East Palo Alto City Council
June 16, 2026

Governor Newsom issued executive order N-10-21 calling on a statewide voluntarily reduction in water use by 15% compared to 2020 levels. In January 2022, the SWRCB adopted an emergency drought regulation that prohibited specific water waste activities identified in the Governor’s October 2021 proclamation. In May 2022, the SWRCB adopted emergency regulations that, among other actions, required suppliers to enter Stage 2 of their WSCP. The requirement was lifted in March 2023, and the drought SOE was officially terminated in September 2024.

During this same period, SFPUC and BAWSCA coordinated drought response actions in response to local water supply conditions. SFPUC initially issued a request to voluntarily curtail water use by 15% in July 2021. As drought conditions worsened, SFPUC declared a Water Shortage Emergency in November 2021 and called for a 10% voluntary reduction in water usage system-wide, followed by implementation of drought surcharge. In response to the SWRCB’s May 2022 emergency regulations, the SFPUC adopted a system-wide voluntary water use reduction of 11% associated with Stage 2 of the SFPUC’s WSCP and maintained voluntary reductions through April 2023.

City of East Palo Alto Water Drought Response
The City initiated administrative drought response measures in April 2021 and formally entered Stage 2 of its 2020 WSCP in June 2022, implementing measures such as intensified customer outreach and outdoor irrigation restrictions.

Figure 3-1 below shows the City’s monthly and cumulative water use reductions between April 2021 and June 2023, compared to the baseline year of 2020. Water use reductions were observed shortly after initial actions were implemented, with measurable savings beginning in July 2021. Over time, cumulative water use reductions increased as drought conditions persisted, and response measures intensified.

Figure 3-1 Monthly Water Use and Cumulative Water Use Reduction, 2021-2023 269
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Effectiveness of Drought Response
As shown on Figure 3-1, cumulative water savings reached 8% by March 2022 after implementing administrative drought measures. Implementation of the City’s WSCP Stage 2 provided an additional 1-2% of cumulative water savings, reaching 9% by the end of the drought.

Overall water savings during the 2021-2023 drought were lower than those achieved during the 2014-2017 drought, when cumulative reductions reached approximately 22%. This is likely due to a combination of factors, including differing State restrictions, the effects of demand hardening, and messaging fatigue from both the drought and the COVID-19 pandemic. Additionally, water use in 2020 was likely deflated and influenced by pandemic-related behavior. Comparison to a 2020 baseline year may result in conservative estimates of savings achieved during the drought.

The City’s experience during the 2021-2023 drought highlights these key considerations for future drought planning:  Administrative actions and messaging without water use restrictions can drive early-stage savings prior to formal WSCP stage implementation.  Continued long-term reductions in per capita water use have reduced discretionary demand, making additional cutbacks more difficult to achieve compared to prior droughts. As discussed in Section 4 of the UWMP, the City’s per capita water usage is among the lowest of its BAWSCA neighbors.  The timing and effectiveness of conservation messaging significantly influence customer response. Initial drought awareness drives reductions, but sustained engagement is challenging due to messaging fatigue, particularly when overlapping with other major events such as the pandemic.
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4 ANNUAL WATER SUPPLY AND DEMAND ASSESSMENT PROCEDURES
On an annual basis, East Palo Alto will conduct an Annual Supply-Demand Assessment (Annual Assessment) to identify whether there is likely to be a water shortage condition in the following year.

Because East Palo Alto’s primary source of potable water supply is from the SFPUC RWS, the evaluation of City supplies for a particular year will be based on information provided by the SFPUC or BAWSCA. East Palo Alto will conduct the Annual Assessment as part of a coordinated effort led by BAWSCA. The procedure used by BAWSCA in conducting an Annual Assessment is outlined in Attachment 2 of this WSCP.

Use of the City’s Gloria Way Well is assumed to be 100% reliable, since the well operates at a duration and flow rate that is significantly less than its design capacity and within projected volumes that were estimated could be pumped without impacts to the local groundwater basin.  CWC § 10632 (a) (2)
The procedures used in conducting an annual water supply and demand assessment that include, at a minimum, both of the following:
(A) The written decision-making process that an urban water supplier will use each year to determine its water supply reliability.
(B) The key data inputs and assessment methodology used to evaluate the urban water supplier’s water supply reliability for the current year and one dry year, including all of the following:
(i) Current year unconstrained demand, considering weather, growth, and other influencing factors, such as policies to manage current supplies to meet demand objectives in future years, as applicable. (ii) Current year available supply, considering hydrological and regulatory conditions in the current year and one dry year. The annual supply and demand assessment may consider more than one dry year solely at the discretion of the urban water supplier.
(iii) Existing infrastructure capabilities and plausible constraints. (iv) A defined set of locally applicable evaluation criteria that are consistently relied upon for each annual water supply and demand assessment.
(v) A description and quantification of each source of water supply.  CWC § 10632.1
An urban water supplier shall conduct an annual water supply and demand assessment pursuant to subdivision (a) of Section 10632 and, on or before July 1 of each year, submit an annual water shortage assessment report to the department with information for anticipated shortage, triggered shortage response actions, compliance and enforcement actions, and communication actions consistent with the supplier’s water shortage contingency plan.

An urban water supplier that relies on imported water from the State Water Project or the Bureau of Reclamation shall submit its annual water supply and demand assessment within 14 days of receiving its final allocations, or by July 1 of each year, whichever is later.
 CWC § 10632.2
An urban water supplier shall follow, where feasible and appropriate, the prescribed procedures and implement determined shortage response actions in its water shortage contingency plan, as identified in subdivision (a) of Section 10632, or reasonable alternative actions, provided that descriptions of the alternative actions are submitted with the annual water shortage assessment report pursuant to Section 10632.1. Nothing in this section prohibits an urban water supplier from taking actions not specified in its water shortage contingency plan, if needed, without having to formally amend its urban water management plan or water shortage contingency plan.
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5 WATER SHORTAGE LEVELS
Consistent with the requirements of CWC § 10632(a)(3), this WSCP is based on the six water shortage levels (previously referred to as “stages”) shown in Table 5-1. These shortage levels are intended to address shortage caused by any condition, including the catastrophic interruption of water supplies.

Table 5-1 summarizes the water supply reductions and supply conditions associated with each stage of action.

