SunnyvaleRTC

September 28, 2004

SUBJECT: Update of the Economic Development Program and Approval of the Economic Development Goals and Strategies and Budget Modification No. 8

REPORT IN BRIEF

At the August 24, 2004 Council Study Session, the Mayor and City Council received an update on the Economic Development Program. The presentation included a review of the goals for the program, a summary of the accomplishments in FY 2003/2004 and the work plan for FY 2004/2005. This report transmits the information from the August 24 study session for formal consideration by the City Council. Staff recommends that Council reaffirm the goals and approve the Economic Development work plan for FY 2004/2005. Staff also recommends Council approve Budget Modification No. 8 to carryover $12,000 from the Economic Prosperity program savings in FY 2003/2004 to fund the advertising and promotion of Sunnyvale as a good place to do business, and appropriate $5,000 from the General Fund Non Recurring Events Reserve to fund the annual dues to Joint Venture Silicon Valley Network.

BACKGROUND

Staff presented an overview of the history, functions, current and near term projects and activities, and accomplishments to the City Council on February 10, 2004. The City Council approved the Economic Development work plan presented for FY 2004/2005, including budget recommendations which were incorporated into the approved budget for FY 2004/2005. Staff will make yearly updates to City Council prior to budget considerations to ensure that the work program is focused on current economic conditions. Council approved a program that shifted resources between service delivery plans. Council directed staff to make El Camino Real the primary focus of the retail and hospitality service delivery plan. A minor funding reduction in the retail and hospitality service delivery plan was made because less effort will be devoted to the Downtown. 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. Support for Redevelopment service delivery plan was increased to reflect the current Redevelopment activities and to provide support to downtown businesses during construction. The office and industrial service delivery plan was focused on proactively positioning the City for emerging technology companies to diversify the economy and to take advantage of the anticipated next wave of innovation. The program includes a focus on the top 25 sales tax generators, including outreach efforts to auto dealers, and hosted roundtables for hotels, brokers and downtown businesses.

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

On February 10, 2004, Council approved the following Economic Development Goals:

· 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 goals are discussed in greater detail below. Staff is not recommending substantial changes to the goals. The recommended changes that staff is recommending are in bold and italicized below. The short term actions are those which are the focus of the program for the remainder of FY 2004-05. The longer term actions are those which will have longer term results with outcomes anticipated in FY 2005-06 and beyond.

TAX BASE – to retain and attract revenue-generating businesses which will provide a stable tax base to support City services.

Well over half of all revenues to the City are generated by businesses; therefore, a healthy business climate and strong tax base means that the City is better able to provide quality services to residents and businesses. California cities are dependent on sales tax revenues to provide services.

This goal supports a major work element for the Economic Development program for the remainder of FY 2005, which is to continue meeting with the largest sales tax producers as directed by Council in February.

Short term actions-FY 2005

o Continue one-on-one meetings with businesses in the City with emphasis on the largest sales tax generating companies. This list is reviewed quarterly from information received on sales tax receipts from the State of California.

§ Results: One visit per month (when possible, staff will schedule more than one visit per month). The purpose of the visits is to identify issues that can be addressed or services that can be offered to retain these companies in Sunnyvale; and to build relationships with businesses so they have a point of contact with the City if some future need arises.

o Continue support for auto dealers through review of policies to encourage growth; support for association goals and cooperative marketing with auto dealers taking the lead. This is in response to trends in auto sales that have not kept pace with neighboring cities; pressure from auto manufacturers to locate dealerships in “auto malls”; and current economic trends in the real estate market which make it more attractive to convert retail properties to residential uses.

§ Results: The decorative banner program was approved by the Planning Commission on September 13 and is scheduled for City Council consideration on September 28. The City provided the artwork that was developed for “Shop Sunnyvale Auto Row” to the auto dealers association for ongoing promotion.

o Auto dealers and big box sign code amendments. Develop alternatives on allowing more sign area for auto dealers and big box retailers located on El Camino Real.

§ Results: The proposed revisions to the sign code will be presented to the Planning Commission and City Council in early 2005. The issue was expanded to add big box retailer signs to the auto dealer sign code issues.

o Ombudsman support to potential and existing revenue-generating businesses.

§ Results:

· Continue to work with the developer and property owner to develop the Falore site on El Camino Real for retail use;

· Continue to work with Circuit City through the development process;

· Continue preliminary work for a new tenant at the Big 5 Shopping Center encouraging upgrade if tenant’s request for new building is approved;

· Encourage continued hotel uses to meet average annual demand and not succumb to economic fluctuations and pressures to redevelop as residential properties.

