SunnyvaleRTC

February 10, 2004

SUBJECT: Economic Development Program Update

At the January 27, 2004 Council Study Session, the Mayor and City Council asked Economic Development to provide the City Council with an overview of the Economic Prosperity Program. This report provides a brief overview of the Economic Prosperity Program’s history and a description of its functions. It also discusses the current and near-term focus of the economic development work plan. At the conclusion of the presentation, there will be a PowerPoint presentation highlighting some of the program accomplishments. Staff recommends that Council approve the Economic Development work plan for FY 2004/05, including budget recommendations, and yearly updates to City Council prior to budget considerations to ensure that the work program is focused on current economic conditions.

BACKGROUND

Sunnyvale’s history is based on its economy. Until the mid-1900s, this was an agricultural region known as “the valley of heart’s delight.” After World War II, defense-related industries in the fields of air, space, and electronics stimulated growth in the region. Lockheed Aerospace Company located in Sunnyvale in the mid-1950s and became the largest employer in northern California. Semiconductor companies began to emerge in the 1960s, launching the development of “chips” and the computer revolution in the 1970s. The region became widely known as “Silicon Valley”. The 1980s saw the development of the PC and the Internet. The World Wide Web was developed in the 1990s and spurred an industry of software development and Internet services. Sunnyvale has been at the center of this rapid economic growth.

Sunnyvale’s Economic Development Program was started in 1989. City Council adopted the first Economic Development Strategy in 1991. In a 1992 report, the City Manager is quoted as saying, “Economic development becomes a critical way to assure continued funding of our high quality of services and the opportunity to take additional steps to do things for the community that could benefit the community.”

Sunnyvale has had a continued commitment to identify areas where the City can improve its ability to assist the business community. Updates to the strategy were adopted in 1994 and 1997. In 1998, a revised economic development strategy was created with input from the Sunnyvale business community including small, medium and large businesses and regional groups. The strategy, adopted by City Council in February 1999, identified four key activities which continue to be central to the program:

Retaining and encouraging local company expansion
Increase investment and economic activity
Maintaining a positive business climate
Strategically attracting new business

While the main activities remain somewhat constant, the tools that are necessary to achieve the program goals change in response to the economy. Between 1998 and 2001, the emphasis was on development activity and how to facilitate development projects through the review and approval process. Companies were focused on how quickly they could get their projects operational and producing. They were often willing to pay extra to have timely inspections and keep projects moving forward.

With the current economic downturn, businesses have more location choices and with declining revenues they have increased concerns about governmental requirements and the costs of doing business in the city. On August 27, 2002, staff recommended to Council a multi-focused marketing, communication, and outreach program. The program builds on the City’s reputation as a good place to do business, responds to concerns of the importance of "sense of place" to businesses for employee retention, and encourages residents to "Shop Sunnyvale" and support local businesses. Sunnyvale needs to sell its advantage over surrounding cities that are faced with the same issues and concerns. Promoting the “Sunnyvale advantage” also serves to prepare the city for the anticipated upturn in the economy, and to explain why emerging-technology companies should consider Sunnyvale as the place to locate and do business.

EXISTING POLICY

Cities need economic development to provide quality jobs and to maintain a tax base that supports constituent quality of life and required services. A comprehensive economic development strategy with political leadership and private sector support is essential to favorably compete with other cities for jobs and investment that will result in revenue generation to the city. The City Council has adopted specific policies that allow staff to create a positive business climate.

PROGRAM OUTCOME STATEMENT

Foster a prosperous community, a vibrant business environment, a diversified and broad tax base, and a downtown with vitality.

SOCIO-ECONOMIC ELEMENT: Economy and Employment

GOAL 5.1B – Maintain and establish policies that promote a strong economy which provides economic opportunities for all Sunnyvale residents within existing environmental, social, fiscal and land use constraints.

Policy 5.1B.2 Participate in partnerships with local industry/businesses in order to facilitate communication and address mutual concerns.