Table 5-1 Water Shortage Contingency Plan Levels (DWR Table 8-1) Shortage
Level
Percent
Shortage Range Shortage Response Actions
1 Up to 10%  In addition to mandatory prohibitions in force at all times, declaration by the Public Works Director or designee, as affirmed by the City Council in the form of a resolution, upon the determination that one of the following conditions exist: (1) SFPUC or another governing authority (e.g., SWRCB) has required a voluntary or mandatory reduction in water use of up to 10% due to water supply shortages or an emergency, or (2) local conditions impacting the quantity or quality of the City’s water supply warrant the need for a reduction in water use of up to 10%.  Includes implementation of mandatory restrictions on end uses, as well as agency actions (see Table 6-1).
2 Up to 20%  Declaration by the Public Works Director or designee, as affirmed by the City Council in the form of a resolution, upon the determination that one of the following conditions exist: (1) The SFPUC or another governing authority (e.g., the SWRCB) has required a voluntary or mandatory reduction in water use of up to 20% due to water supply shortages or an emergency, or (2) local conditions impacting the quantity or quality of the City’s water supply warrant the need for a reduction in water use of up to 20%.  Includes implementation of mandatory restrictions on end uses, as well as agency actions (see Table 6-1).
 CWC § 10632 (a) (3)
(A) Six standard water shortage levels corresponding to progressive ranges of up to 10, 20, 30, 40, and 50 percent shortages and greater than 50 percent shortage. Urban water suppliers shall define these shortage levels based on the suppliers’ water supply conditions, including percentage reductions in water supply, changes in groundwater levels, changes in surface elevation or level of subsidence, or other changes in hydrological or other local conditions indicative of the water supply available for use. Shortage levels shall also apply to catastrophic interruption of water supplies, including, but not limited to, a regional power outage, an earthquake, and other potential emergency events.
(B) An urban water supplier with an existing water shortage contingency plan that uses different water shortage levels may comply with the requirement in subparagraph (A) by developing and including a cross-reference relating its existing categories to the six standard water shortage levels. 272
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Shortage
Level
Percent
Shortage Range Shortage Response Actions
3 Up to 30%  Declaration by the Public Works Director or designee, as affirmed by the City Council in the form of a resolution, upon the determination that one of the following conditions exist: (1) The SFPUC or another governing authority (e.g., the SWRCB) has required a voluntary or mandatory reduction in water use of up to 30% due to water supply shortages or an emergency, or (2) local conditions impacting the quantity or quality of the City’s water supply warrant the need for a reduction in water use of up to 30%.  Includes implementation of mandatory restrictions on end uses, as well as agency actions (see Table 6-1).
4 Up to 40%  Declaration by the Public Works Director or designee, as affirmed by the City Council in the form of a resolution, upon the determination that one of the following conditions exist: (1) The SFPUC or another governing authority (e.g., the SWRCB) has required a voluntary or mandatory reduction in water use of up to 40% due to water supply shortages or an emergency, or (2) local conditions impacting the quantity or quality of the City’s water supply warrant the need for a reduction in water use of up to 40%.  Includes implementation of mandatory restrictions on end uses, as well as agency actions (see Table 6-1).
5 Up to 50%  Declaration by the Public Works Director or designee, as affirmed by the City Council in the form of a resolution, upon the determination that one of the following conditions exist: (1) The SFPUC or another governing authority (e.g., the SWRCB) has required a voluntary or mandatory reduction in water use of up to 50% due to water supply shortages or an emergency, or (2) local conditions impacting the quantity or quality of the City’s water supply warrant the need for a reduction in water use of up to 50%.  Includes implementation of mandatory restrictions on end uses, as well as agency actions (see Table 6-1).
6 >50%  Declaration by the Public Works Director or designee, as affirmed by the City Council in the form of a resolution, upon the determination that one of the following conditions exist: (1) The SFPUC or another governing authority (e.g., the SWRCB) has required a voluntary or mandatory reduction in water use greater than 50% due to water supply shortages or an
emergency, or (2) local conditions impacting the quantity or quality of the City’s water supply warrant the need for a reduction in water use greater than 50%.  Includes implementation of mandatory restrictions on end uses, as well as agency actions (see Table 6-1).
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6 SHORTAGE RESPONSE ACTIONS
This section describes the response actions the City will take to deal with the shortages associated with each of the six stages enumerated in Section 5 (Table 6-1).

6.1 Demand Reduction Methods
As discussed above and shown in Table 6-1, the WSCP lists the demand reduction methods that East Palo Alto will implement during each stage of action to reduce East Palo Alto’s water consumption and encourage reduction in water use by its customers. The monthly and cumulative annual water savings impacts associated with each restriction, prohibition and consumption reduction method were quantitatively estimated using the Drought Response Tool (DRT), an Excel spreadsheet model developed by EKI Environment and Water, Inc., for the DRT model for each shortage level, see Attachment 3. A main focus of East Palo Alto’s planned demand reduction measures is to increase public outreach and keep customers informed of the water shortage emergency and actions they can take to reduce consumption. The public outreach efforts that East Palo Alto will implement to respond to a water shortage are described in Section 7. 6.1.1 Operational Changes The WSCP lists the operational changes that East Palo Alto will implement during each stage of action including measures to: (1) reduce system losses through a reduction in line flushing and fire training exercises; (2) increase enforcement and patrols; (3) develop water budgets; and in certain conditions, (4) implement a moratorium on new services.

6.1.2 Additional Mandatory Restrictions
East Palo Alto has the authority to restrict or prohibit specific water use practices during water shortages (City of East Palo Alto Municipal Code 13.24, Article VI). Restrictions and prohibitions associated with each stage of action are presented in Table 6-1. As discussed above, these responses focus on the reduction of  CWC § 10632 (a) (4) Shortage response actions that align with the defined shortage levels and include, at a minimum, all of the following:
(A) Locally appropriate supply augmentation actions.
(B) Locally appropriate demand reduction actions to adequately respond to shortages. (C) Locally appropriate operational changes.
(D) Additional, mandatory prohibitions against specific water use practices that are in addition to state-mandated prohibitions and appropriate to the local conditions.
(E) For each action, an estimate of the extent to which the gap between supplies and demand will be reduced by implementation of the action.
 CWC § 10632 (b)
For purposes of developing the water shortage contingency plan pursuant to subdivision (a), an urban water supplier shall analyze and define water features that are artificially supplied with water, including ponds, lakes, waterfalls, and fountains, separately from swimming pools and spas, as defined in subdivision (a) of Section 115921 of the Health and Safety Code.
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non-essential water uses such as ornamental landscape irrigation, and preserve water uses that are essential to the health, safety, welfare, and economic vitality of East Palo Alto’s customers.

In addition, several mandatory prohibitions are enforced at all times to eliminate water waste within the City (see Chapter 17.04 of the City’s Municipal Code). Together, the prohibitions listed in Chapter 17.04 of the City’s Municipal Code and Shortage Levels 1 and 2 include each of the prohibitions on end uses mandated by the SWRCB in Executive Order B-37-16. Prohibitions in subsequent stages go beyond the SWRCB requirements and become increasingly restrictive.

6.1.3 Special Water Feature Distinction
For purposes of the WSCP, the City defines special water features as objects that are artificially supplied with water, such as ponds, lakes, waterfalls, and fountains. Special water features do not include recreational water features, such as swimming pools and spas as defined in subdivision (a) of Section 115921 of the Health and Safety Code. Prohibitions on water use for special water features are listed separately from those that are recreational water features (Table 6-1).

6.2 Supply Augmentation
As shown in Table 6-1, the City may utilize a future emergency supply well as supply augmentation during Stages 5 and 6. The City is planning to construct one emergency groundwater well (Pad D Well) which can produce up to 500 gallons per minute of supply. Water supply from the Pad D Well is currently not considered in the City’s planning for normal or dry year supply. Once constructed, the well will provide augmented supply for the City in the event of significant water shortage due to severe drought conditions, an earthquake, or other emergency.

Table 6-1 also includes other actions that the City will take, including coordination with other agencies, implementing drought surcharge, increasing water waste patrols, etc.  CWC § 10632 (b)
For purposes of developing the water shortage contingency plan pursuant to subdivision (a), an urban water supplier shall analyze and define water features that are artificially supplied with water, including ponds, lakes, waterfalls, and fountains, separately from swimming pools and spas, as defined in subdivision (a) of Section 115921 of the Health and Safety Code.
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Table 6-1 Demand Reduction Actions (DWR Table 8-2)
Shortage
Level Agency Actions Agency and Customer Water Use Restrictions 1 1. Increase public outreach, including publishing water conservation information on the City website and promoting conservation through social media.

2. Expand outreach for existing water conservation programs.

1. Hoses must be equipped with a shut-off valve for washing vehicles, sidewalks, walkways, or buildings.

2. Broken or defective plumbing and irrigation systems must be repaired or replaced within 48 hours.

3. Recreational water features, including pools, spas, and jacuzzies, shall be covered when not in use.

4. Ornamental fountains shall use only re-circulated or recycled water.

5. Single-pass cooling systems on new construction shall not be allowed.

6. Potable water shall not be applied in any manner to any driveway, sidewalk, or other hard surface except when necessary to address immediate health or safety concerns.

