered Project satisfied the Apprenticeship and Health Care Expenditures requirements of this Ordinance ("Applicant Certification of Compliance"). (Ord. 7861-NS § 1, 2023) 13.107.070 a. The City shall publish and make available to Contractors a notice in English, Spanish, and any other primary languages as determined by City staff, for posting by Contractors in the workplace informing Covered Construction Workers of their rights under this Chapter ("Sample Notice"). b. A Contractor shall give written notification to each current Covered Construction Worker and to each new Covered Construction Worker at time of hire of their rights under this Chapter. The notification shall be in English and Spanish, and any other primary languages as determined by City staff, and shall also be posted prominently in areas at the work site where it will be seen by all Covered Construction Workers. Failure to post such notice shall render the Contractor subject to administrative citation, pursuant to the provisions of this Chapter. A Contractor’s use of the City’s Sample Notices shall constitute compliance with this Section. (Ord. 7861-NS § 1, 2023) 13.107.080 A Contractor shall not discharge, reduce the compensation of, discriminate against, or take any adverse employment action against a worker, including discipline, suspension, transfer or assignment to a lesser position in terms of job classification, job security, or other condition of employment, reduction of hours or denial of additional hours, informing another employer that the person has engaged in activities protected by this Chapter, or reporting or threatening to report the actual or suspected citizenship or immigration status of an employee, former worker or family member to a federal, state or local agency, for making a complaint to the City, participating in any of the City’s proceedings, using any civil remedies to enforce their rights, or otherwise asserting their rights under this Chapter. Within one hundred twenty (120) days of a Contractor being notified of such activity, it shall be unlawful for the Contractor to discharge any workers who engaged in such activity unless the Contractor has clear and convincing evidence of just cause for such discharge. (Ord. 7861-NS § 1, 2023) Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 5 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. 13.107.090 Applicants and Contractors shall maintain the following records for the Covered Project at least three (3) years after receiving approved final inspection: 1. Applicant Declaration; 2. Contractor Prequalification Questionnaires; 3. Contractor Satisfaction Statements certifying compliance with the Health Care Expenditures and Apprenticeship requirements (Sections 13.107.040 and .050) of this Chapter; 4. Records reflecting Contractors’ compliance with the Health Care Expenditures and Apprenticeship requirements (Sections 13.107.040 and .050) of this Chapter, including records of names of all Covered Construction Workers, dates those workers worked for the Contractor, and Health Care Expenditures the Contractor made to or on behalf of those workers; and 5. Applicant Certification of Compliance. (Ord. 7861-NS § 1, 2023) 13.107.110 Applicant and Contractors shall permit access to Covered Project work sites and relevant records for authorized City representatives for the purpose of monitoring compliance with this Chapter and investigating worker complaints of noncompliance. Access to records will be provided within a reasonable amount of time of the City’s request, but no longer than 30 days. Failure to provide access to records may be subject to City enforcement as permitted in Section 13.107.111. (Ord. 7861-NS § 1, 2023) 13.107.111 a. Issuance and Revocation of Permits. The City shall issue permits for the Covered Project only where an Applicant meets the requirements of this Ordinance and submits the Applicant Declaration. The City shall include conditions of approval requiring compliance with this Chapter for all permits issued for Covered Projects. The City may revoke or modify the applicable permits for the Covered Project pursuant to Section 23.404.080 where an Applicant or Contractor is out of compliance with this Ordinance. b. Community Benefits Agreement Exception. If a Covered Project is covered by a Project Labor Agreement (or community workforce agreement or similar labor agreement) with the local Building and Construction Trades Council, Contractors will be deemed in compliance with this Chapter. c. Collective Bargaining Agreement Exception. A Contractor that is signatory to a valid collective bargaining agreement with a labor union that requires participation in a state-approved apprenticeship program and the Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 6 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. provision of health care expenditures to all construction craft employees shall be deemed in compliance with this Chapter. d. City Enforcement. The City may take appropriate enforcement action to ensure compliance with this Chapter, including issuing an administrative citation pursuant to Chapter 1.28 of the Berkeley Municipal Code. The City may issue a citation to any Contractor or Applicant that has not complied with the requirements of this Chapter, including but not limited to, the following violations: 1. failing to post the required notice (Section 13.107.070); 2. refusing to or not providing timely