Downtown’s Big News: What it Means – and Doesn’t

Photo Credit: Office of Mayor Sam Liccardo

Mayor Sam Liccardo

Dear Friends,

Throughout the extraordinary growth of the last two decades, Silicon Valley cities to our north and west have hosted expansions of global headquarters of the world’s largest tech brands – Apple, Facebook, Google, LinkedIn, and the like. San Jose’s Downtown has consistently played the unrequited suitor, however, with a diminutive employment base relative to other city centers, and lacking the residential density needed to sustain retail, restaurants, and other small businesses.

In the last decade, we’ve seen Downtown’s challenges exacerbated by two more blows: first, the Great Recession, which hollowed more than 30% of Downtown’s street frontage as retail tenants became insolvent; and second, the California legislature’s elimination of redevelopment agencies, the primary source of public investment in city centers.

As a result, during my tenure as Downtown’s Councilmember, we became more resourceful and deployed what I call a “Small is Beautiful” strategy (with credit to EF Schumacher) moving beyond the era of large Redevelopment Agency expenditures. We focused instead on eliminating barriers to small businesses. We reduced parking fees in public garages for new commercial tenants, waived permit fees for tenant improvements of vacant ground-floor storefronts, eased permit requirements for restaurants to launch outdoor “curb cafes,” and encouraged facilities like NextSpace and WeWork to accommodate more co-working and freelancing.

We also rolled up our sleeves with key partners to make “big bets” that would lay the groundwork for Downtown’s revival: working with Carl Guardino and the Silicon Valley Leadership Group on ballot measures to bring BART to Downtown and expand CalTrain capacity; supporting Tom McEnery and Martin Menne’s launch of the San Pedro Market; and reducing fees and expediting permit processing on high-rise residential development to persuade reluctant project sponsors to move forward.

Today, with these continued efforts and those advanced under the tenure of current Councilmember Raul Peralez, Downtown has begun to emerge. Construction has completed or begun on several new high-rise residential towers, and retail storefronts continue to fill. Downtown now boasts more than 120 tech companies, including both start-ups and fast-growing gazelles like Zoom, Cohesity, and Okta.

The Big News

In recent weeks, Downtown’s trajectory has shifted dramatically, as we’ve announced the most extraordinary string of economic development news in our Downtown’s – and San Jose’s – history.

 In May, Amazon made public its first foray into Downtown with its research outpost, Lab126, at the WeWork offices on Santa Clara Street. In early June, Council voted to begin negotiations with Google for the sale of several City-owned parcels in the area surrounding Diridon Station that would comprise part of a 6 to 8 million square feet development with office, research, residential, and retail space. And just a few weeks ago, Adobe announced the large expansion of its headquarters on San Fernando Street, adding another 3,000 employees to its current workforce.

Much has been made about these developments in the news, and in social media. To be sure, the potential benefits are huge: tens-of-thousands of new jobs and many millions in annual revenues that will help us enhance public services that our residents count on most – more police officers on the street, more hours at our libraries and community centers, more miles of streets repaired and repaved.

Yet, as the excitement and interest in these proposed projects continues to grow, it’s important to understand exactly what all of this means – and doesn’t mean.

Here’s my take:

1. It isn’t a sure thing.

Lots of “big plans” are launched to fanfare, but the world changes – economies dip, shareholders balk, and corporations pivot. History offers San Jose too many cruel reminders: the groundbreaking of the Tesla factory in North San Jose a decade ago, Apple’s plans for a Coyote Valley headquarters in the 1980’s, and the like.

The Council and City Hall need to focus on doing whatever we need to do to eliminate barriers – legal and regulatory obstacles, red tape, and other hurdles – to facilitate these extraordinary investments in our city.

2. There’s No Subsidy or “Special Deal”

Many cities and states offer large subsidies to lure corporate campuses to their jurisdictions. For example, Massachusetts provided $145 million in combined subsidies to persuade General Electric to relocate its headquarters to Boston. San Jose offered subsidies (some of dubious efficacy) in past decades as well, but that will not be our path going forward.

In my conversations with Google over the past year, I never offered any City subsidies or fee breaks; and to their credit, Google never asked for them. We agreed that the company would pay fair market value for all public land. Google merely sought to be treated fairly, like any other land buyer.   In the months ahead, I expect that we will reach a negotiated price that will ensure the public gets its money worth – and substantially more than the City paid – for these parcels, in addition to the ongoing benefit our taxpayers will receive from Google’s presence in San Jose.

This is important for several reasons, if for none other than to disabuse any misperception that Google is somehow “getting something” from the City, for which the public must “get something” in return. In addition, the public will have the benefit of transparency to scrutinize every element of the deal before the Council votes on any land sale, memorandum of understanding, development agreement, and zoning changes.

3. Housing Affordability

Like the rest of the region, San Jose has chronically suffered from a severe shortage of affordable housing, a fact that certainly predates these recent announcements by several decades. Beyond the buying activity of some speculators, however, expansions by Adobe, Amazon, and Google shouldn’t have much immediate impact on that issue. Why not?