7. Potable water shall not be used to water outdoor landscapes in a manner that causes runoff onto non-irrigated areas, walkways, roadways, parking lots, or other hard surfaces.

8. Potable water cannot be applied to outdoor landscapes during and up to 48 hours after measurable rainfall.

9. Potable water shall not be used to irrigate ornamental turf on public street medians.

10. Using potable water to irrigate outside of newly constructed homes and buildings in a manner that is inconsistent with regulations or other requirements established by the California Building Standards Commission and the Department of Housing and Community Development is prohibited.

11. Removing, replacing, altering, or damaging any water meter is prohibited.

12. Other measures as may be approved by Resolution of the City Council.
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Table 6-1 Demand Reduction Actions (DWR Table 8-2) (Continued) Shortage
Level Agency Actions Agency and Customer Water Use Restrictions 2 1. Continue with actions and measures from Stage 1.

2. Increase public outreach, including information regarding fines or penalties for non-compliance and distributing water bill inserts regarding landscape irrigation restrictions.

3. Coordinate with BAWSCA, SFPUC, and other water agencies (O’Connor Cooperative Water Tract, Palo Alto Park Mutual Water Company).

4. Expand outreach for existing water conservation programs.

5. Increase water waste patrols.

1. Continue with actions and measures from Stage 1 except where superseded by more stringent requirements.

2. All landscape irrigation is restricted to two days per week between 10:00 pm and 8:00 am, on a schedule established by the Public Works Director and posted on the City’s website. There is no restriction on agricultural or commercial water use. There is no restriction on watering using recycled water.

3. Hotels and motels shall provide guests with an option whether to launder towels and linens daily. Hotels and motels shall prominently display notice of this option in each bathroom using clear and easily understood language.

4. Restaurants and other food service operations shall serve water to customers only upon request.

5. Other measures as may be approved by resolution of the City Council.
3 1. Continue with actions and measures from Stage 2.

2. Increase public outreach.

3. Consider implementation of a drought rate structure and/or rate surcharge.

4. No new potable water service shall be provided by the City, except under the following circumstances. a. A valid, unexpired building permit has been issued for the project; or
b. The project is necessary to protect the public’s health, safety, and welfare; or c. The applicant provides substantial evidence of an enforceable commitment that water demands for the
project will be offset prior to the provision of a new
water meter(s) to the satisfaction of the Director; or
d. To provide continuation of water service or to restore service that has been interrupted for a period of one
year or less.

1. Continue with actions and measures from Stage 2 except where superseded by more stringent requirements.

2. Agricultural and commercial nursery water use is limited to three days per week between 10:00 pm and 8:00 am, on a schedule established by the Public Works Director and posted on the City’s website. There is no restriction on watering using recycled water.

3. All other landscape irrigation, except for agricultural and commercial nursery water use, is restricted to one day per week between 10:00 pm and 8:00 am, on a schedule established by the Public Works Director and posted on the City’s website. There is no restriction on watering using recycled water.

4. Other measures as may be approved by resolution of the City Council.
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Table 6-1 Demand Reduction Actions (DWR Table 8-2) (Continued) Shortage
Level Agency Actions Agency and Customer Water Use Restrictions 4 1. Continue with actions and measures from Stage 3.

2. The Public Works Director may modify the operation of the City’s water system to reduce water use, including reduction of water main flushing and reduction of distribution system pressures.

3. The Public Works Director may establish water budgets, such that no customer shall make, cause, use, or permit the use of water for any purpose in an amount in excess of a certain percentage of the amount of use on the customer's premises during the corresponding billing period during the prior calendar year. Waivers or reductions may be granted to
individual customers as deemed appropriate by the City. No customer shall be required to reduce water consumption
below the minimum amount required for health and safety, as determined by the City.

4. Evaluate staff resources. May include hiring temporary staff or training additional City staff to assist with customer service and enforcement.

1. Continue with actions and measures from Stage 3 except where superseded by more stringent requirements.

2. The Public Works Director may prohibit water uses not required for public health and safety and fire protection.

3. The Public Works Director may prohibit all outdoor water uses, with the exception of agricultural and commercial nursery water use, which may be limited to two days per week between 10:00 pm and 8:00 am, on a schedule established by the Public Works Director and posted on the City’s website.

4. The Public Works Director may prohibit all recreational water uses. 5. Water use shall not exceed the water budget established for each customer.

6. Other measures as may be approved by resolution of the City Council.
5 1. Continue with actions and measures from Stage 4.

2. Increase public outreach for added restrictions and
prohibitions and communication critical shortage conditions

3. Increase water budget reduction requirements.

4. Use emergency groundwater well.

5. Coordinate with law enforcement agencies to address
enforcement challenges.

6. Coordinate with CA Dept of Public Health, County Public Health Department and other emergency response agencies
regarding water quality and public health issues.

7. Prepare to coordinate with State (SWRCB, Department of Water Resources) and County (Department of Emergency
Management) for emergency response support and funding.

8. Prioritize water service for essential uses and critical facilities.

1. Continue with actions and measures from Stage 4 except where superseded by more stringent requirements.

2. Water use shall not exceed established water budget for each customer.

3. Other measures as may be approved by resolution of the City Council.
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Table 6-1 Demand Reduction Actions (DWR Table 8-2) (Continued) Shortage
Level Agency Actions Agency and Customer Water Use Restrictions 6 1. Continue with actions and measures from Stage 5.

2. Issue urgent emergency notifications to all customers using all available channels and provide clear instructions regarding water availability and restrictions.

3. Activate emergency response procedures and request mutual aid.

4. Implement other short-term emergency actions.

5. Continue to coordinate with State (SWRCB, DWR) and County (Department of Emergency Management) for emergency
response support and funding.

1. Continue with actions and measures from Stage 5 except where superseded by more stringent requirements.

2. Other measures as may be approved by resolution of the City Council.
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6.3 Shortage Response Action Effectiveness
In order to evaluate and ensure that effective actions will be implemented with the proper level of intensity, East Palo Alto employed the DRT to calculate monthly savings anticipated by implementing each stage of action as detailed below.

6.3.1 Baseline Water Use Profile
Using the DRT, East Palo Alto developed a baseline water use profile that reflected usage patterns within the City’s service area by major water use sector during calendar year 2023 to 2024 and was used to guide development of the WSCP. Key findings from this analysis are presented below.

Residential Per Capita Demand
East Palo Alto’s current residential water demand is approximately 40 R-GPCD. This R-GPCD is much lower than the BAWSCA-wide average of 58.87 R-GPCD and is significantly less than the statewide average of 96 R-GPCD.2 Estimated Proportion of Outdoor Water Use
As shown in Figure 6-1, outdoor water use, which can generally be considered as a “discretionary water use”, was estimated to be approximately 31% of East Palo Alto’s total consumption during this baseline time period (2023-2024). Dedicated irrigation meters for potable water accounted for 15% of the total potable irrigation demand, indicating that approximately 85% of outdoor water use is not metered with a separate meter, and is therefore more difficult to track and directly target.

The DRT estimates indoor water use to be equivalent to the lowest monthly water use for each sector, accounting for the number of days in each month. Outdoor water use for each sector (except dedicated irrigation) was estimated to be the difference between the total water use and the estimated indoor water use. If East Palo Alto customers tend to irrigate more heavily during winter months, an underestimation of the proportion of outdoor water use would occur.

