SunnyvaleRTC

The City Council last reviewed the Economic Development Program in September 2004. At that time, staff stated that it would provide another update to the City Council prior to consideration of the next operating budget. That is the purpose of this report.

Since the last update, the City manager and the Economic Development staff have completely restructured the budget for the program to more directly reflect the purpose of the economic development function and to more clearly describe the activities of the program. Although the two-year strategy outlined in this report continues to implement the goals and priorities established by City Council in 2004, staff recommends that Council approve a revised set of goals which more directly reflect the program restructure, and set priorities for staff attention over the next two years. The goals and priorities proposed by staff are presented in Attachment C, together with typical action strategies which staff will undertake if Council approves the goals and priorities.

City Council has expressed the desire to periodically review and provide direction to the Economic Development Program as changes occur in the local economy. This update to the City Council discusses the proposed structure for the Economic Program for FY 2006/07 and 2007/08 and is being provided prior to the Budget Workshop on May 23 and adoption of the two-year Resource Allocation Plan in June.

The City Council last reviewed and approved the goals for the Economic Development Program on September 28, 2004 (see page 4 of this report). The goals set a direction within which staff developed short-term and long-term action strategies for use of resources to support economic growth in Sunnyvale over the next two years. The following are highlights of actions taken by staff to achieve the goals adopted by the City Council in 2004. (Attachment A is a more complete summary of action strategies initiated by staff and results to date.)

In accordance with Council direction, staff has focused on large sales tax producers, primarily retail, as evidenced by the attraction of Circuit City, Best Buy, PetSmart and Lowe’s. Ongoing meetings with the auto dealers have resulted in formation of the Sunnyvale Dealers Association, and City Council amended the sign regulations for El Camino Real to permit larger signs for major sites, including auto dealerships. The update of the Precise Plan for El Camino Real is underway and planned for adoption in FY 2006/07.

There has been no increase in Class A office space in the city over the past two years. However, the adoption of the Moffett Park Specific Plan on April 27, 2004 lays the groundwork for significant new development once the office market in Silicon Valley rebounds. Some activity is underway with the expansion of the Network Appliance campus and the office development proposed by Jay Paul adjacent to the Ariba campus and Lockheed Martin. In Peery Park (in the vicinity of Mary and Maude Avenues), the original intent was to promote attraction of bio-tech and life sciences companies. The reality is that these companies are locating throughout the city rather than in a single cluster. Staff is meeting with property owners in Perry Park to develop strategies to revitalize this ageing industrial area.

Service uses, such as print shops, machine shops, locksmiths, auto repair and appliance repair, are easily priced out of real estate markets that are experiencing high demand for land for either office or residential developments. Council approved moving forward with the process to rezone to C4 portions of The Woods and areas along Evelyn Avenue, San Lazaro and Commercial Avenues to ensure service uses will not be pushed out by property owners who wish to convert their properties for uses that the market makes more profitable.

NASA Research Park has approval for 4.2 million square feet of new construction and 56,000 square feet of historic renovation. NASA and Google signed a memorandum of understanding (MOU) in September 2005 that outlines plans for cooperation on a variety of areas, including large-scale data management, massively distributed computing, bio-info-nano convergence, and encouragement of the entrepreneurial space industry. The MOU also highlights plans for Google to develop up to one million square feet within the NASA Research Park at Moffett Field. Several universities already have space at the park, led by Carnegie Mellon West Coast campus, Stanford, San Jose State and Santa Clara University. Because of the locational advantages of Sunnyvale’s proximity to NASA Ames Research Center and the NASA Research Park, the community has benefited from their research emphasis on the convergence of bio-technology, information technology and nanotechnology. Twenty startup companies have worked at the research park since 2002, including ION American, a company that makes fuel cells, and Aracor/Rapiscan System High Energy Inspection Corporation; both were attracted to Sunnyvale. Economic Development worked closely with the companies to find a suitable location in the city and continues to work with NASA to obtain leads about companies looking to expand outside the research park.

Outreach to ethnic business has begun with the recent Business Resource Fair, which was co-sponsored by the Greater San Jose Hispanic Chamber of Commerce and the Hispanic Chamber of Silicon Valley. The Mayor is hosting roundtables with ethnic business groups to gather their insights on how the City can more effectively communicate and partner with ethnic businesses, which are a growing segment of our economy. For example, a recently completed survey of business owners released by the U. S. Census Bureau finds that Hispanic-owned businesses grew 31 percent nationally between 1997 and 2002.