Longer term actions-FY 2006 and beyond

o Because of the changing nature of the economy, staff must continuously look at what support services are necessary locally to facilitate retention and growth of Sunnyvale companies. Some of these are not sales tax producers and are smaller companies. Strategies for retaining and attracting companies that service the larger companies will enhance retention of revenue-generating companies.

o The Main Street Silicon Valley study prepared by Joint Venture Silicon Valley Network will provide “tools” for future redevelopment along El Camino Real. Some of these tools are “best practices” from other cities and pre-negotiated agreements from Caltrans for improvements along the State corridor that would otherwise potentially require a lengthy process to move forward on a project. As the opportunity arises, the City can use the findings and tools from this study to influence and facilitate development/redevelopment of El Camino Real.

§ Staff has submitted a study issue for the December workshop to update the El Camino Real Precise Plan.

§ Staff has submitted a study issue for the December workshop to review landscaping policies for auto dealers located on El Camino Real.

§ Staff has submitted a study issue for the December workshop to analyze the benefits and disadvantages of incentives as economic development retention and attraction tools.

o Identify growing companies and emerging technology companies and their support services as part of this strategy to retain companies that may become major sales tax producers (e.g., Dionex, Kyphon). We need to build relations to retain and encourage growth in Sunnyvale.

§ Part of a healthy business climate is community appreciation and support for businesses. The Sunnyvale Supports Business/Business Supports Sunnyvale campaign was developed to respond to business concerns that they were only seen as causing problems, and not as part of the solution. This promotional effort is ongoing.

o Targeted promotion to retain and attract businesses to Sunnyvale.

§ Sunnyvale revitalized its marketing efforts starting in 2002 and launched the “Sunnyvale Supports Business/Business Supports Sunnyvale” campaign in 2003.

§ Build on the momentum created at BIO 2004. Letters were sent from the Mayor to over 200 contacts. Staff is following up on specific leads which include companies interested in locating in Sunnyvale and companies interested in joint ventures with Sunnyvale companies.

§ Work with Sunnyvale companies to develop new outreach for high-tech and biotech companies. Resources are available within Sunnyvale companies to assist staff with in-kind services for creation and distribution of promotional materials targeted towards specific industry clusters.

§ Continuously refresh the City and Economic web page with the information of greatest interest to companies, maintaining its ease to navigate and keeping a business-friendly message.

JOBS – actively promote the city to companies that will create quality jobs for Sunnyvale residents; work with those agencies responsible for education and job training so as to better prepare our workforce for the future jobs of Silicon Valley.

A skilled workforce ranks very high among the top elements that must be in place to retain or attract businesses. Because of the cost of living here, it is especially important to develop talent from the region rather than trying to attract employees into the region. In the past decade, research has shown that a lower percentage of Silicon Valley students are interested in pursuing tech careers than the national average. Anecdotal information from companies indicates that the trend is not changing sufficiently to meet their future workforce needs.

Economic Development supports the programs that NOVA offers. The Workforce Investment Act requires that Workforce Investment Boards promote economic opportunity and shared prosperity. NOVA has provided workforce solutions to businesses and individuals since 1983. NOVA represents seven cities. Economic Development’s role is to make sure Sunnyvale businesses take advantage of and benefit from NOVA’s programs.

Short term actions-FY 2005

o Partner with NOVA to develop a plan to enhance workforce and economic development support services to priority industries.

§ Results: An action plan and strategic alliances with industries such as education, health care, manufacturing and biotechnology to retain and attract these industries.

§ Economic Development and NOVA staff completed a bio survey that will result in an action plan to support and develop jobs and industry growth. Sunnyvale’s biotechnology businesses are medical devices companies and most companies generate sales tax. Some of the large bio companies are Kyphon, Dionex, and Molecular Devices. The next step is to analyze the survey’s responses and create a forum or roundtable to further explore how the City and NOVA can assist these companies with long term growth in Sunnyvale. The end result will be a retention/attraction plan for the biotechnology industry.

Longer term actions-FY 2006 and beyond

o Facilitate business participation with educational groups to influence programs for development of future workforce

§ Working meetings with the University of California at Santa Cruz about creating business advisory group(s) to ensure that curriculum development at UC Silicon Valley (NASA) campus meets future workforce needs.

§ Participation in Joint Venture’s Technology Convergence Consortium to make sure that development at the UC Silicon Valley (NASA) campus is a regional priority.

§ Respond to requests from local educational institutions for contacts with businesses to enhance educational programs.

· Recommend speakers at events, in classrooms or other venues.

· Link businesses and schools to provide opportunities for internships, job shadow programs, and teacher training programs.