The proportion of outdoor water use within residential and commercial sectors (30% and 31%, respectively) indicates that there is the potential to achieve moderate water savings across these sectors (e.g., up to WSCP Level 3), simply by focusing on outdoor uses. If the proportion of outdoor water use is being underestimated by the DRT method, then even more substantial savings may be achieved through targeting outdoor water use. As further shown in Figure 6-2, the seasonal variation in baseline water use reflects increased irrigation demands during the summer and fall months. Therefore, the greatest potential for reductions in non-essential water use is expected during these months. 2 City of East Palo Alto and BAWSCA average R-GPCD for fiscal year 2024-2025 obtained from BAWSCA’s Annual Survey (BAWSCA, 2026). Statewide average for the same period calculated using SAFER Clearinghouse data. 280
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Figure 6-1 Baseline Year Annual Indoor vs. Outdoor Water Use Figure 6-2 Baseline Monthly Indoor vs. Outdoor Water Use 281
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6.3.2 Shortage Response Action Effectiveness
The DRT provides a quantitative framework that allows East Palo Alto to systematically estimate the monthly and cumulative annual demand reductions expected to result from particular combinations of drought response actions and associated implementation rates. Data inputs to the DRT include total production, class-specific water use, population, and assumptions regarding the split between indoor and outdoor water use for each customer class.

For each drought response action, the user specifies:  The customer class(es) and end use(s) that are affected;  The percent savings for that end use for each account that implements the action. These are based on evaluations reported in the literature; and  The percentage of accounts assumed to implement the action, which is presumed to be the result of the intensity level of East Palo Alto’s program implementation, including but not limited to, marketing and enforcement activities.

An additional critical DRT user input is a set of constraints on demand reductions to ensure that usage levels do not endanger health and safety or result in unacceptable economic impacts. The DRT will not permit estimated usage reductions to violate these constraints, regardless of the demand reduction actions selected. The constraints are:  A minimum residential indoor per-capita daily usage of 25 gallons,  A maximum residential outdoor usage reduction of 100%,  A maximum CII indoor usage reduction of 30%,  A maximum CII outdoor usage reduction of 100%,  A maximum dedicated irrigation usage reduction of 100%, and  A maximum non-revenue water usage reduction of 50%.

Based on the foregoing data, the DRT model calculates the resulting monthly savings. East Palo Alto adjusted the combination of actions and implementation levels to achieve the targeted savings levels at each of the six stages of action.

For each of the stages of action, the modeling targeted the mid-range of the required demand reduction range, ergo:  5% for Stage 1,  15% for Stage 2,  25% for Stage 3,  35% for Stage 4,  45% for Stage 5, and  55% for Stage 6. 282
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East Palo Alto’s shortage response actions are summarized in Table 6-1. Key DRT inputs and outputs for each of the stages of action are reproduced in Attachment 3, including the water shortage reduction actions, savings assumptions, and implementation rates that are required for East Palo Alto to achieve the required annual demand reductions for each of the six stages of action. At each stage, there are two types of demand-reduction actions identified:  Restrictions on customer water usage; and  Consumption reduction actions by East Palo Alto to encourage decreased water usage.

Many actions are implemented across a number of stages, some at increasing implementation levels.

Therefore, the actions in Table 6-1 are listed as a row under the first stage at which they are implemented in the Department of Water Resources (DWR) Tables 8-2 and 8-3 in the 2025 UWMP.

6.4 Emergency Response Plan
Catastrophic supply interruptions may be caused by a regional power outage, an earthquake, or other disaster. East Palo Alto benefits from two levels of emergency planning: planning by SFPUC and its own emergency planning work. In the event of a catastrophic supply interruption, the response procedures that East Palo Alto would follow are described in:  SFPUC Emergency Operations Plan (EOP);  San Mateo County’s Operational Area EOP Potable Water Procurement and Distribution Annex;  East Palo Alto’s Emergency Action Plan (EAP), Fire Protection & Prevention and Critical Operations Plan, prepared by Veolia North America (City’s water system contract operator); and  East Palo Alto’s Emergency Response Plan (ERP), prepared by Veolia North America (City’s water system contract operator).

Actions described in the SFPUC EOP focus on maintaining flow within, and from, the RWS pipelines. The County of San Mateo’s Operational Area EOP Potable Water Procurement and Distribution Annex (County of San Mateo, 2004) addresses San Mateo County’s planned response to extraordinary emergency situations associated with natural disasters, man-made technological incidents and national security emergencies. This EOP is a preparedness document that is designed to be read, understood, and exercised prior to an emergency. Each city is responsible for ensuring the preparation and maintenance of appropriate and current Standard Operating Procedures, Emergency Operating Procedures, and alert lists that will support the EOP.

East Palo Alto’s EAP, Fire Protection & Prevention and Critical Operations Plan, guides Veolia North America’s (Veolia) emergency management in an organized response to general emergencies within the City. Veolia conducts training periodically to help assure that personnel are up to date regarding the emergency response procedures. Detailed information on personnel roles, responsibilities, emergency services, communication, recovery, and reporting procedures is provided in the EAP.

East Palo Alto’s ERP works in coordination with the EAP and includes plans and procedures that can be implemented in the event of an emergency involving the water system to lessen the impact of on the safety and supply of drinking water. The ERP details threat evaluations, site characterizations, planned public health and operational responses, public notification strategies, and remediation and recovery actions. The most recent ERP is dated 2025 and is currently being updated as required per Section 2013 of America’s Water Infrastructure Act of 2018.
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Shortage Response Actions City of East Palo Alto
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In the event of a total failure of the RWS, the City would first activate or expand production at the Gloria Way Well. If operational, the City would also expand production at the Pad D Well. Next, the City would seek local groundwater capacity from the O’Connor Tract Cooperative Water Company and the Palo Alto Park Mutual Water Company.
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Seismic Risk Assessment City of East Palo Alto
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7 SEISMIC RISK ASSESSMENT
On behalf of the City, American Water Enterprise (prior contract operator) conducted a Risk Based Vulnerability Assessment of the City’s water system in 2002, which included seismic risk. The report discusses in specific detail the threats facing the City’s distribution system and makes general and site-specific recommendations on how to mitigate the risks which have been assessed. The report further frames a methodology for the City to use to review the water system facilities and make informed decisions about the risks facing its system.

The City does not currently have any storage within its system, however, it is working towards installing storage facilities. Therefore, the main seismic threat to the City are impacts to the City’s distribution system and main supply source from the SFPUC RWS.

Impacts associated with earthquakes and liquefaction are discussed in the 2021 San Mateo County Local Hazard Mitigation Plan (County LHMP; County of San Mateo, 2021). The County LHMP identifies earthquakes as one of the most significant natural hazards affecting San Mateo County and references United States Geological Survey estimates estimating a 72% probability of one or more magnitude 6.7 or greater earthquakes occurring in the San Francisco Bay Area by 2043. The County LHMP also evaluates the County’s vulnerability to major seismic events, noting that a large earthquake on the San Andreas Fault could result in widespread structural damage, infrastructure disruption, liquefaction, and substantial economic losses throughout the planning area.
 CWC § 10632.5
(a) In addition to the requirements of paragraph (3) of subdivision (a) of Section 10632, beginning January 1, 2020, the plan shall include a seismic risk assessment and mitigation plan to assess the vulnerability of each of the various facilities of a water system and mitigate those vulnerabilities. (b) An urban water supplier shall update the seismic risk assessment and mitigation plan when updating its urban water management plan as required by Section 10621.
(c) An urban water supplier may comply with this section by submitting, pursuant to Section 10644, a copy of the most recent adopted local hazard mitigation plan or multihazard mitigation plan under the federal Disaster Mitigation Act of 2000 (Public Law 106-390) if the local hazard mitigation plan or multihazard mitigation plan addresses seismic risk.
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Communication Protocols City of East Palo Alto
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8 COMMUNICATION PROTOCOLS
Each stage of the WSCP is implemented with a formal declaration by the East Palo Alto City Council upon the determination that either: (1) the SFPUC or another governing authority (e.g., the SWRCB) has required a voluntary or mandatory reduction in water use due to a water supply shortage or emergency, or (2) local conditions impacting the quantity or quality of the City’s water supply warrant the need for a reduction in water use. Procedures for water shortage declaration and termination are detailed below in Section 8.1. Even before formal declaration of a water shortage, a public information program will be activated to provide customers with as much advance notice as possible. Following declaration of a shortage, East Palo Alto customers will be provided with notice of water shortage rules and regulations via a variety of media and communications methods (e.g., citywide electronic newsletter, City Council meetings, social media, etc.).