The Mary Manor shopping center has been successfully redeveloped into 31 single-family homes and 12,000 square feet of new neighborhood retail shops. The new smaller retail center provides needed neighborhood services and generates more sales tax than the pre-existing larger shopping center.

Staff is continuing to work to attract a new community shopping center serving northern neighborhoods. Two sites, totaling 9.6 acres, were rezoned to commercial at the intersection of Fair Oaks and Tasman. Staff has met with representatives of major grocery store and drug store chains and is exploring the use of a CDBG Section 108 loan to assist with offsite improvements to enhance the site and make it economically feasible to achieve the goal of providing a supermarket in North Sunnyvale.

The Downtown Design Plan was adopted in April, 2002, and the Downtown Specific Plan was amended on October 14, 2003. A Disposition and Development and Owner Participation Agreement (DDOPA) was approved by the Redevelopment Agency with Forum Development Group on August 17, 2004. The bankruptcy of Town Center Mall was resolved in April of 2005. The first phase of demolition is completed. We are hopeful that construction of the new mixed-use center will move forward shortly. The conceptual design of a wayfinding system was completed, and final design is scheduled for 2006. Staff has worked with the Sunnyvale Downtown Association and merchants on a possible Business Improvement District (BID), and City Council authorized $6,400 to undertake a feasibility study on December 13, 2005. The results of the feasibility are to be presented to City Council before the end of fiscal year 2005/06.

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.

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 balanced economic base that can resist downturns of any one economic sector.

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

Policy 7.1a.1: Revenue base: maintain a diversified and stable revenue base for the city

Economic development is a citywide effort that requires participation by elected officials, City departments, and business organizations in Sunnyvale and the region. The City of Sunnyvale Economic Development Division serves as a coordinator to bring together the efforts of all the participants. The most effective way to promote Sunnyvale and develop the local economy is to involve the local leadership of the City government and the local business community in the process. “Although local governments play an important role in local economic development, the roles of other groups are at least as important… many organizations participate in the creation of local economic development strategies, including local chambers of commerce, private businesses, citizen advisory boards, public-private partnerships, state government, utilities, and private economic development foundations.”[1] Ted Levine, founder and chairman of Development Counselors International, a firm that has specialized in economic development marketing and sales wrote, “In economic development today, partnership is literally the name of the game: partnership between communities, between communities and one or more utilities, also with the state, the banks, the real estate brokers, the construction companies, the academic community, and in a few cases even the labor unions.”[2]

The Citywide budget restructure process has provided an opportunity to more clearly state the role of Economic Development and the ongoing tasks associated with the program. The proposed budget states the purpose of the Economic Development Program as follows:

Promote and maintain a strong and diverse local economy to provide jobs and services for our residents and tax revenue for the City to fund public services by:

Performance measures have been developed to measure the overall business climate of the City, but more importantly, to measure the effectiveness of the direct assistance and outreach provided through Sunnyvale’s Economic Development Program. Measures for revenues generated and jobs created are based only on those companies that receive support or assistance from Economic Development.

The proposed program structure for the Economic Development Program includes four service delivery plans and twenty-four activities. The service delivery plans and the activities are structured such that they inform the public about the specific tasks associated with economic development. One additional activity to “promote Sunnyvale as a destination” may be added pending the outcome of the budget workshop. The activity is proposed through a budget supplement which is to be considered separately at the workshop. The total proposed budget for the Economic Development Program in FY 2006/07 is $739,450 compared to the current budget of $710,939 (current year budget only reflects six months management salary adjustment).

Modifications to the goals of the Economic Development Program could be made, as follows, to better align the goals with the performance statement:

The following is a discussion of staff’s proposed work plan over the next two years to achieve each of the six goals.

Business attraction and recruitment programs are designed to bring new companies to a community or a region. In the proposed budget, the business attraction budget is a little more than half of the budget for business retention in recognition of the fact that a strong business retention program is the foundation for business attraction. Business attraction activities are focused on ensuring that Sunnyvale’s reputation as a good place to do business is recognized beyond the immediate region. Many of the same economic development components and tools used in business attraction and new business development also support business retention. These components/ tools include marketing, assistance with land and buildings, infrastructure, financial assistance (including linking companies with available sources of capital), workforce development, availability of technology resources, assistance with energy and environmental regulations, and assistance with permitting and licensing.[3]

The strategy associated with business attraction includes a proactive program of generating contacts with site selectors, brokers, businesses and developers. To minimize the cost to the City for these activities, these leads will be generated through Team California (a statewide economic development marketing group), the Bay Area Marketing partnership and the Silicon Valley Economic Development Alliance.