· Identify companies that can assist with curriculum development and classroom materials.

OFFICE/INDUSTRIAL BUILDING INVENTORY – to attract high-tech companies and headquarters offices by promoting available Sunnyvale sites and buildings and supporting 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.

As far back as 1999, the City recognized that Sunnyvale has a serious imbalance in class A versus class B & C buildings for sale and lease. In the current economic downturn, this has resulted in a disadvantage as several Sunnyvale companies have not been able to find class A space in Sunnyvale and are moving to neighboring cities that have available class A space at affordable rates (e.g., Mercury Interactive, Marvel).

Short term actions-FY 2005

o Continue working with brokers, developers and site selection professionals to provide assistance in redevelopment, sale or lease of buildings, directing them to action areas listed in the CD Strategy and facilitating development.

Results: Monthly contact with brokers to track occupancy levels and opportunities to promote available office/industrial space in Sunnyvale; to refer potential clients, and respond to requests for site-specific information.

§ Results: Provide listing of available commercial properties through the LoopNet service on the City’s web page, and measure the level of service by the number of properties listed on the site.

§ Results: Create a business friendly web page that is defined as information meeting industry guidelines for site selection and business expansion decisions.

§ Results: Provide marketing materials – general and targeted to specific industries – as appropriate.

§ Results: Update and maintain strategies and policies that reflect the current economic situation – revise as appropriate. At minimum, staff will provide an update to City Council early each calendar year in advance of budget considerations.

§ Results: Review and comment on policies that encourage or create disincentives for business growth and development. One example is the business outreach on the study issue on enforcement of art in private development scheduled for City Council consideration on October 19.

§ Assist with development approvals. Current activity is primarily related to the redevelopment of existing properties to office/condo uses. One project has been approved and two other projects are pending.

o Host events such as the Rising Star which are a first point of contact and a positive way to build relationships that will facilitate entry to meet with companies.

§ Results: As companies become familiar with the City, they are more likely to call when they need assistance. Companies with whom the City has a relationship are more likely to see the City as a partner and share short and long term issues that impact the company’s growth within the City.

§ Consider restructure of the Rising Star event into a larger Sunnyvale Business Appreciation event with sponsors and a major speaker.

o Although listed under this goal, the targeted promotion and image defense of doing business in California supports multiple economic development goals. This is a priority of the State of California, the Bay Area Marketing Partnership (including the Bay Area Economic Forum and the Bay Area Council), and Joint Venture Silicon Valley Network. The State of California and Silicon Valley have a negative reputation from the dot.com bust and have initiated campaigns to promote the strengths and competitiveness of the state and the region. The state and regional groups are repositioning themselves as points of contact for business retention, and to attract leads for business relocation and expansion. These efforts are intended to retain and create jobs, to increase tax revenues and to reduce vacancy levels – all of which are included in the Sunnyvale economic development goals, strategies and action plans. The funds for participating in these local and regional promotional campaigns were not included in the FY 2004/2005 budget. Staff is requesting $5,000 for annual membership in Joint Venture Silicon Valley Network so that the City can participate in the broader campaign with Joint Venture and the Bay Area Marketing Partnership. The funds that were budgeted for Sunnyvale-specific advertising in FY 2003/2004 were put on hold by the City Manager pending further review of goals and strategies by the City Council at the August 24 study session and subsequent actions at a future City Council meeting. This advertising is specifically for major publications with broad regional and national distribution. We are requesting that funds in the amount of $12,000 from operating savings of the Economic Prosperity program in FY 2003/2004 be carried over to a new special project in FY 2004/05 to fund the advertising campaign.

§ Results: Sunnyvale will be included in regional and state advertising and promotional campaigns, included on state and regional websites, and will have a direct link to regional and state groups that will serve as a portal for business expansion and relocation leads.

§ Sunnyvale will purchase advertising that promotes the City as a good place to do business in business and trade journals that have regional and national distribution (e.g., Business Journal Fast 50, Technology, and Biotech publications that are prepared as inserts in Business Journal publications in other major markets).

Longer term actions-FY 2006 and beyond

o Promote and implement strategies about the ease of doing business in Sunnyvale. Maintain high visibility for the city as a strategy to overcome the disadvantage due to imbalance of class A, B, and C office/industrial space. Redevelopment of properties is a long term strategy. At the broker roundtable hosted by the City, brokers stated that it was unlikely that there would be significant redevelopment of class B & C office buildings until vacancy rates in Silicon Valley reach about 10-12%. The current vacancy rate is 16.6%.

