EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: March 15, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Jaime M. Fontes, City Manager
BY: Rachel Horst, Housing and Economic Development Manager Amy Chen, Community & Economic Development Director
Patrick Heisinger, Assistant City Manager
SUBJECT: First Source Hiring Ordinance
Recommendation
1. Waive the First Reading and introduce an Ordinance titled, “First Source Hiring for CityFunded Projects and Properties,” adding Chapter 5.11 to the East Palo Alto Municipal Code;
2. Direct the City Manager to draft and return with Administrative Guidelines; and
3. Direct the City Manager to make comprehensive updates to the City’s procurement processes and construction documents, as necessary, to ensure the First Source Hiring Ordinance is administered correctly.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
Priority No. 1: Enhance Public Safety and Emergency Preparedness Priority No. 2: Enhance Economic Vitality
Background
First Source Hiring Policy (FSH)
A First Source Hiring and Local Business Enterprise Policy was initially approved for the City of East Palo Alto in 1994, with updates provided over the subsequent years. The most recent version of a First Source Hiring Policy (“FSH Policy”), adopted in 2001, applied to all projects receiving direct or indirect assistance from the City or the Redevelopment Agency (“Agency”) valued at over $50,000.1 This FSH Policy included a 30% local employment goal for all jobs created by the project and a 30% goal for local small business participation.
In 2018, East Palo Alto voters passed Measure HH, a parcel tax of $2.50 per square foot on commercial office spaces greater than 25,000 sq ft. Revenue from Measure HH is restricted to certain uses, including creating programs that facilitate access to job opportunities for East Palo Alto residents in the science, technology, engineering, and mathematics (“STEM”) sectors and building trades and strengthening the City’s FSH Program.
On October 6, 2020, the City Council approved a $125,000 agreement with Emerald Cities Collaborative (“Emerald Cities”) to provide review and analysis of the FSH Policy.
Key meetings and milestones are shown in the table below.
FSH PROGRESS AND MILESTONES
Date Milestone
January 27, 2021 Informational Community Kick Off meeting of Measure HH and FSH
June 15, 2021 City Council Meeting: FSH Policy – Best Practices Overview2 and initial consultant recommendations
September 29, 2021 FSH Public Meeting
November 1, 2021 City Council Study Session on FSH – staff recommendations for an updated FSH Policy
November 1, 2021 Study Session
At the November 1, 2021 study session, staff presented recommendations on an updated FSH policy and sought direction from City Council on the City’s approach to all categories of development projects, which included:
• City public works projects
• Projects receiving City subsidy
• Private development projects
• Private development projects seeking City concessions The City Council directed staff to return with an FSH draft ordinance that applies to City public works contracts and City-subsidized projects valued at $100,000 or more, or a project located on City property, with a requirement that:
• a minimum of twenty percent (20%) of the total work hours for the contract or project be performed by East Palo Alto residents; and
• a minimum of twenty percent (20%) of all New Hires be East Palo Alto residents for the duration of the contract or project.
1 The policy applied to all projects receiving a Subsidy. “Subsidy” was defined as: direct or indirect assistance by the City or Agency to a Developer that materially benefits the Developer, including, but not limited to, grants or loans of funds administered by the City or Agency, tax abatements or deferrals, issuance of bonds, and infrastructure improvements made for the purpose of facilitating or supporting a redevelopment project, land sale, a ground lease, or other project. 2 June 15, 2021 City Council Meeting:
http://eastpaloalto.iqm2.com/Citizens/Detail_LegiFile.aspx?Frame=&MeetingID=1402&MediaPosition=18039.335&ID=1775&CssCla ss=
The proposed First Source Hiring Ordinance for City- Funded Projects & Properties (“Ordinance”) is provided as Attachment 1.
Analysis
First Source Hiring Ordinance Overview
The main components of the Ordinance are summarized in the table, with further detail provided below.
