How a Silicon Valley City Cut Landmark Deals to Solve a Water Crisis

Silicon Valley logged seven straight years of economic growth – coming out of the Great Recession like a runner out of the blocks. And the numbers aren’t simply tallied in ledger books and spreadsheets – the growth is visible in the slow slog of daily traffic, in the weekend open houses crammed with would-be buyers eager for $2 million starter homes and in the forest of construction cranes on the suburban horizon.

Silicon Valley has been bursting at the seams as developers try to keep pace. But there is one place in the last few years where you wouldn’t have heard the buzz of saws and the pounding of hammers – East Palo Alto, a small city of just 28,000 residents. The city is located roughly halfway between San Francisco and San Jose, at the southern edge of San Mateo County. It neighbors tony Palo Alto, home of Stanford University and Menlo Park, with Facebook’s ever-expanding campus just next door. A Financial Times story called the juxtaposition of Facebook and East Palo Alto “an ocean liner docked on the edge of an undeveloped country.”

While East Palo Alto is far from undeveloped, the fruits of the technology boom have mostly bypassed the city, which has been a majority minority community since the 1970s. And just as things seemed to be improving economically, growth stalled.

In July 2016, East Palo Alto issued a moratorium on development because the city couldn’t guarantee there would be enough water for new projects. This was when California was still in the midst of drought and abiding by mandatory conservation orders issued by Governor Jerry Brown. But East Palo Alto’s water shortage had nothing to do with the lack of rain.

“There is plenty of water, it’s just not ours,” says Carlos Martinez, the city manager.

East Palo Alto obtains all of its water from the San Francisco Regional Water System, run by the San Francisco Public Utilities Commission (SFPUC). It’s the same system that funnels Yosemite snowmelt via Hetch Hetchy Reservoir through a network of pipes, pumps and tunnels to San Francisco residents and 1.7 million others in the Bay Area.

At the time, East Palo Alto’s water allocation wasn’t enough for the city to keep growing. The hold on development meant that several high-profile projects couldn’t get off the ground, resulting in lost revenue for the city, which already lagged its Silicon Valley neighbors in economic health. The water shortage also meant a halt to plans for building more desperately needed affordable housing.

And so city officials began a multiyear journey to find new water sources – a process that would end with an unprecedented partnership involving neighboring cities, wealthy developers and affordable-housing advocates.

Historical Roots of a Water Crisis

Whenever Ruben Abrica gets the chance to talk to young people about politics, he tells them that every vote counts – at least at the local level. And it’s not just a platitude. Abrica was part of a group of residents that fought for the incorporation of East Palo Alto – an effort that, after decades of work, finally succeeded in 1983 by a mere 15 votes.

“We knocked on every single house and apartment,” says Abrica, who is now doing his second tour as the city’s mayor and was one of the first city councillors elected after incorporation.

The vote, though controversial at the time, was monumental. East Palo Alto became the 20th and newest city in San Mateo County. Despite its municipal youthfulness, the community has a much longer history.

Previously, East Palo Alto was an unincorporated town, and one that, in the decades after World War II, became a haven for African-Americans looking to settle in the Bay Area who were excluded or displaced from other cities due to racially restrictive covenants, unsavory real estate practices or so-called “redevelopment” efforts.

As a result, East Palo Alto’s population went from 70 percent white in 1960 to 60 percent black a decade later. The shifting demographic had economic implications.

“During this time of intensifying development in the region, East Palo Alto’s unincorporated status and racially diverse population effectively excluded it from the sources of development capital,” writes Stanford University urban studies lecturer Michael B. Kahan in the humanities journal Arcade.

While high-technology parks took off in other (majority white) Silicon Valley cities, East Palo Alto – at the mercy of the county – ended up with a lot of dirty development instead. This included the county dump, a hazardous waste disposal facility and other polluting industries. (Other areas of Silicon Valley also experienced an enduring legacy from several decades of high-tech manufacturing, which left Santa Clara County with the most Superfund sites in the nation.)