Through outreach and marketing, the City hopes to attract corporation headquarters with an emphasis on large sales tax producers. Companies such as Juniper Networks and Network Appliance, auto dealers and large retail establishments that have chosen Sunnyvale as a place to do business provide significant revenues to the City to support essential services and quality of life amenities.

Sunnyvale is home to a growing number of life science and bio-medical device companies. Medical device companies are targeted as a growing industry cluster in the Bay Area and Silicon Valley. Bio-medical device and life sciences instrument companies generate sales tax to the community as well as add a significant number of new jobs. The Bay Area ranks #1 in the nation in the life sciences instrument manufacturing and #2 in medical device manufacturing.[4] At least one-third of the U. S. life science sector is based in northern California and surveys reflect an optimistic growth picture among life science executives. Life Science companies in northern California are projected to add new employees at 10-20% per year over the next several years.[5] Through the resources of BayBio, who represents northern California’s life sciences community, staff can more easily identify these companies and target those that will generate sales tax revenues for the City.

The City’s website is an important source of information for companies which are considering location of all or a portion of their business in Sunnyvale. Currently, the City is going through a process that will make the website more user friendly to both residents and businesses and ensure that the data that is critical to the site selection process is readily available to businesses and site selectors researching viable locations.

In 2003, the City entered into a contract with LoopNet to provide information on available commercial and industrial properties in Sunnyvale. This service has been positively received by companies exploring potential locations in Sunnyvale and surrounding communities. Economic Development is participating with the Silicon Valley Economic Development Alliance (SVEDA) in reviewing a proposal for enhancements to the regional website that lists available commercial properties in the region and is searchable city-by-city. In addition to the available commercial properties, the website will provide an analysis for a selected radius that identifies other companies in the area, drive times, population and workforce data; property reports; property comparisons; and mapping capabilities. The City website will link directly to the Sunnyvale data at www.siliconvalleyonline.org. The cost to the City is approximately the same as that for the property listings provided by LoopNet. The data and increased functionality will meet specifications established by site selectors through the International Economic Development Alliance. Although funds are not currently budgeted, the City will have the option of hosting the Sunnyvale-specific data on the City’s website in the future.

It is anticipated that the business attraction efforts will generate leads and requests for proposals from businesses interested in locating in Silicon Valley and Sunnyvale. Economic Development will prepare responses based on the interests of each business, assist with site location through referrals to brokers and marketing specific locations based on their requirements, organize advocacy teams to meet with the business representatives to collaborate on and address business development issues, and fast-track companies through the City development approval and permitting processes.

Business retention and expansion is one of the core components of economic development programs. As with business attraction, staff will continue to focus on large sales tax producers in the retail sector as well as in industrial business clusters in accordance with previous Council direction. This will be achieved through the continuation of business visits, networking and linking businesses with resources to allow them to stay and grow in Sunnyvale.

Business retention and expansion programs assist businesses in an effort to keep them from relocating to other areas, help them survive economic difficulties, and assist them with expansions that add new jobs. A basic rule in business marketing is that 70% of all business comes from repeat clients. Research has shown that 65% to 80% of new jobs are created by existing businesses in a community. An effective business retention program also gives credence to a business attraction and recruitment program because existing businesses are the best sources for finding out if a locality or region is a good place to locate and conduct business. When a community has an effective business retention and expansion program that is concerned with the economic well being of its existing businesses, its reputation as a place to do business is greatly enhanced.[6]

Business retention is the largest effort of the Economic Development Program, representing approximately 34% of the total hours for the program. In the Business Attraction and Business Retention SDPs, about one-third of the combined hours and dollars from both SDPs are allocated to attraction and two-thirds to retention and expansion.

Economic Development provides ombudsman assistance to businesses based on the interests of each business, assists with site location through referrals to brokers and marketing specific locations based on the requirements of a business, organizes advocacy teams to meet with the business representatives to collaborate on and address issues related to development projects, and fast-tracks businesses through the development approval and permitting processes. The information on the City’s website is designed to meet the needs of existing businesses as well as attracting new businesses to the city.

To maintain and enhance the business climate in Sunnyvale, Economic Development will continue to reach out to businesses through business visits and forums to address business issues, and guide businesses to available resources, including City services and financial resources from the Small Business Administration and other governmental entities. Economic Development is continuing to build its database of resources offered by the chambers of commerce, the Moffett Park Business and Transportation Association, and other business organizations. These groups can offer services that meet the specialized needs of businesses based on size and/or type of business.