Policy 5.1B.3 Monitor the effect of City policies on business development and consider the effects on the overall health of business within the City.

GOAL 5.1C – Endeavor to maintain a balances economic base that can resist downturns of any one economic sector.

Policy 5.1C.3 Maintain an attractive business community.

Policy 5.1C.4 Promote business opportunities and business retention in Sunnyvale.

Policy 5.1C.6 Consider development of a strong business retention program

LEGISLATIVE ACTION POLICIES

2. COMMUNITY DEVELOPMENT - Economic Development

1. Support current housing, transportation and other fees and exactions to mitigate the impacts of development and provide infrastructure to address quality of life issues provided that such action does not place Sunnyvale at a competitive disadvantage among other Silicon Valley cities in the attraction and retention of major growth industries

2. Oppose state actions that would negatively impact the allocation of tax increment revenue to redevelopment agencies.

3. Support state and federal economic development strategies with sufficient funding for new economic development initiatives, and in consultation with local governments, develop strategies for economic viability (i.e., trade policies). Protect local government authority from erosion through international trade agreements.

4. Oppose excessive fees and tax increases on business that worsen the local and state business climate.

5. Encourage federal cooperation with local governments if planning to restore, replace, close, or relocate a federal facility.

6. Support participation of local government in plans to restore, replace, close or relocate postal facilities.

7. Advocate at the state and federal levels for adequate funding for basis research and for programs that will strengthen the region’s R&D infrastructure.

8. Support investment in research and business opportunities to enhance homeland security and promote local security-related products and services that have applications by government at the local, state and federal levels.

9. Support local, state and federal initiatives that will enhance Sunnyvale’s competitiveness for emerging technology business development, including bioscience, information technology, and nanotechnology.

10. Support the creation of a state economic development strategy that emphasizes business retention, promotes investment and business development opportunities, and promotes California as a good place to do business.

11. Support efforts to identify, assess, and mitigate key obstacles to business development in California, including workers compensation insurance, government regulations negatively impacting business, and the lack of a state economic development strategy.

12. Urge the federal government to provide national defense and economic stimulus assistance to include small business and local economies that experience economic injury because of terrorist attacks.

5B/C/D. ECONOMY AND EMPLOYMENT

1. Support research and development funding that increases and capitalizes on the capabilities of our existing industries, and increase the role of federal research and development in civilian research and technology. Support programs that promote continued/increased research and development that is innovative, entrepreneurial and has growth potential.

DISCUSSION

In 2002, the Community Development Department initiated the preparation of a Community Development Strategy for Sunnyvale. In January 2003, the City Council adopted goals to be implemented by the Strategy over the next five years. The goals that were identified specific to economic development are:

Tax Base: to retain and attract businesses which will provide a stable tax base to support City services.
Jobs: to work with those agencies responsible for education and job training so as to better prepare our workforce for the future jobs of Silicon Valley.
Office/Industrial Building Inventory: to support the development and rebuilding of industrial neighborhoods so as to have an appropriate mix of well-maintained Class A, B, and C office / industrial space.
Retail Services: to retain and attract businesses which provide a variety of needed retail services for our residents at locations which are convenient for them.
Local Service Businesses: to preserve opportunity for profitable operation of those small local businesses which provide critical support services to other businesses and to our residents.

The Community Development Strategy recommends a new approach to achieve the goals of the economic prosperity program that focuses on “action areas.” The Economic Development Program provides a baseline of services to all businesses. The Community Development Strategy packages programs and services into specific strategies that address the unique needs of each action area.

Action Areas (See Attachment A) (image file)

Office/Industrial: A field survey of commercial properties conducted in 2001 showed that only 17% of the office and industrial square footage in Sunnyvale is Class A office space. The biggest disadvantage to Sunnyvale in the current economic climate is the lack of Class A office space. Given current asking lease rates, companies are looking to upgrade from Class B or C to Class A space. Due to the lack of Class A space in Sunnyvale, companies are forced to look elsewhere. Moffett Park is attractive to high technology companies and corporate headquarters, and is the area where the City is focusing efforts to increase the stock of Class A office buildings through tools such as the Moffett Park Specific Plan.