“What does it say to a community that the county designated them as a dump site or designated a toxic waste facility to be there?” asks Tameeka Bennett, who grew up in East Palo Alto and now is executive director of Youth United for Community Action, a nonprofit that helped shut down the toxic waste facility, Romic, after 43 years of operation. “It kind of says that you don’t care much.”

Many residents saw incorporation as a way for the city to forge a better path and tap into the region’s growing prosperity.

When East Palo Alto’s newly elected city government took over in the mid-80s it faced numerous challenges, but at the forefront were issues of affordable housing and tenant protections, says Abrica. And while East Palo Alto residents were worried about displacement and unscrupulous landlords, not to mention high crime rates, big decisions about water were taking place in the region.

The city’s entire water supply came from the SFPUC, which had been providing water not just to residents of San Francisco but also to roughly two dozen municipalities and water agencies in San Mateo, Santa Clara and Alameda counties.

These regional wholesale customers had come to be collectively represented by the Bay Area Water Users Association (later changed to the Bay Area Water Supply and Conservation Agency). And in 1984 they renegotiated their contract with SFPUC.

Under the terms of the 1984 agreement, which was later updated in 2009, wholesale customers would receive a collective minimum water supply of 184 million gallons a day. Wholesale customers divvied that allotment into shares for each city or agency.

The calculation was initially based on past usage and previous contracts. As such, new and slowly developing East Palo Alto received a small allotment of just under 2 million gallons a day. It proved too little to meet rising demand.

In 2000 the “Whiskey Gulch” neighborhood – East Palo Alto’s prime retail district, which contained affordable housing, nonprofits and small businesses (some of those liquor stores and bars) – was razed for a massive new development, University Circle, aimed at bringing in more tax revenue.

By 2006, University Circle would include 450,000 square feet of class-A office space, 15,000 square feet of retail space and a Four Seasons hotel. At the same time, East Palo Alto began to feel the squeeze on its water supply.

Between 2001 and 2015, the city exceeded its supply allocation four times. Finally, in 2016 East Palo Alto’s water situation reached a critical point. Several large development projects were lining up, and the city badly needed to build more affordable housing, but a water supply assessment showed that the city needed an additional 1.5 million gallons a day of supply.

“We had to institute a [development] moratorium because we couldn’t approve projects – we simply couldn’t assure them that we could supply the water,” says city manager Martinez. Affordable housing had to wait, along with developers hoping to build a private school and new commercial properties.

East Palo Alto city manager Carlos Martinez shakes hands with a worker at the city’s newly updated Gloria Way well. (Sarah Craig)

Looking Inward

When East Palo Alto was examining options to tackle its water problems, that included seeing what it could do within the borders of the 2.5 square-mile city.

But it turns out, there wasn’t much.

Gross per capita water consumption in East Palo Alto in 2015–16 was 58 gallons a day, one of the lowest in the region (and state). And residential per capita use was just 51.6 gallons a day – a stark contrast to the more than 218 gallons a day consumed by San Jose residents.

“We’ve been very good stewards,” says Mayor Abrica. “Generally, it’s wealthy communities which waste water, it’s not poor communities. People are mindful of how much they’re paying.”

The city doesn’t have big parks or golf courses that use lots of water, either. Potential gains made from conservation would be minimal.

One resource East Palo Alto did have, though, is groundwater. At least some.

“We commissioned a scientific study and looked at every inch of land in East Palo Alto that potentially had groundwater and lo and behold we found good water,” on a small slice of land the city owns in a Home Depot parking lot, says Abrica.

The city has already started on the design of the well, which they call “Pad D,” and construction is likely to start sometime in 2019. The city also owns an existing well on Gloria Way in a residential neighborhood a few blocks from the town’s library and municipal offices.

Contamination problems with the well had rendered the water undrinkable for years, but the city got to work on building a new treatment system. The water from the wells, though, was expected to help shrink the water supply gap, or minimally provide a much-needed source of local backup, but it wouldn’t be enough to meet all the East Palo Alto’s needs.

Looking Outward

The most obvious place for East Palo Alto to look for more water was its provider, SFPUC.

In May 2016, East Palo Alto requested that SFPUC consider increasing its allocation by 1.5 million gallons a day to close its projected shortfall. Others threw their weight behind the request, as well, including local business and community leaders like U.S.Rep. Jackie Speier, whose district includes East Palo Alto.