Coordination between the City and with other public agencies can begin prior to formal declaration of a water shortage and can be accomplished through regular meetings, e-mail group updates, and presentations. The City will coordinate with Palo Alto Park Mutual Water Company and O’Connor Tract Co-operative Water Company to ensure that City residents are aware of which water service area they reside in and the particular water shortage restrictions that apply. In a regional water shortage scenario, the City will use the public outreach resources and materials provided by BAWSCA and/or the SFPUC, in addition to materials developed by the City. Communication and public outreach actions to be taken by the City under each shortage level are detailed in Table 6-1. 8.1 Water Shortage Declaration and Termination Procedures The provisions of each water shortage stage of action are triggered by declaration by the Public Works Director or his designee, as affirmed by the City Council in the form of a resolution, upon the determination that one of the following conditions exist:

1. The SFPUC or another governing authority (e.g., the SWRCB) has required a voluntary or mandatory reduction in water use of up to 5% due to water supply shortages or an emergency, or 2. Local conditions impacting the quantity or quality of the City's water supply warrant the need for a reduction in water use of up to 5%.

The stages of action will become effective after the City Council affirms a particular stage of action via resolution and the City has published notice of this determination. Once effective, the provisions of a water shortage stage of action will stay in effect until (1) a different stage of action is declared; or (2) the  CWC § 10632 (a) (5)
Communication protocols and procedures to inform customers, the public, interested parties, and local, regional, and state governments, regarding, at a minimum, all of the following:
(A) Any current or predicted shortages as determined by the annual water supply and demand assessment described pursuant to Section 10632.1.
(B) Any shortage response actions triggered or anticipated to be triggered by the annual water supply and demand assessment described pursuant to Section 10632.1. (C) Any other relevant communications.
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Communication Protocols City of East Palo Alto
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City Council determines that the water shortfall condition no longer exists and the City has published notice of this determination.

After the termination of the water shortage conditions, the City will oversee any remaining termination and WSCP review activities. These activities could include:  Publicize gratitude for the community’s cooperation.  Restore water utility operations, organization, and services to pre-event levels.  Document the event and response and compile applicable records for future reference.  Collect cost accounting information, assess revenue losses and financial impact, and review deferred projects or programs.  Debrief staff to review effectiveness of actions, to identify the lessons learned, and to enhance response and recovery efforts in the future.  Update the WSCP, as needed. 287
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Compliance and Enforcement City of East Palo Alto
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9 COMPLIANCE AND ENFORCEMENT
The City has established penalties, fines, restrictions, and criminal charges for excessive water use. The penalties or charges imposed on a customer are listed in Table 9-1. Staff time dedicated to water conservation and enforcement action will increase with the severity of a supply shortage. Additional duties may be assigned to current City employees or hiring of temporary staff may be considered to meet staffing needs during extreme water shortages.

Table 9-1 Enforcement of Water Use Restrictions and Prohibitions Violation Enforcement Action or Penalty
1 st Courtesy notice
2nd $50 fine
3 rd $100 fine
4 th $200 fine and installation of flow restriction device 5 th Termination of water service, which includes a one hundred dollars ($100.00) charge  CWC § 10632 (a) (6) For an urban retail water supplier, customer compliance, enforcement, appeal, and exemption procedures for triggered shortage response actions as determined pursuant to Section 10632.2. 288
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Legal Authorities City of East Palo Alto
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10 LEGAL AUTHORITIES
As discussed above, the City Council has the authority per Municipal Code 13.24, Article VI to order implementation of water conservation measures in addition to those included in the WSCP. Municipal Code 13.24, Article VI are included as Attachment 1 of this WSCP.

In the event of a local water shortage emergency, the City shall coordinate with San Mateo County within which it provides water supply services for the possible proclamation of a local emergency under California Government Code, California Emergency Services Act (Article 2, Section 8558).

Contact Information: County of San Mateo
Address: 400 County Center, Redwood City, CA 94063
Phone: (650) 363-4000
East Palo Alto is a member of BAWSCA and anticipate coordinating with other Member Agencies via BAWSCA during a water shortage or emergency on the SFPUC RWS.  CWC § 10632 (a) (7)
(A) A description of the legal authorities that empower the urban water supplier to implement and enforce its shortage response actions specified in paragraph (4) that may include, but are not limited to, statutory authorities, ordinances, resolutions, and contract provisions. (B) A statement that an urban water supplier shall declare a water shortage emergency in accordance with Chapter 3 (commencing with Section 350) of Division 1.
(C) A statement that an urban water supplier shall coordinate with any city or county within which it provides water supply services for the possible proclamation of a local emergency, as defined in Section 8558 of the Government Code.
 CWC § 10632.3
It is the intent of the Legislature that, upon proclamation by the Governor of a state of emergency under the California Emergency Services Act (Chapter 7 (commencing with Section 8550) of Division 1 of Title 2 of the Government Code) based on drought conditions, the board defer to implementation of locally adopted water shortage contingency plans to the extent practicable.
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Financial Consequences of WSCP City of East Palo Alto
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11 FINANCIAL CONSEQUENCES OF WSCP
The City’s water utility expenditures can be categorized as fixed or variable expenses. Variable costs are almost entirely related to the costs of purchasing water supplies and other variable system fees and payments, whereas fixed costs primarily relate to the cost of operating and maintaining the distribution system. As customers reduce water usage in response to a drought or call for water conservation, the City will experience a decline in sales and therefore a decline in revenue. In the event of lost revenue, the City may draw upon its cash reserve balances or enact a rate increase. The City may consider the implementation of a drought rate structure or surcharge.

Specifically, the City’s water rate components were designed to collect 80% of operating revenues through variable rate charges while approximately 65% of system expenses are considered variable. For each 10% reduction in annual consumption billed, the water system experiences an estimated 1.5% shortfall or approximately $110,000. The City does not maintain specific rate stabilization reserves under the current service concession lease arrangement described below; however, the City Water Enterprise does maintain approximately $2.0M in emergency and other operational reserves.

System rate increases of 1.5% are scheduled each July 1st through July 1, 2023, and a rate pass-through is approved in the event SFPUC increases wholesale rates due to drought or other conditions. The City will pass through a commodity rate increase upon an increase in supplier wholesale water rates.

The City is in a service concession arrangement whereby the City leases the water system to a third-party operator (Veolia). The terms of the lease are currently under an amendment period; however, under current lease terms, Veolia is responsible for operating, maintaining, and managing the water system.

Veolia may request increased water rates in order to recover necessary and reasonable costs related to performing water system services, including earning an operational rate of return. As such, Veolia may request drought surcharge, or other rate increases under all Shortage Level conditions.