access to records or work sites (Section 13.107.110); 3. failing to submit or submitting a false or misleading Applicant Declarations, Contractor Prequalification Questionnaires, Contractor Satisfaction Statements, and/or Applicant Certificates of Compliance (Section 13.107.060) ; and/or 4. failing to comply with the Apprenticeship and/or Health Care Expenditures requirements of this Chapter (Sections 13.107.040 and 13.107.050). The fine shall vary based on the provisions of this Chapter violated, but may be up to a maximum of $5,000/month per Covered Construction Worker during the period of the violation. In the event that any person identifies a Contractor or Applicant on a Covered Project not complying with this Ordinance as required, the person may file a complaint with the City. Complaints shall be made on a form prepared by the City and made available through the City’s website. Upon receipt of such a complaint, the City shall investigate the complaint and, if a violation is found, issue a citation to the Applicant and/or the Contractor. The citation will give the Applicant and/or Contractor ten (10) days to correct the violation. If a Contractor or Applicant subject to a citation does not correct the violation within ten (10) days, the City shall issue a penalty of $1,000 per calendar day for the first calendar week, increasing to $2,500 per calendar day for successive calendar weeks. If the Contractor or Applicant has received a citation or has otherwise been penalized under this Ordinance, within the prior twelve (12) months, the penalty shall be $2,000 per calendar day for the first calendar week, increasing to $3,500 per calendar day for successive calendar weeks. If a subcontractor receives a citation under this Ordinance, the prime contractor shall be jointly and severally liable for the penalty. d. Private Right of Action. A Covered Construction Worker, or a joint labor-management committee established pursuant to the federal Labor Management Cooperation Act of 1978 (29 U.S.C. sec. 175a) on a Covered Construction Worker’s behalf, may bring a civil action in a court of competent jurisdiction against the Contractor (and in the case of a Repeat Offender, the Applicant or Contractor who contracted with the Repeat Offender) violating this Chapter and, upon prevailing, shall be awarded reasonable attorneys’ fees and costs and shall be entitled to such legal or equitable relief as may be appropriate to remedy the violation including, without limitation, the payment of Health Care Expenditures that may have been unlawfully withheld and/or injunctive Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 7 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. relief. Nothing in this Chapter creates a private right of action or otherwise authorizes legal action against the City, its officers, agents, or employees, for failure to enforce these provisions. e. Repeat Offender List. The City shall review the complaints filed under this Ordinance on a monthly basis to determine if any person or entity has received three or more violations of the Ordinance within the last 24 months. Any such person or entity shall be designated a Repeat Offender and be placed on a public list available on the City of Berkeley’s website and shall be prohibited from working on future Covered Projects for a period of 24 months from their most recent violation. The City shall provide a notice of Repeat Offender designation through personal service, or by registered mail, postage prepaid, addressed to the person or entity’s address on file with the City. If, after being designated a Repeat Offender, the Repeat Offender again violates the Ordinance as determined by the City or the Superior Court, then the Applicant or Contractor who contracted with the Repeat Offender shall be jointly and severally liable for any and all penalties, damages, or other financial obligations incurred by the Repeat Offender. Any person or entity shall be entitled to appeal the City’s decision to place it on the Repeat Offender List by filing a written notice of appeal with the City Manager within ten days from the date the notice of Repeat Offender designation is mailed. The appeal shall clearly and concisely set forth the grounds upon which it is based. If the permittee files a timely request for appeal, a hearing shall be held before the City Manager or their designee. The decision of the City Manager or their designee shall be final. (Ord. 7861-NS § 1, 2023) 13.107.112 In undertaking the adoption and enforcement of this Chapter, the City is undertaking only to promote the general welfare. The City is not assuming, nor is it imposing on its officers and workers, an obligation for breach of which it is liable in money damages to any person who claims that such breach proximately caused injury. This Chapter does not create a legally enforceable right by any member of the public against the City. (Ord. 7861-NS § 1, 2023) 13.107.113 The purpose of this Chapter is to ensure minimum labor standards. This Chapter does not preempt or prevent the establishment of superior employment standards or the expansion of coverage by ordinance, resolution, contract, or any other action of the City. (Ord. 7861-NS § 1, 2023) 13.107.114 The City Manager may promulgate regulations for the administration and enforcement of this Chapter. (Ord. 7861-NS § 1, 2023) Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 8 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. Disclaimer: The City Clerk’s Office has the official version of the Berkeley Municipal Code. Users should contact the City Clerk’s Office for ordinances passed subsequent to the ordinance cited above. City Website: www.berkeleyca.gov Hosted by ICC Code Solutions. 