“I view the request of East Palo Alto as the latest chapter in a civil rights struggle that began decades ago when discrimination was lawful and widely practiced,” she wrote in a letter to the SFPUC.

But East Palo Alto’s allocation was also enmeshed in a complicated and changing water supply picture across the region. SFPUC was engaged in a multiyear process to update its long-term water supply plan, known as the Water Management Action Plan, which would designate water allotments for 2019 to 2040.

In doing so it needed to examine both the needs of its dozens of wholesale customers and also the future water supply picture in the region.

In addition to East Palo Alto’s request for more water, the larger cities of San Jose and Santa Clara were also seeking to have their allocations increased and made permanent (they had been classified as temporary, interruptible customers whose supplies could be curtailed).

But the biggest issue had to do with the big unknowns in SFPUC’s future water supply because the state was also engaged in a long process of updating a water plan for the Sacramento-San Joaquin Delta that could involve curtailments to the SFPUC’s supply from the Tuolumne River.

Given all the balls in the air for SFPUC, East Palo Alto knew a quick decision on its fate from the commission wasn’t coming soon and so it began to look for other options.

Even though East Palo Alto was consuming all of its supply allocations, it knew that other cities in the region had more water than they regularly used. They just needed to find one or two municipalities willing to part with some of it – something that had never been done before in the region. In California, giving up water is pretty much unheard of – especially in the wake of a five-year drought.

East Palo Alto is a small city of 28,000 residents in San Mateo County, California. (Sarah Craig)

Neighborly Help

There was nothing to suggest that Mountain View’s monthly city council meeting in May 2017 would be historic – no big crowds, no fanfare. But item number 7.2 on the agenda, coming after information on street resurfacing, was an important order of business: a vote on whether to approve a permanent water rights transfer of 1 million gallons a day to the nearby city of East Palo Alto.

“This is our opportunity,” East Palo Alto’s then-mayor Larry Moody said at the meeting. “If we are able to do this water transfer today we can become a community that’s … pursuing our hopes and dreams.”

After exhausting other possibilities for securing more water, East Palo Alto officials focused their efforts on two cities, Mountain View and Palo Alto, which were open to talks about a potential water transfer.

For Mountain View, the water supply picture, even in the midst of drought, was good. The city, home to Google and other tech companies, has an allocation of 13.5million gallons a day, which they hadn’t come close to using in 30 years, according to Gregg Hosfeldt, assistant public works director for the city. During California’s recent drought, Mountain View residents cut consumption by 24 percent in two years.

The city currently was using just over 7 million gallons a day. That’s good news on a conservation front, but bad news financially for Mountain View. It is one of four cities in the regional water system with contracts that stipulate that it must purchase a minimum amount of water each year from SFPUC. For Mountain View, its minimum is 8.9 million gallons a day.

Mountain View’s staff had calculated that the city was likely to pay $8.5 million over the next four years for water it wouldn’t use. So, they worked out a plan to transfer a water right of 1 million gallons a day to East Palo Alto for a one-time fee of $5 million, which would ease East Palo Alto’s water troubles and help take some of the sting out of paying for unused water.

“Knowing what East Palo Alto was facing and knowing what our situation is and knowing that no other agency was stepping up, we kind of made a leap of faith and started working with them to see how we could make this fly,” says Hosfeldt.

Mountain View then-mayor Ken Rosenberg closed out the city council meeting by saying, “Access to clean drinkable water is a human right and we’re doing human rights work on this vote.”

With a whoop and some clapping from the small audience in attendance, the councillors voted 6-1 in favor of the water transfer.

A month later East Palo Alto’s city council approved the transfer, which was subsequently greenlighted by the SFPUC.

The deal was advantageous to all sides, but the fact that it was struck was still groundbreaking.

“Nobody sells water – you just don’t do that,” says Hosfeldt. And from a negotiating standpoint, there wasn’t a lot of precedent, either. “If you look historically, there is probably none of these deals to look at – we’re breaking new ground.”