Upon a formal rate increase request by Veolia, the City will implement Proposition 218 rate process to implement a drought surcharge rate and/or other system rate increase. Additionally, the City may consider the following:  Shortage Level 1 conditions: Utilize City system reserves for a period up to twelve months prior to implementing drought surcharge or other system rates and also coordinate with Veolia to defer and reduce system expenses during the drought period to the extent practicable.  Shortage Level 2 conditions: Utilize City system reserves for a period up to six months prior to implementing drought surcharge or other system rates and also coordinate with Veolia to defer and reduce system expenses during the drought period to the extent practicable.  CWC § 10632 (a) (8)
A description of the financial consequences of, and responses for, drought conditions, including, but not limited to, all of the following:
(A) A description of potential revenue reductions and expense increases associated with activated shortage response actions described in paragraph (4).
(B) A description of mitigation actions needed to address revenue reductions and expense increases associated with activated shortage response actions described in paragraph (4). (C) A description of the cost of compliance with Chapter 3.3 (commencing with Section 365) of Division 1.

Commented [BZ1]: Does this need to be updates?
Commented [JH1R2]: EPA: Please provide updates.
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 Shortage Level 3-6 conditions: Implement drought surcharge rates and/or adjust fixed readiness to serve charges and also coordinate with Veolia to defer and reduce system expenses during the drought period to the extent practicable.

Under each Shortage Level condition, Veolia will provide operational funding necessary until drought surcharge or other rates are implemented, unless City approves a drawdown of system reserves as described above. The City’s capital expenditures are funded through separate, non-leveraged, capital surcharges and federal grant programs. The City will adjust capital implementation plans accordingly, or under Shortage Levels 2-6, will consider adjusting capital surcharge rates to ensure cash flow stability in capital program funding. In the event the City leverages the capital surcharges to fund capital improvements, the City will implement the necessary rates to ensure adequate debt requirements are met.
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Monitoring and Reporting City of East Palo Alto
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12 MONITORING AND REPORTING
Water demands are monitored frequently during emergency water shortages to enable the City to effectively manage the balance between supply and demand. The City plans to increase the frequency of monitoring as it implements more strict stages of its WSCP:  Normal Monitoring Procedure: In normal water supply conditions, production figures are recorded daily, and totals are reported monthly to the City’s Departments of Finance and Public Works.  Stage 2 and 3 Monitoring Procedure: When Stage 2 or 3 of the City’s WSCP is enacted, weekly production figures are forwarded to the City’s Departments of Finance and Public Works. These departments compare the weekly production to the target weekly production to verify that the reduction goal that is in place is being met. Monthly reports are sent to City Council. If reduction goals are not met, the Public Works Director will notify City Council so that corrective action can be taken.  Stage 4, 5, and 6 Monitoring Procedure: When Stage 4 or 5 of the City’s WSCP is enacted, the monitoring procedure from Stages 2 and 3 will be continued, with the addition of a daily production report to the Public Works Director. Additionally, regular patrols will be sent out to directly monitor residential water usage and, if necessary, enforce conservation measures.  CWC § 10632 (a) (9) For an urban retail water supplier, monitoring and reporting requirements and procedures that ensure appropriate data is collected, tracked, and analyzed for purposes of monitoring customer compliance and to meet state reporting requirements.
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WSCP Refinement Procedures City of East Palo Alto
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13 WSCP REFINEMENT PROCEDURES
The City will monitor its water consumption and apply the necessary demand reduction actions to achieve its reduction goals. If the results indicate that these goals are not being attained, then the City will implement additional demand reduction actions. However, if significant additional demand reduction actions are required that are outside of the current shortage level or if new actions (i.e. actions not listed in Table 6-1) becomes necessary, the City will revise this WSCP. The City will consider new demand reduction actions proposed by other city staff, water customers, and/or other interested parties. These actions will go through the same evaluation process as the actions listed in Table 6-1, including usage of the DRT to quantify the estimated water savings. New actions that demonstrate to be highly effective in achieving the desired water reduction goals will be prioritized.

Minor updates to the WSCP will be approved by the Public Works Director and significant updates (e.g. new water waste restrictions) will be approved by the City Council. This is to ensure that new minor actions can be implemented quickly at the appropriate water shortage level and avoid delays while recognizing that additional citywide water waste restrictions should be discussed publicly and approved by the City Council.

Below are the steps that the City will take if it determines that the WSCP should be revised:

1. Develop a document that outlines the proposed changes to the WSCP for management review.

2. Public Works Director will review document and provide comments and/or direction for City staff.

Public Works Director will also determine if the revised WSCP should be presented to the City Council as an update or if it requires their approval through a resolution. Staff will incorporate the edits and will prepare a revised WSCP including the date of revision. If City Council approval is needed, staff will also prepare a staff report and resolution.

3. City staff will keep a record of all current and previous versions of the WSCP. Staff will also update the City website with the most recent version of the WSCP and at any other location where the WSCP is posted.
 CWC § 10632 (a) (10) Reevaluation and improvement procedures for systematically monitoring and evaluating the functionality of the water shortage contingency plan in order to ensure shortage risk tolerance is adequate and appropriate water shortage mitigation strategies are implemented as needed. 293
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Plan Adoption, Submittal, and Availability City of East Palo Alto ADMINISTRATIVE DRAFT | May 2026
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14 PLAN ADOPTION, SUBMITTAL, AND AVAILABILITY
East Palo Alto has informed the public and the appropriate agencies of: (1) its intent to prepare a WSCP, (2) where the WSCP was available for public review, and (3) when the public hearing regarding the WSCP would be held. All notifications were completed in compliance with the stipulations of Section 6066 of the Government Code.

A copy of the adopted 2025 WSCP including any amendments will be provided to DWR, the California State Library, San Mateo County, and SFPUC within 30 days of the adoption (Attachment 4). An electronic copy of the adopted 2025 WSCP will be submitted to the DWR using the DWR online submittal tool.

A copy of the adopted 2025 WSCP will be available for public review in City Hall during normal business hours and on the East Palo Alto website within 30 days after filing the plan with DWR.  CWC § 10632 (c) The urban water supplier shall make available the water shortage contingency plan prepared pursuant to this article to its customers and any city or county within which it provides water supplies no later than 30 days after adoption of the water shortage contingency plan. 294
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References City of East Palo Alto
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15 REFERENCES
BAWSCA, 2026. Bay Area Water Supply and Conservation Agency Annual Survey FY 2024-25. Bay Area Water Supply and Conservation Agency, dated March 2026.

County of San Mateo, 2004. San Mateo County/Operational Area Emergency Operations Plan, Potable Water Procurement and Distribution Annex, 3rd Edition. County of San Mateo, dated July 2004.

County of San Mateo, 2021. 2021 Multijurisdictional Local Hazard Mitigation Plan, prepared by Tetra Tech on behalf of the County of San Mateo, dated October 2021. 295
PUBLIC HEARING 14.3

EAST PALO ALTO

CITY COUNCIL

STAFF REPORT
DATE: June 16, 2026
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Chris Dacumos, Contract Senior Planner, Elena Lee, Planning Manager, Natasha Raiburn, Interim Community and Economic Development Director, Shiri Klima, Assistant City Manager
SUBJECT: Woodland Park 1 – Amendment to Development Agreement Terms Recommendation
Staff recommends the City Council take the following actions:

1. Waive first reading and introduce an Ordinance approving the First Amendment to the Development Agreement between the City of East Palo Alto and Woodland Park Property Owner A, LLC for the Woodland Park Euclid Improvements Project, amending provisions related to (a) the timing of Impact Fee payments, (b) Off-Site Affordable Housing Units, (c) water infrastructure, (d) storm drainage improvements, (e) impact fee credits, and (f) assignment rights; authorize the City Manager to execute the First Amendment to the Development Agreement in a form approved by the City Attorney; and find that the adoption of the Ordinance is consistent with the previously adopted Environmental Impact Report (EIR) and that none of the conditions set forth in California Environmental Quality Act (CEQA) Guidelines Section 15162 and 15164 that would require a subsequent or supplemental EIR or Addendum to the EIR are present.