13.107.115 If any part or provision of this Chapter, or the application of this Chapter to any person or circumstance, is held invalid, the remainder of this Chapter, including the application of such part or provision to other persons or circumstances, shall not be affected by such a holding and shall continue in full force and effect. To this end, the provisions of this Chapter are severable. (Ord. 7861-NS § 1, 2023) Ch. 13.107 Healthcare, Apprenticeship Standards for Private Development | Berkeley Municipal Code Page 9 of 9 The Berkeley Municipal Code is current through Ordinance 8008-NS, passed May 12, 2026. October 13, 2026 www.PaloAlto.gov Multi-Family Development in Mixed-Use Districts Housing Element Program 3.9(A) Presenter: Robert Cain, Principal Planner 2 HOUSING ELEMENT PROGRAM 3.9 Program 3.9 directs the City to implement development standards that: •Incentivize greater housing production •Temper strong market demand for commercial development Program 3.9(A) specifically calls for: •Amending the Municipal Code to reduce commercial floor area allowances or other incentives at strategic locations — shifting the economic benefit of redevelopment toward housing Program previously discussed at March 10, 2026 meeting 3 POLICY CONTEXT •Office values in Palo Alto are highly location specific, and, in some locations, office historically outcompeted housing because it generated higher returns there. •Through other efforts, including the Housing Incentive Program, area plans, and State law updates, the City is now seeing a shift towards housing development applications in commercial areas. •Due to the City’s existing policies, there are few avenues to further restrict office development; some office is desirable due to the economic benefits it provides to the City and residents. 4 At the March 10, 2026, the Committee provided the following direction: •Require Project Labor Agreements (PLAs) for new office development. EPS, a consultant to the City, conducted a study of how this might be implemented. Staff has identified implementation concerns and recommends separating this discussion from the subject policy discussion. •Additional building standards for new office development as appropriate. Staff recommends that the City consider additional building standards for new office development, if still appropriate, as part of the 2028 building code update. •Increase the commercial linkage fee for office development. Staff recommends that the City consider any changes to the commercial linkage fee through the City's ongoing development impact fee update. POLICY DIRECTION 5 Should the Committee wish to proceed with instituting a PLA requirement, staff has identified several challenges: •Restrictions on requiring union labor. The City is prohibited from requiring private developers from using union labor, however, could establish some labor standards such as apprenticeship requirements and healthcare contributions. •Limited impact. The City is experiencing an increase in residential development applications on previously commercial sites; applying labor requirements to small commercial projects may make them unviable, and large commercial projects likely already use any standards the City would adopt. •Administration. The City does not currently have the capacity or fee structure required to review and enforce labor standards, and would recommend a civil enforcement structure should this proceed. PROJECT LABOR AGREEMENTS 6 Should the Committee wish to pursue a PLA ordinance, staff seeks guidance on geographic scope, size threshold, and development types. Guidance is also requested on administration and enforcement: •City-Administered. City staff or consultants verify compliance, respond to complaints, and audit projects. High oversight, high cost, potential delays to permit processing times. •Self-Certification. The City collects the required certifications at permit issuance and project completion but does not independently verify them. Low oversight, low cost. •Civil Enforcement. The ordinance is enforced through civil action by affected workers or other parties, with the City's role limited to collecting certifications. City removed from oversight and dispute resolution, no cost to City. ADMINISTRATION AND ENFORCEMENT 7 NEXT STEPS Staff requests that the Committee recommend that the City Council find that the intent of Housing Element Program3.9(A) is being achieved and that no further amendments to reduce commercial development allowances are warranted under the program, and that the Council: a.consider any changes to the commercial linkage fee through the City's ongoing development impact fee update; and b.consider additional building standards for new office development, if still appropriate, as part of the 2028 building code update. Additionally, staff requests that the Committee provide direction on whether to continue developing a construction labor standards ordinance, as a separate effort from Program 3.9(A), and if so, provide feedback on the scope and implementation topics identified in the staff report. ROBERT CAIN Principal Planner Robert.Cain@PaloAlto.gov 650-838-2892