Ordinance Component Description
Applicable Projects and Value Threshold • Public Works projects: $100,000 or greater
• Subsidized Projects: with a subsidy
from the City of $100,000 or more
• A project that is sited on property
leased from the City
Public Works Project FSH Minimum • 20% of all work hours for duration of project
• 20% of new hires for duration of
project,
o of which 5% must be
“disadvantaged” workers3
Subsidized Retail, Office, Administrative
Other Project * FSH Minimum
• 20% of total workforce
• 20% of new hires (for limited time)
Basic Requirements • First Source Agreement with
established hiring process
• Engagement with City employment
referral system
• Regular reporting to City
“Good Faith” definition Ability to demonstrate:
• Adherence to City-published
guidelines
• Submittal of City-approved Local
Employment Plan
• Information on new jobs provided
min. 48 hrs prior to hire to City job
coordinator
3 "Disadvantaged Workers" means an individual, who prior to commencing work on the public work, faces at least two of the following barriers to employment; (1) being homeless; (2) being a custodial single parent; (3) receiving public assistance; (4) lacking a GED or high school diploma; (5) having a criminal record or other involvement with the criminal justice system; (6) suffering from chronic unemployment; (7) emancipated from the foster care system; (8) being a veteran of the Iraq/Afghanistan war; or (9) being an apprentice with less than 15% of the required apprenticeship hours in the program.
• Worked with unions to hire East
Palo Alto residents
• Failure to hire residents on basis of
objective criteria
Waivers • Approval of any contract that does
not demonstrate ability to meet
FSH requirements would require
waiver, with City Council approval
only
Exempt Projects Small businesses (fewer than 10
employees)
Enforcement • City has authority to determine
compliance
• Public Works Contracts may be
paused or revoked as necessary if
provisions are not followed
• Civil penalties for noncompliance
*Applies to retail, office, administrative and other employment with more than 10 employees and in effect minimum of 3 years, based on size of subsidy.
Development Projects Subject to the Ordinance
As noted above, the Ordinance applies to City public works projects (“Public Works Projects”) and projects that receive City subsidy (“Subsidized Projects”) valued at or above $100,000, in addition to any project sited on a property owned by the City.
In the Ordinance, a Public Works Contract is defined as any contract with the City for construction, alteration, demolition or repair work, while a Subsidized Project is defined as a project that receives one or more of the following from the City within any twelve-month period:
• grants and loans
• tax abatements or deferrals
• fee deferrals or abatements
• infrastructure improvements that benefit the project
• land sale or ground lease below market value
It should be noted that, in a limited number of cases, a Public Works Project may not be subject to the Ordinance’s provisions because a state or federal funding source does not allow for it. The Ordinance provides that if any of its provisions conflict with federal or state funding, an Employer is “excused” from meeting the Ordinance’s requirements.
Total Workforce & New Hire Goal
The stated workforce and hiring goals of the Ordinance are for a minimum of:
• 20% of total work hours on Public Works Projects;
• 20% of new hires for Public Works Projects and Subsidized Projects; and • 20% of the total workforce in Subsidized Projects
to be East Palo Alto residents.4
Additionally, of the minimum 20% of new hires on Public Works Projects that are East Palo Alto residents, a minimum of 5% should be Disadvantaged Workers.
The Ordinance defines a Disadvantaged Worker as: an individual, who prior to commencing work on the public work, faces at least two of the following barriers to employment; (1) being homeless; (2) being a custodial single parent; (3) receiving public assistance; (4) lacking a GED or high school diploma; (5) having a criminal record or other involvement with the criminal justice system; (6) suffering from chronic unemployment; (7) emancipated from the foster care system; (8) being a veteran of the Iraq/Afghanistan war; or (9) being an apprentice with less than 15% of the required apprenticeship hours in the program.
The 20% new hire and total workforce goal for administrative, office, retail, and other types of Subsidized Projects is an ongoing requirement based on the amount of City subsidy, with a minimum of three years and maximum of 10 years after completion of construction. The Administrative Guidelines will specify the exact subsidy-to-year calculation and maximum number of years by type of Subsidized Project.
Please note that for larger City contributions to affordable housing projects, there may be additional provisions included in the loan agreement that result in the new hire and total workforce goal being in place for a longer period of time. For projects sited on a property leased from the City, the new hire and total workforce goal similarly would align with the terms of that lease or other agreement.
First Source Agreement & Referral System
Contractors and employers of City Public Works Projects and Subsidized Projects (“Employers”) are required to execute a First Source Agreement with the City that establishes a hiring process and further demonstrates how the Employer will make a good faith effort to meet the workforce and hiring goals of the Ordinance. The First Source Agreement also includes the Employer’s obligations regarding compliance monitoring, including proper record-keeping and promptly providing information to support staff’s annual reporting to City Council.
The Ordinance requires Employers to engage with a City-established employment referral system, including responsible City staff, and/or directly with unions, if applicable, when seeking new employees. For projects that will include new hires over time, Employers must also provide the City with hiring projections, including number, type, and qualifications for any projected jobs.