2. Direct the City Clerk to record the First Amendment to the Development Agreement in the Official Records of San Mateo County in accordance with Government Code Section 65868.5.

Executive Summary
Sand Hill Property Company, operating through Woodland Park Property Owner A, LLC (successor in interest to Woodland Park Property Owner, LLC) and referred to in this report as the Applicant, is the developer of the Woodland Park Euclid Improvements Project, a 550-unit multifamily housing development at 2001 Manhattan Avenue. The project replaces 161 existing multifamily units that the Applicant has demolished with 550 newly constructed units.

Of the demolished units, 160 were subject to the City’s Rent Stabilization Ordinance (RSO); 296
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therefore, 160 of the newly constructed units will also be subject to the RSO. Former tenants of the demolished rent-stabilized units retain a right to return to the new development, although some tenants voluntarily relinquished that right. As of March 18, 2026, the City expects 29 households to return to the completed project.

On November 15, 2022, the City Council approved a Development Agreement (DA) for the project through Ordinance 08-2022. The Applicant now seeks amendments to the DA to address financing and construction challenges resulting from rising construction costs, changing market conditions, and certain timing and implementation requirements in the existing agreement. The Applicant states that these amendments are necessary to secure building permits and move the project into construction.

To support near-term construction of the project, which would add approximately 390 net-new housing units while restoring 160 rent-stabilized units to the City’s housing stock, the City Manager and Assistant City Manager engaged in discussions with the Applicant regarding potential DA amendments. Those discussions resulted in the proposed First Amendment to the Development Agreement, which staff recommends the City Council approve.

The proposed First Amendment adds three alternative compliance options for the project’s offsite affordable housing obligation:

1. Ravenswood City School District Partnership. The Applicant may provide gap financing for a portion of the District’s proposed approximately 430-unit affordable housing project. The 78 units attributed to the Applicant would continue to meet the affordability mix established in the existing DA: 25% at 35% Area Median Income (AMI), 50% at 50% AMI, and 25% at 60% AMI. The Applicant would be required to pursue this option in good faith for 12 months before selecting another alternative.

2. Renovation of Existing Woodland Park Units. The Applicant may substantially renovate 78 existing Woodland Park units and record affordability restrictions for 55 years. Approximately 39 to 41 units would serve very-low-income households (31–50% AMI), and 37 to 39 units would serve low-income households (51–80% AMI). Under recent State law, the City could receive RHNA credit for the very-low-income units created through this option.

3. Property Transfer and In-Lieu Fee. The Applicant may transfer the 851 Weeks Street property, assign related development plans to the City, and pay an in-lieu fee for a total contribution valued at $17.41 million.

Staff believes the Ravenswood City School District partnership option offers the strongest opportunity to deliver new affordable housing units while preserving the affordability targets established in the original DA.

The proposed First Amendment also revises provisions related to:
 The timing of development impact fee payments (without changing the total amount owed),
 Water infrastructure obligations,
 Storm drainage improvements, and
 Assignment rights under the DA.
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Staff recommends that the City Council waive first reading and introduce an ordinance approving the First Amendment to the Development Agreement. The proposed amendments do not change the project’s approved density, land uses, or entitlements. Instead, they are intended to facilitate construction of the project, which is the largest housing development in the City’s pipeline and is critical to meeting the City’s Regional Housing Needs Allocation (RHNA 6) obligations.

Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
 Priority: Comprehensive Housing
 Priority: Public Infrastructure and Utilities
Background
On November 15, 2022, the City Council adopted Ordinance 08-2022 approving the Development Agreement (DA) for the Woodland Park Euclid Improvements Project. The approval followed extensive public review conducted over five City Council meetings on September 6, September 20, October 4, November 1, and November 15, 2022. The entitlement process included certification of the Environmental Impact Report (EIR), adoption of General Plan and zoning amendments establishing a Neighborhood Center Overlay (NCO), approval of project entitlements (Design Review Permit, Conditional Use Permit, and Tentative Parcel Map), adoption of a Relocation Plan for existing tenants, and approval of the DA.

The Applicant, Sand Hill Property Company, operating through Woodland Park Property Owner A, LLC, successor in interest to Woodland Park Property Owner, LLC, originally proposed demolishing 161 existing residential units and constructing 605 new residential units across three buildings, resulting in a net increase of 444 units. The project also included approximately 2,200 square feet of neighborhood-serving retail space and 2,500 square feet of community space. The approved project required replacement of 160 rent-controlled units, preservation of tenants' right to return, and development of 70 to 89 off-site affordable housing units to satisfy inclusionary housing requirements. Approximately 85 existing households, along with 8 previously displaced households, were eligible for relocation assistance, including temporary housing, relocation payments, or the opportunity to return to newly constructed units.

In 2024, the City Council approved a project permit amendment to reduce the total number of units to 550, resulting in a net increase of 389 units. The amendment also reduced the project from three buildings to two eight-story residential buildings. The project's community benefits and Development Agreement obligations remained unchanged.

In 2025, the City Council approved a second project permit amendment authorizing minor design modifications, including construction of an 86-space below-grade parking garage, reconfiguration of portions of the floor plan, and installation of a gated driveway from Euclid Avenue to improve site circulation and access to the underground parking facility.

The City did not amend the Development Agreement as part of either permit amendment.

Information regarding all project approvals is available on the City's project webpage:
https://www.cityofepa.org/projects?term_node_tid_depth=All&field_project_status_value=All&fi eld_project_type_tid=1340&keys=
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Since approval of the original project, Sand Hill Property Company has renamed the development Woodland Park Improvements 1 and has submitted applications for two additional projects in the Westside neighborhood: Woodland Park Improvements 2 (O'KeefeManhattan) and Woodland Park Improvements 3 (West Bayshore-Newell).

Community Benefit Improvements in the 2022 Development Agreement The Applicant requested the existing Development Agreement to obtain development rights exceeding the density and height otherwise permitted under the Westside Area Plan and to vest those rights for an initial seven-year term, with the potential for a five-year extension.

Westside Area Plan Goal 5.4, Development Process for Increased Intensities or Changes in Use, contemplates negotiated agreements that secure community benefits in exchange for increased development intensity. Consistent with that policy, the City and Applicant negotiated a package of community benefits that included:
 A publicly accessible 9,300-square-foot park,
 2,500 square feet of community function space,
 A bus shelter on O’Connor Street,
 Major infrastructure upgrades (including storm drainage improvements),  A 1.5-million-gallon water tank and pump system, and
 Dedication of approximately 20,350 square feet of roadway right-of-way.

The Development Agreement was recorded in the Official Records of San Mateo County on June 23, 2023, as Instrument No. 2023-030130. Woodland Park Property Owner A, LLC subsequently assumed the Development Agreement through an Assignment and Assumption of Development Agreement dated July 21, 2023, and recorded as Instrument No. 2023-036726.

On July 16, 2024, the City adopted an addendum to the EIR in connection with the project permit amendment that reduced the project's unit count. No amendments to the Development Agreement were proposed at that time.

Request for a Development Agreement Amendment
The Applicant now requests amendments to the Development Agreement to address challenges associated with advancing project construction. According to the Applicant, changes in market conditions, financing costs, and construction costs since the project's original approval have made it difficult to secure building permits and commence construction under the existing terms of the Development Agreement.