Economic Development promotes resources to businesses through newsletters, email communications, and advertising in business publications and newspapers. Support to businesses will continue by connecting them with resources to help grow their businesses in Sunnyvale. In 2005, the City hosted the first annual Business Resource Fair for small business development. Several of the sponsoring organizations have approached the City and offered assistance to expand the event for 2006. For the past seven years, the City has hosted the Rising Star event that recognizes businesses for their accomplishments over the past year. In 2005, the event was opened to the general public and a speaker invited to talk about the Silicon Valley economy and how Sunnyvale fits into the economic outlook.

At the January 30, 2006 Fiscal Issues Workshop, the City Council reviewed the request from the Sunnyvale hotel and motel industry for a project budget to promote the city as a destination and increase revenues to local businesses. City Council recommended $35,000 be added to the Economic Development Division budget for Fiscal Year 2006/2007. The funding will be considered as a budget supplement during budget deliberations. The City Manager has convened a group of Sunnyvale business and community representatives to discuss how to promote Sunnyvale to business travelers, residents and out of town visitors to encourage them to patronize Sunnyvale businesses at restaurant and entertainment venues and to stay in Sunnyvale hotels. This group is exploring what level of promotion is necessary and how to best leverage participation by both the private and public sectors. This group expects to formalize its recommendations by the end of fiscal year 2005/06.

The goal of promoting investment and reinvestment in commercial and industrial neighborhoods supports both business retention and business attraction. The upturn in the Silicon Valley economy signals the beginning of the next round of high-tech office/industrial development. Sunnyvale continues to lack substantial Class A office space for expanding companies as well as companies looking to locate in the area. New or refurbished office space is essential to be able to compete with neighboring communities such as North First Street in San Jose and Santa Clara to retain companies.

The Economic Development Division has been marketing Moffett Park development opportunities to developers, brokers, and high-tech businesses through advertising in business publications, and mailings to property owners, businesses and brokers. A forum will be held in Moffett Park to present the development opportunities resulting from the adoption of the Moffett Park Specific Plan. Additional attention will be brought to this area through the marketing and outreach efforts at trade shows and in trade publications. The CoreNet (Construction and Real Estate Network) trade show and publications will bring Sunnyvale to the attention of high tech developers and site selectors to achieve the goal of increasing Class A office space and attracting corporate headquarters to the city.

By the end of the current fiscal year, staff will have initiated preparation of a strategy for the Peery Park area. The Economic Development and Planning Divisions will evaluate the zoning and other tools for this area to determine if sufficient incentive is provided to cause recycling of the buildings to Class A or renovation to Class B structures. Economic Development will work with the property owners, brokers, and each new owner to facilitate the attraction of strong growth companies (including life sciences/biomedical device companies) and to encourage significant reinvestment in the area.

In accordance with previous Council direction, staff will continue to focus on the retail sector to retain and bring needed services to our residents and sales tax income to the City.

In addition to the Downtown and attracting big box retail to El Camino Real, a high priority is the attraction of a grocery store at Tasman/Fair Oaks. As recommended in the Community Development Strategy, a site has been identified at the northeast corner of Tasman and Fair Oaks to provide a grocery store to serve the northeastern residential neighborhoods. To date, both the land price set by the present owner and access problems vis-à-vis the light rail line have discouraged potential developers and grocery store tenants. It appears that a grocery store can only be developed as part of a mixed-use residential/retail project. The Economic Development Division will work with the Planning Division and Housing Division to develop a package that will bring together a viable developer and the present landowner.

The redevelopment of Downtown Sunnyvale into the true functional, social and symbolic center of the city remains a top priority. Construction of the mixed-use Town Center project and initiation of redevelopment of Town & Country Village should be substantially completed in the next two years. Economic Development has the primary responsibility for coordinating the construction mitigation measures for the businesses and residents in and around the downtown, as well as outreach to the broader community for support of the businesses during the construction activity.

The level of support for this goal will likely fluctuate over the next several years depending on the timing for completion of the mall project and potential redevelopment of Town and Country. Staffing requirements will be reviewed in FY 2009/10 after the expected completion of the mall with the intent of moving staff hours to the General Fund or eliminating hours. The FY 2006/07 20-Year financial plan will reflect these resource adjustments.

Support for downtown business organizations is provided in two areas. The Sunnyvale Downtown Association is currently developing an action plan to form a Business Improvement District (BID). This effort is critical to the long-term success of Downtown as a commercial center and is also important to the City to relieve it of the special maintenance and marketing support it has been providing Downtown. The majority of this work to put the BID in place is to be done in FY 2006/07. The BID will require an annual renewal process and some staff requirements will be necessary to provide a minimal level of ongoing support to the business organization(s). The staffing requirements for the Parking Maintenance District will depend on whether the property owners in the District approve a multi-year assessment. This report is scheduled to come before the City Council on May 16. The votes for the assessment will be tallied in July.