Thousands of Google and Adobe employees won’t parachute into Downtown anytime soon. Neither company has even applied for building permits, so we are still years off. If all goes well, the Google development will take a decade or more to build out – and over that decade (and perhaps through a recession or two), adding even 20,000 employees would comprise less than a 1% annual increase in the city’s employment base.

In the meantime, housing construction will occur, and these announcements will spur more of it in our Downtown. More than 1,500 units are under construction today, and we expect several more projects to break ground in the next year. The Diridon Station Area Plan calls for 2,500 more housing units near the footprint of Google’s planned development with a goal that affordable units comprise 25% of the total. In addition, Google has publicly supported the concept of having both market-rate and affordable housing as part of the proposed mixed-use development, and has a history of supporting affordable housing development, as demonstrated by their efforts to seek the approval of 10,000 units near their Mountain View campus.

While our entire region will continue to struggle with affordability, here in San Jose, we’ve done more in the last 30 months to confront this challenge than in any other comparable span of our city’s history: imposing an inclusionary housing requirement, requiring an affordable housing impact fee, tightening rent control constraints, strengthening tenants’ rights against eviction, supporting the County’s passage of a $900 million housing bond, and issuing more than $50 million for affordable housing development.

None of those things will “fix” the problem, of course. Large, historic market forces have created this situation, and we’ll need to continue pushing aggressively in the years ahead, with a particular focus on expanding our housing supply in a manner consistent with our General Plan.

4. Who Gets Displaced?

Any new development has impacts on those who were “there first”: current tenants and their neighbors. However, beyond the concerns around affordability that I addressed earlier, these expansions don’t contemplate the kind of displacement one might expect with large corporate campus developments.

Most of the publicly-owned parcels sought by Google consist of parking lots or empty industrial buildings; and the few tenant businesses located on these properties, like Patty’s Inn, will receive relocation assistance or cash compensation. Likewise, Adobe’s expansion site consists of surface parking and a vacant commercial building.

We also won’t see residential neighborhoods torn down as a result of these projects. The City will require any developers to mitigate disruption to established neighborhoods as part of the entitlement process. Representatives of the surrounding neighborhoods-such as Delmas Park, St. Leo’s, and the Alameda Business Association- have already held an initial meeting with Google to learn about proposed vision for the development site. As we move forward, the City will host several public meetings, and the companies have expressed a strong interest in continued engagement with the community.

5.  How About Traffic?

Of all of the places that Google and Adobe chose to launch their expansions, they intentionally picked the most transit-rich location in the State of California, and therefore the least likely to exacerbate auto traffic. The adjacent Diridon Station will, within a decade, become the Grand Central Station of the West. In the coming years, we’ll add BART and High Speed Rail service to existing CalTrain, Amtrak, Altamont Commuter Express, Capitol Corridor, light rail, bus rapid-transit, and standard bus service – and the station will ultimately see more than 600 trains arrive daily.

We’re also expanding road capacity by extending Autumn Street to ease access to 880, and Google and other Downtown developers will pay fees to address traffic impacts to congested intersections. In addition, we’ve expanded bike share service to improve access to transit, and we’ll see bus frequency improvements with BART’s launch in Berryessa in the months ahead.

In short, if there’s a place to grow, this is it. We’re building the infrastructure for it, and this kind of transit-oriented development provides a model for any future growth.

6. Yes, It’s a Big Deal

The majority of us, of course, don’t live or work Downtown, and might dismiss this news as irrelevant to our largely suburban existence. Yet, it does matter. Downtowns of major cities should be major job centers, providing employment opportunity and revenue for the entire region, and the prospect of growing San Jose’s diminutive Downtown has many positive implications.

First, it provides some welcome relief to a city with the worst housing-to-jobs imbalance of any major U.S. city. This imbalance hurts all of our residents because, under California’s tax revenue allocation formulas, it creates chronic fiscal shortfalls that diminish the quality and quantity of City services – police, pothole repair, libraries, and the like – that our residents receive.

Beyond the dollars, this development provides a multitude of other concrete benefits to San Joseans. It offers a sustainable model for “smart growth” in an otherwise sprawling, suburban valley, that will have far less impacts on traffic congestion, environmental stress, water consumption, and GhG emissions than other developments. It brings jobs, housing, amenities, public spaces, and transit all within short walking distances, akin to the streetscapes and development patterns of vibrant, centuries-old European cities. It will attract a larger critical mass of urban consumers and creators of the arts that will help build a social landscape more conducive to San Jose’s cultural and artistic growth. Finally, it gives Silicon Valley what it desperately needs: a dynamic urban center needed to attract the creative young talent that drives innovation in today’s tech industries.

All of that is a big deal. I look forward to a robust public conversation about how we can make Downtown’s long-sought future a reality.