Start-ups look for more affordable Class B and C office space. Because of its proximity to NASA, Peery Park is seen as an area that is prime for nurturing new business start-ups – particularly in the emerging technology areas (the convergence of bioscience, information technology and nanotechnology). Through the development of targeted marketing, Sunnyvale is positioning itself as an attractive location for the bioscience industry so that we can take advantage of growth as it occurs in this cluster. This works well with the development of an R&D campus and university and educational campus at NASA Ames Research Center.

Staff is looking at support for small businesses that provide critical support services to our residents and to other businesses (these may be industrial or retail businesses). The City Council approved a study issue for 2004 that will review current zoning to make sure it encourages and supports the retention of small business.

Retail/Hospitality: The major components of this service delivery plan are El Camino Real and the Downtown. El Camino Real should be strengthened as a major provider of retail services and as a major sales tax producer. In the fourth quarter of 2003 sales tax report (reflecting third quarter sales), it generated 30.0% percent of the total sales tax revenue for the city, almost exclusively from consumer retail sales. This is up from 27.0% in the same quarter in 2002. Vacancies are relatively low and approximately half of the buildings are in Class A or B condition. The strategy includes encouraging cooperative efforts by auto dealerships, upgrading of older strip malls, review of business identification (signs), and outreach to ethnic businesses to strengthen the existing tax base.

Downtown represents an opportunity to increase the sales tax base, provide goods and services desired by our residents, build a sense of community, and increase the City’s housing stock. Economic Development supports the Redevelopment Agency in its negotiations to redevelop the Sunnyvale Town Center. The City is a property owner in Town and Country and will work through the Redevelopment Agency on the longer-term project of redeveloping that area. Preliminary design for a “wayfinding” system has been completed. This system will guide people into the downtown and direct them to parking and other venues in the downtown. Staff is exploring alternatives to fully engage the current downtown merchants in developing long-term plans for the promotion and enhancement of the Downtown.

Major Projects and Activities

Business Retention

Marketing Program: In January 2003, a major City-sponsored marketing and promotion campaign was launched to improve the perception of Sunnyvale as a business-friendly community. The promotion includes “Shop Sunnyvale” promotions as well as outreach to increase residents’ support of local businesses. Outreach included bus shelter advertising, newspaper ads, articles in the Quarterly Report, information on KSUN, shopping center brochures, and utility bill stuffers.
Ombudsman: The ombudsman service is a two-way communication process between City staff and businesses. An example of the significance of the ombudsman support is the City team effort that enabled companies such as Yahoo! and Network Appliance to go from concept to groundbreaking in six months. Another example was involving businesses in the development of recommendations for the transportation and housing mitigation fees. Staff also serves as a point of contact for questions about City services and links businesses to the appropriate City department for response.
Business Visitations: Business visits are another critical element of the economic development program. The primary purpose for visits is business retention. Strong partnerships and early information on issues such as expansion, workforce, and cost of doing business assists the City in working with a company before issues become critical. Part of the 2003 visitation program was to obtain input on issues including the Downtown plan, Downtown development, increased fees, taxes, and the overall cost of doing business. Mayor Howe has requested visits with the City’s largest sales tax producers as part of the business retention program in 2004.
Roundtables and Forums: Economic development roundtables and forums have been effective communication and outreach tools. In the mid-1990’s, roundtables were co-hosted by the City and the Chamber of Commerce. In 1999, the City and the Chamber co-hosted a series of business forums related to development issues. Over the past year, the City (and NOVA) has partnered with NASA Ames Research Center to host a series of forums on nanotechnology. Other forums or roundtables can be organized around economic outlook issues, supporting local companies in the global market place, competitiveness issues and learning more about industry clusters. These “events” can be either to educate each other or to mutually explore solutions to issues.
Outreach to Small Businesses: Staff is exploring ways to reach out to small businesses that are often unaware of services available to them from the City and other governmental agencies. Staff developed a business resource guide and worked with representatives from small business assistance agencies such as Lenders for Community Development, Small Business Development Center, and local banks that provide small business loans.
El Camino Real: The City is participating in the Joint Venture Main Street Silicon Valley project which will identify best practices and common issues along the El Camino Real corridor from San Mateo County through Santa Clara County. This document will augment the work that is currently underway to develop short-term and long-term strategies for business development along El Camino Real in Sunnyvale. Staff has completed an inventory of business located on El Camino Real and found that about 20% of business are ethnic businesses. Staff is developing a work plan to determine the best outreach programs for these businesses as well as other major sales tax producers such as the auto dealers.
Downtown Construction and Mitigation: During the Mozart development project, staff managed the community outreach and mitigation program. This included weekly newsletters, regular meetings with businesses and property owners, participation in construction meetings, web page updates, and ads to let residents know that businesses were open during construction. As new development occurs in the downtown, staff anticipates that the developer will pay the major mitigation costs with staff again administering the program.