4 The Ordinance provides “credit” to Employers towards the 20% workforce or hiring goal if they can demonstrate that they have hired East Palo Alto residents in other projects outside the City. The Administrative Guidelines will specify how such credit would be determined and the maximum amount that a single Employer can receive. Additionally, Employers who achieve a minimum 30% of total workforce and total hours for four consecutive quarters will be required to submit only annual, rather than quarterly, reports to the City.
Additionally, in seeking East Palo Alto residents as employees, Employers (including subcontractors) on Public Works Contracts and Subsidized Projects should draw from local job training and apprenticeship programs. The Administrative Guidelines will further specify the types of programs that the City deems appropriate. Over time, staff expects that a more robust relationship will develop between any Measure HH-funded job training programs and the FSH program.
Incorporation of Ordinance into Existing Procurement & Public Works Procedures The Ordinance must integrate FSH into the City’s existing procurement practices. Staff anticipates that the City will need to update its construction documents to comply with the Ordinance on Public Works contracts.
If the Ordinance is adopted, the Ordinance requires the City to take the following steps, among others:
• Holding required pre-bid meetings for applicable projects to inform potential bidders of the Ordinance’s requirements;
• Including Ordinance requirements in all relevant documents and agreements, such as Requests for Proposals, Requests for Qualifications, Disposition and Development Agreements, Ground Leases, and others;
• Ensuring that the Ordinance’s requirements are included in agreements with all contractors, subcontractors, successors, and assigns; and • Evaluating all bids and proposals based on a respondent’s ability to meet the FSH requirement, or having met (or not met) FSH requirements in the past.
The Ordinance specifies that for any Employer seeking a waiver from the requirements of the Ordinance, the City Manager must make a formal request to the City Council. The Administrative Guidelines will outline this waiver process.
Implementation and Administration
In addition to incorporating FSH into the City’s procurement practices, there is an ongoing compliance monitoring component to the Ordinance that will require dedicated staff capacity. For example, staff is responsible for ensuring compliance for the duration of a project—which, in the case of a Subsidized Project, could be for several years after completion of construction -- and for providing regular annual reports to City Council on the status all current Public Works Contracts and Subsidized Projects. The Ordinance also requires staff to convene “a semi-annual meeting of stakeholders” to gather feedback on the implementation of the Ordinance.
As noted above, the City must establish and maintain an employment referral system to be used by Employers for new hires, and the Ordinance requires close collaboration with a City-based job coordinator to ensure timely announcement of open positions.
Administrative Guidelines
If the City Council adopts the Ordinance, staff must draft Administrative Guidelines, a complementary document to the Ordinance that explains in greater detail what projects are subject to the Ordinance, what is required of potential Employers and the City, and what mechanisms exist to implement and enforce the Ordinance.
Next Steps
If City Council introduces the Ordinance at this meeting, the Ordinance may be adopted at the next City Council meeting on April 1 and would take effect 30 days thereafter. The Ordinance would apply to future development projects only; existing FSH agreements under the current policy would remain in effect.
Following adoption of the Ordinance, staff would immediately begin drafting Administrative Guidelines. The initial Administrative Guidelines would be adopted by the City Council, with future amendments under the authority of the City Manager.
Staff anticipate that the Ordinance will require close coordination between Public Works and other City staff. As noted above, adoption of this Ordinance will require the City to review and update, where necessary, its construction documents to fully comply with the Ordinance.
Staff would also return to City Council with recommendations on future staffing of an FSH program. For FSH program implementation, the City may additionally hire a consultant that specializes in FSH programs or explore a partnership with the County of San Mateo.
In addition to developing the proposed ordinance, the City Council also directed staff to develop recommendations for a potential policy that encourages developers seeking concessions from the City for their project to voluntarily take steps to advance the goals of a City FSH program. The Ordinance does not capture these types of projects, but staff believes it may be possible to integrate FSH goals into projects on a case-by-case basis using the City’s discretionary authority or in some instances as part of a development agreement.
Fiscal Impact
There is no fiscal impact associated with this staff report. However, if the Ordinance is adopted, there will be an increase in administrative burden on the City to ensure compliance with the City’s FSH policy. As noted above, staff will return with recommendations for adequate staffing and potential partnership with San Mateo County to support the implementation of an FSH program.
Public Notice
The public was provided notice via publication in the Palo Alto Daily News on March 4, 2022, and by making the agenda and report available on the City’s website and at the San Mateo Co. Library located at 2415 University Avenue, East Palo Alto.
Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guideline section 15378 (b)(5), in that it is a government administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Ordinance