How East Palo Alto funded the project was a first, too.

The city didn’t have $5 million in the bank, so it got creative. East Palo Alto kicked in $470,000 from its general fund. Another $1.53 million was split between three big developers – the Sobrato Organization, 2020 Bay Road and The Primary School (a project of the Chan Zuckerberg Initiative, the philanthropic organization of Facebook founder Mark Zuckerberg and his wife, pediatrician Priscilla Chan). The Sobrato Organization also agreed to loan the city $1 million and the Chan Zuckerberg Initiative gifted an additional $2 million, $500,000 of which was to be used to create a permanent position for an affordable housing manager for the city.

Water and affordable housing in East Palo are intertwined.

At the same time East Palo Alto was focused on more water to spur economic development, it was also trying to prevent that development from displacing the city’s residents – many of whom are low- and middle-income. East Palo Alto is one of the most affordable places (relatively speaking) left to live in Silicon Valley, but that’s changing quickly as the tech boom ripples through the region and is likely to accelerate with a stable supply of water.

Bennett of Youth United for Community Action called the development moratorium resulting from the city’s water shortage both a blessing and a curse. It prevented the construction of new affordable housing, “which has been a detriment to the community,” she says.

But at the same time East Palo Alto is fighting “rapid gentrification,” she says, and the moratorium bought them some time. “It gave us a chance to do some visioning about what we want to see in East Palo Alto and to figure out some tools to get us to what we envision,” she adds.

Decades ago East Palo Alto was a city known chiefly for its high murder rate, but community groups and elected officials have worked hard to fight corruption, lower crime rates and bring in more tax dollars through development. As Silicon Valley has become more expensive, East Palo Alto’s allure increased. Over the last five years, the median sales price of a two-bedroom home in East Palo Alto has increased 153 percent to $985,500, according to the real estate company Trulia.

Bennett wants to see the community grow, but not at the expense of those who already call it home. “We wanted to become a city because it was our sense of place, of where we could belong, and now people want to take that away from us,” she says. “That’s not that easily put into words – it’s the unseen part of gentrification.”

Right now East Palo Alto feels like a city on the cusp of something, and longtime residents want to make sure they have a say in what that something is.

“We are receiving all the negative impacts [of Silicon Valley’s growth] – a lack of housing, increased traffic – and yet we remain a community that has a lot of needs, more needs than anyone else,” says Martinez. “But we have less employees and less revenue to provide the services that the community needs.”

With more water, he hopes they can create more city revenue and more services and opportunities for residents.

One Deal Away

With the Mountain View deal closed in the summer of 2017 and the city about two-thirds of the way to meeting its water supply needs, East Palo Alto then focused on securing one more deal – this time with neighboring Palo Alto.

The two cities decided to work on three collaborative projects, one of which was a water transfer agreement of half a million gallons a day from Palo Alto’s allocation with the regional water system, according to Ed Shikada, Palo Alto’s assistant city manager. The other two were a bridge project and traffic signal synchronization.

“We thought it would be good to move the three [projects] together,” says Shikada. And because the water deal is part of multiple cooperative projects between the cities, Palo Alto did not seek payment for the water transfer.

“Recognizing that East Palo Alto does have economic development needs including low-income housing and educational facilities that have been held up on the basis of the water supply being unavailable, those are valuable community assets we’d like to support,” he says.

Palo Alto’s City Council voted to approve the water transfer in May.

“This action by Palo Alto, combined with previous action in 2017 by the city of Mountain View, provides the water necessary for East Palo Alto to move forward with its sustainable growth plans envisioned in their General Plan to benefit its residents,” says Nicole Sandkulla, chief executive officer of the Bay Area Water Supply and Conservation Agency, of which all three cities are members.

For officials in East Palo Alto, a secure source of water means that they can focus more attention on other issues. The city has spent so much time thinking about its physical infrastructure, it’s time to focus on the human infrastructure and services for residents, says Abrica.

“I hope we keep our spirit of trying to look after the most vulnerable people in housing, which is not an easy thing,” he says. “We would like for people to stay here if they want to and not be displaced, and we would like for the fruits of the development to make life good for all of the community.”