Business Attraction and Growth

Targeted Promotion: Staff is now working on targeted promotion programs that will position the City as an attractive place for bioscience companies. The focus will be on emerging technology companies from the convergence of bioscience and information technology. Joint Venture Silicon Valley and other regional groups have identified this industry group as the “next wave of innovation” in the region.
Site Selection: To maintain competitiveness, cities must understand what companies are looking for when they make decisions to expand or relocate. A number of factors go into the decision-making process, including cost of doing business, availability of workforce, quality of life, and local demographics. In today’s environment, most research is done over the Internet and communities do not know if they are being considered until they are on the “short list” of potential locations. Therefore, it is critical that the City develop a clear understanding of “requirements” – issues that are specific to industry clusters such as bioscience companies – and feature that information prominently on the web page and in literature promoting the City as a good place to do business.
Regional Partnerships: Some of the partnerships in which the staff is actively participating include Joint Venture Silicon Valley, Silicon Valley Manufacturing Group (Energy Committee), and several initiatives of the Bay Area Economic Forum – Bay Area Marketing Partnership and Bay Area Science and Innovation Consortium. Participation in these groups ensures that Sunnyvale and/or Sunnyvale companies are included in any assessment of economic conditions, regional promotions, or development of regional programs.
NASA Ames Research Center: Given the limited resources of the City, NASA Ames location provides a unique opportunity to leverage resources and create emerging-technologies incubators to serve Sunnyvale. Creation of local and regional business panels to advise the City and influence the planning and development of the R&D campus and the university programs are under discussion with NASA.
BIO 2004: The City is participating in the planning for the major international bioscience convention – BIO 2004 – to be held in San Francisco in June. Elected officials will be invited to key events and it is an opportunity for the region and the city to show the advantages of locating companies here. It is also a major opportunity to market Sunnyvale as an attractive location to biotech companies.
Downtown Redevelopment Program: In April 2002, the City completed the Downtown Design Plan, which was the first critical step in revitalizing the Downtown. Staff is currently participating in negotiations with other property owners concerning the mall redevelopment. The Redevelopment Agency has approved the update of the owner participation rules setting guidelines for establishing a master development area, issued an RFP for redevelopment of the mall, and reinstated eminent domain authority. Staff is working on a five-year plan that will set goals and policies for to guide redevelopment in the Downtown.

2004 Work Program

Because of the cyclical nature of the economy, the Economic Prosperity Program requires frequent evaluation to ensure that the program is meeting the needs of the business community and is working to the best advantage of the City. The program is structured to support retail and hospitality businesses, office and industrial businesses, business partnerships and redevelopment activities. The intent of the structure is to provide accountability to the different business sectors.