§ Promotional materials

· Targeted high tech and biotech materials

· Branding – ads in Business Journal, Biz Ink, trade publications, and trade shows (BIO2005)

· BIO 2004 follow-up

§ Promotion and support for the Moffett Park Specific Plan as an incentive for redevelopment of Moffett Park.

§ Support development of the NASA Research Park & UC campus as an incubator of new start-up companies and new products or expansion of existing companies.

· Link local brokers and developers to activities at the NASA Research Park & UC campus so that they can develop compatible facilities in Sunnyvale. Spin-off companies and expansion companies will be looking for “market-ready” properties.

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.

Many smaller businesses will not thrive without City support. Small businesses have few employees and it is hard for them to make sufficient time to organize & participate in response to issues that may impact them. These businesses make important contributions to residents’ quality of Life. Larger businesses (sales tax producers) find it easier to attract employees if City’s quality of life is strong.

The concentration of services along El Camino Real makes it difficult to establish such services within the neighborhoods. Neighborhoods have older retail centers that are less competitive with newer facilities along El Camino Real.

Short term actions-FY 2005

o Continue to promote the commercial site at the corner of Tasman/ Fair Oaks to brokers, developers and drugstores and grocery stores in the ITR area.

§ Results: Planning Commission and City Council approved the rezoning of two sites at the corner of Tasman and Fair Oaks to commercial use in the ITR area to protect these sites for future retail development.

o Promote neighborhood shopping centers.

§ Results: Distribution and update of shopping center brochures, continue the Shop Sunnyvale campaign and add the shopping center brochures to the City web site (requested a PG&E grant to pay development cost for web site update).

o Support mall redevelopment activities and construction mitigation for downtown businesses.

§ Results: City Council approved the application for development. The construction mitigation plan is to be submitted by the developer for a future public hearing.

Longer term actions-FY 2006 and beyond

o Work with property owners to ensure that retail uses are retained when redeveloped; encouraging shopping center/façade improvements when new tenants apply for permits.

o Staff has submitted a study issue for the December workshop to analyze the benefits and disadvantages of incentives as economic development retention and attraction tools.

o Review policies and programs that support small local and independently owned retail businesses.

o Continue work with brokers to attract big box retail.

o Promote a positive image of Sunnyvale as a location for retail business through trade publications, trade shows and regional marketing programs.

o Downtown

§ Explore feasibility of a BID/PID

§ Specific Plan implementation in Town & Country

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.

These service businesses are at risk and will continue to be displaced. In addition to a retention issue related to supplier needs for larger businesses, this is a quality of life issue for residents. Service businesses, such as auto repair, upholsterers, carpet cleaners and others offer services to residents. Small local service businesses claim they are being forced out of locations because of high rents and high land values. Many of these uses are not compatible with neighborhoods. These companies were vulnerable during the economic boom because of the value of office/R&D developments and they are currently vulnerable because of the value of residential development and the pressure to redevelop properties as residential or mixed use.

Short term actions-FY 2005

o Monitor development activities to ensure that service businesses are not driven out of the City or to locations inconvenient for residents or other businesses by linking the businesses to resources to assist them with relocating in the City.

§ Results: Evaluate the impacts of pending development projects in the ITR and along Evelyn Avenue, contacting businesses to determine relocation needs and providing referrals to brokers who can assist in retaining them as the ITR redevelops to residential.

Longer term actions-FY 2006 and beyond

o Council ranked a study issue on special zoning districts in December 2003. The item was above the line for Community Development, but at Council direction, the issue was rescheduled to accommodate the decorative banner program and the review of the sign code for auto dealerships and big box retailers

FISCAL IMPACT

Future budget reductions beyond those planned for FY2004/2005 will impact planned service levels.

Should Council concur with a recommendation to participate in local and regional economic development promotional efforts designed to support business retention and business attraction leads, a budget modification is needed to fund these activities. Staff recommends Council approve Budget Modification No. 8 to carryover $12,000 from the Economic Prosperity program savings in FY 2003/2004 to fund the advertising and promotion of Sunnyvale as a good place to do business, and appropriate $5,000 from the General Fund Non Recurring Events Reserve to fund the annual dues to Joint Venture Silicon Valley Network.

BUDGET MODIFICATION NO. 8

FISCAL YEAR 2004/2005

Current

Increase

(Decrease)

Revised

General Fund

Expenditures:

812250 Joint Venture Silicon Valley Network

$ 0

$ 5,000

$ 5,000

Reserves:

Non Recurring Events

$ 469,012

($5,000)

$464,012

FY 03/04 Budget

FY 03/04 Actual Expend.

Variance

Carryover to FY 04/05*

Redevelopment Agency Fund

Expenditures:

244120 Support Business