Because economic development is a function that relies on networking, Economic Development routinely meets with staff in each City department to remind and encourage them to contact the Economic Development Division when they hear that a company has a problem that needs to be addressed or is considering expansion or relocation. Field staff and inspectors have ongoing communications with companies and can be a valuable resource for early intervention. Elected officials and City employees attend meetings or functions where businesses are present and valuable information or insights often arise from informal conversations. The Economic Development Division will continue to work with elected officials, City employees and members of the community to highlight their role in the citywide economic development efforts.

The Sunnyvale Supports Business/Business Supports Sunnyvale campaign will continue by promoting the value of business to the residents and through events that support and acknowledge businesses. Communication with residents occurs through presentations to neighborhood associations, information in the Quarterly Report about how dollars spent in Sunnyvale translate into revenues that support City services and quality of life, and Shop Sunnyvale advertising in the newspaper. Information on shopping centers in the city is continually updated and is available at the Library, Community Center, Senior Center and other public locations and on the City’s website.

Over the past several years, Economic Development has worked with NOVA, Fremont High School, Sunnyvale Rotary and the Sunnyvale Chamber of Commerce to bring businesses to the school to provide students with information and business contacts that expose students to career opportunities. As this event has grown, Fremont High School has been able to network with these businesses to get them involved as classroom speakers, assistance with curricula development and some companies have provided visits to their sites for the students and the teachers. Businesses have been recruited for the City’s Health and Safety Fair and National Night Out. Economic Development will work with businesses to continue to link them to educational development and other community activities that are of interest to their employees. These opportunities often arise as part of the discussions during visits to companies as well as through contacts made at the Rising Star and other events.

Approval of the economic development strategy has no fiscal impact. The strategy will implement the proposed budget for FY 2006/07 and 2007/08. Should Council make adjustments to the proposed funding during the budget deliberations, the strategy will be revised to reflect those changes.

The economic development strategy recognizes that economic development is a citywide effort that requires participation by elected officials, City departments, and business organizations in Sunnyvale and the region. The Economic Development Division serves as a coordinator to bring together the efforts of all the participants. The proposed program structure was developed to clearly communicate to the public what economic development does to support businesses and to bring residents and businesses together to build a stronger community. The program performance measures will focus specifically on the role the Economic Development Division and the City of Sunnyvale has in affecting the Sunnyvale economy and business climate.

Staff has identified a need for revisions to the goals for Economic Development to better align the goals with the proposed performance statement and budget restructure for the Economic Development Division. These revisions do not significantly alter the strategy for the program.

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. The report has been provided to business organizations including the Sunnyvale Chamber of Commerce, the Moffett Park Business and Transportation Association, the Sunnyvale Auto Dealers Association and the Sunnyvale Downtown Association.

1. Approve the proposed goals and priorities for the Economic Development Program (see Attachment C)

2. Modify the proposed goals and priorities for the Economic Development Program.

The City Council reviewed budget restructures for City departments at the special meeting that was held on February 4, 2006. Council requested revisions to the performance measures which are reflected in the proposed budget restructure. The program structure, revised goals and priorities define more clearly the role of the Economic Development Division and the City in supporting businesses in Sunnyvale. City Council will take formal action on the proposed budget with the adoption of the Resource Allocation Plan in June. Staff believes that the revised program structure will clarify the functions of the Economic Development Program, and that the revised goals will provide clear policy direction to staff. Therefore, hereafter, the presentation of the proposed operating budget will provide the opportunity for Council review of the Economic Development Program.

[1] International City/County Management Association, “Economic Development 1999”: summary figures available at http://www1.icma.org/main/sc.asp?t=0

[2] What’s the Difference Between Good and Great Economic Developers? by Ted M. Levine, The IEDC Economic Development Journal, Volume 4, Number 4, Fall 2005.

[3] Business Retention and Expansion, International Economic Development Council training curriculum, 2002, pp. 6, 8

[4] California Life Sciences Action Plan: Taking Action for Tomorrow, p. 7, http://www.baybio.org/pdf/California%20Life%20Science%20Action%20Plan%202004.pdf

[5] BayBio Impact 2005, p. 24, http://www.baybio.org/pdf/BayBio_IMPACT_05_final.pdf

Business Retention and Expansion, International Economic Development Council training curriculum, 2002, pp. 5-9