In preparing for the FY 2004/05 and FY 2005/06 budget, staff is recommending that the current emphasis of the program be shifted slightly to reflect the current economic outlook and to anticipate economic trends for the next two years. The budget currently under development is reduced by approximately $60,000 in accordance with Council direction during the FY 2003/04 deliberations. The budget was cut $40,000 for the current fiscal year.

For FY 2004/05, staff is recommending that resources in the retail and hospitality service delivery plan be primarily focused on El Camino Real, with a goal of keeping vacancy rates low and working to retain prime real estate for revenue generation. Over the past year, staff conducted a field survey of buildings and types of businesses along El Camino Real. Over the coming year, staff will work with businesses (including an emphasis on auto dealers), property owners and property management companies to develop short-term and long-term strategies to support this corridor.

Despite this proposed concentration on the El Camino Real corridor, the retail and hospitality service delivery plan is proposed to be reduced in funding because less effort will be devoted to Downtown than in the recent past. During the construction activities of the past few years, staff spent significant resources in working with Downtown merchants on construction mitigation and to jump-start the marketing and “Shop Sunnyvale” cooperative marketing. Furthermore, staff believes that until construction is complete, most of the resources for the Downtown are more appropriately budgeted in the redevelopment service delivery plan. As with the Mozart development project, staff anticipates that the developer will pay the major mitigation costs with staff administering the program. The “Sunnyvale Supports Business” marketing campaign developed over the past two years will continue to be a strong part of the promotional program for all retail and hospitality businesses in the city.

Staff is recommending a corresponding increase in the office and industrial service delivery plan budget to assist with development of targeted marketing and outreach to position Sunnyvale as a good location for emerging technology companies (primarily the convergence of bioscience, information technology and nanotechnology companies). An investment in this business sector at this time will proactively position the city as a viable location as the economy picks up – anticipated in late 2004 and 2005. Regional organizations, including the Bay Area Economic Forum and Joint Venture Silicon Valley, have determined that the convergence of bioscience, information technology and nanotechnology is the “next wave of innovation.” Sunnyvale must create an inventory of these companies in the City, assess the needs of the companies, and enlist their participation in creating an action plan that will ensure that the City will be a strong player as this industry cluster develops. Furthermore, the City must take advantage of the momentum that we hope to create through participation in the BIO 2004 international convention in San Francisco in June if we want to be competitive with neighboring cities and other regions in California.

These recommendations are intended to focus the City on issues related to the current economy. Because the Economic Development Program is as volatile as the economy it supports, staff also recommends that the staff present an overview of the Economic Development Program to City Council early in each calendar year to determine the appropriate course of action based on the most recent economic outlook. This will allow for clear direction in advance of consideration of the annual budget.

FISCAL IMPACT

There is no program budget impact. Staff recommends a shift in service levels between service delivery plans in the Economic Prosperity Program.

PUBLIC CONTACT

Public contact was made through the posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, publication of the Council agenda in the San Jose Mercury News, and the availability of the report in the Library and the City Clerk’s Office.

ALTERNATIVES

1. Accept the Update on the Economic Development Program.

2. Accept the recommendation to shift the program service delivery for FY 2004/05 and FY 2005/06 to reduce the retail and hospitality service delivery plan, decreasing the emphasis on Downtown and focusing remaining resources on El Camino Real; increasing support for redevelopment to reflect the current redevelopment activities; increasing office and industrial service delivery plan to proactively position the City for emerging technology companies.

3. Accept the recommendation that overview of the Economic Development Program be presented to City Council early in each calendar year to determine the appropriate course of action based on the most recent economic outlook.

4. Revise 2004 Economic Development workplan within current allocated resources or modify available resources.

5. Take no action at this time.

RECOMMENDATION

Staff recommends Alternatives #1, #2 and #3.

Prepared by:

Karen L. Davis
Economic Development Manager

Reviewed by:

Robert Paternoster
Director, Community Development

Approved by:

Amy Chan
Acting City Manager

Attachments

A. Map of Community Development Strategy Action Areas for Economic Development (image file)