The proposed First Amendment seeks to provide flexibility in specific Development Agreement provisions while preserving the project's approved land uses, density, entitlements, and core community benefits.
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Analysis
The Importance of Advancing Construction of the Woodland Park Euclid Improvements Project
Advancing construction of the Woodland Park Euclid Improvements Project is important for several reasons.

First, the project will restore 160 rent-stabilized units that were previously demolished and allow former tenants to exercise their right to return. As of March 18, 2026, the City expects 29 households to return to newly constructed units once the project is completed.

Second, the project is critical to achieving the City's Regional Housing Needs Allocation (RHNA) obligations for the sixth housing cycle (RHNA 6). The City must receive credit for 829 housing units by 2031. As of 2025, the City had issued building permits for 221 units, representing approximately 27 percent of its RHNA requirement. The Woodland Park Euclid Improvements Project represents the largest housing development in the City's pipeline and is a key component of the City's strategy to meet its RHNA obligations.

Third, the project supports the City's long-term fiscal sustainability. The City continues to face structural General Fund deficits as operating costs outpace revenue growth. Thoughtful development that delivers both economic and community benefits remains one of the City's most effective tools for expanding its tax base while addressing community needs.

For these reasons, the City Manager and Assistant City Manager engaged in discussions with the Applicant for many months to identify targeted amendments that would facilitate construction while preserving the project's core community benefits.

The Proposed First Amendment to the Development Agreement The Applicant proposes amendments to four provisions of the Development Agreement: Section

4.3.3 (Impact Fee Payment Timing), Section 4.5.2 (Off-Site Affordable Housing Units), Section

5.1.4 (New Water Infrastructure), and Section 10.2 (Assignment Rights). The remaining community benefits, including the public park, community function space, transit improvements, storm drainage improvements, and roadway dedication, remain unchanged.

1. Off-Site Affordable Housing Units (Section 4.5.2)
The existing Development Agreement requires the Applicant, through a contract with an affordable housing developer, to construct off-site affordable housing units equal to 20 percent of the project's net-new units. The Applicant and Eden Housing previously entitled an affordable housing project at 851 Weeks Street; however, multiple applications for affordable housing funding have been unsuccessful, preventing the project from advancing.

To address this challenge, the proposed First Amendment expands the available compliance options while maintaining the City's affordable housing objectives.

Alternative Compliance Option A – Alternative Affordable Housing Partnership The Applicant may partner with another affordable housing developer, market-rate developer, or public agency to construct affordable housing units that satisfy the City's Inclusionary Housing 300
PUBLIC HEARING 14.3
Ordinance requirements. The Applicant would provide up to $12 million in gap financing and execute a recorded regulatory agreement to ensure long-term affordability.

The primary opportunity under this option is a partnership with the Ravenswood City School District to support development of an approximately 430-unit affordable housing project.

Seventy-eight units would be attributed to the Applicant and would strive to maintain the affordability requirements established in the existing Development Agreement:
 25 percent at 35 percent Area Median Income (AMI)
 50 percent at 50 percent AMI
 25 percent at 60 percent AMI
The units would average 50% AMI or lower; no unit would be higher than 80% AMI. The 430 unit school district project is currently proposed to be entirely affordable with AMI levels ranging from 30 to 70 percent. In total, the project is estimated to provide 43 units at 35 percent AMI or lower; 42 units at 50 percent AMI or lower; 258 units at 60 percent AMI or lower, and 87 units at 80 percent AMI or lower.

The Applicant would be required to pursue this option in good faith for 12 months before selecting another compliance alternative.

Staff believes this option provides the greatest opportunity to produce new affordable housing units while maintaining the affordability targets established in the original Development Agreement.

Alternative Compliance Option B – Rehabilitation and Preservation of Existing Woodland Park Units
The Applicant may renovate 78 existing Woodland Park units and record affordability restrictions for a period of 55 years.

Unit renovations would include, at a minimum, new flooring, paint, cabinetry, fixtures, commonarea improvements, elevator repairs or replacement, and other health and safety improvements necessary to maintain habitability in accordance with State requirements.

The affordability restrictions would require:
 39 units to serve Very-Low-Income households (31 to 50 percent AMI);  37 units to serve Low-Income households (51 to 80 percent AMI); and  2 units to be restricted as either Very-Low-Income or Low-Income units depending on tenant turnover and income eligibility.

The Applicant would be required to complete the renovations without displacing existing residents.

This option may also assist the City in meeting certain RHNA obligations. Pursuant to Government Code Section 65400.3, jurisdictions may receive RHNA credit for up to 25 percent of their low, very low, extremely low, or acutely low-income allocations through qualifying deedrestricted rehabilitated units. Because the City has already met its Low-Income RHNA 301
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allocation, the principal benefit would be credit for the 39 to 41 Very-Low-Income units. The City must produce 164 Very-Low-Income units and could get credit for up to 41 units through this option.

Alternative Compliance Option C – Land Transfer and In-Lieu Fee The Applicant may satisfy its affordable housing obligation through a combination of land transfer and payment of an in-lieu fee totaling $17.41 million.

Under this option, the Applicant may transfer the 851 Weeks Street property, assign associated development plans to the City, and provide additional cash contributions. The City would continue to participate in the appraisal process used to determine the value of the property.

The proposed contribution reflects a reduction to an in-lieu fee that is roughly equivalent to 15 percent of net new units (58 units), down from the in-lieu fee calculation contained in the existing Development Agreement, which is roughly equivalent to 20 percent of net new units (78 units). Staff believes the reduction is reasonable if it facilitates construction of the Woodland Park Euclid Improvements Project and delivery of the project's broader community benefits.

Additional Affordable Housing Amendments
The First Amendment also:
 Allows the affordable housing developer to be Eden Housing or another qualified affordable housing developer (not necessarily a non-profit);
 Eliminates the additional 5% of the inclusionary housing in-lieu fee penalty for units not constructed. I.e., without penalty, accepts renovated units instead of newly constructed units.  Revises the affordable housing gap financing calculation to recognize entitlement costs in addition to land value; and
 Establishes a new “Affordable Housing Force Majeure” provision permitting Applicant to delay payment of the Affordable Housing In-Lieu Fee if delays are caused by Permitted Delay (i.e., beyond the reasonable control or fault of either party) events or inability to obtain financing, with a backstop requiring payment no later than the first Certificate of Occupancy.

2. New Water Infrastructure (Section 5.1.4)
The existing Development Agreement requires the Applicant to provide a 1.5-million-gallon water tank and pump system at 375 Donohoe Street.

The proposed amendment would allow the Applicant to provide an alternative water storage solution if a fire flow and pressure analysis demonstrates that the alternative water tank provides adequate storage, flow, and pressure. Any alternative tank size or system would need to be approved by the City Manager and Menlo Park Fire Protection District and must satisfy the City's water storage requirements established in the 2022 Water System Master Plan and by the State Water Resources Control Board, Division of Drinking Water. 302
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Consistent with Section: 5.1.4 of the Development Agreement, if the Applicant does not construct the required water tank and pump station, the Applicant must pay the required water capacity fees and public facilities fees and provide a $2,000,000 community benefit payment to the City upon issuance of the first Certificate of Occupancy.

3. Storm Drainage Improvements (Section 5.1.5)
The proposed First Amendment adds clarifying language addressing circumstances where storm drainage improvement costs exceed the Development Agreement's cost cap.

If project costs exceed the applicable cap, as adjusted annually by the Engineering NewsRecord (ENR) Construction Cost Index, the Applicant must provide written notice to the City.

The City would then have 30 days to determine whether to:
 Reduce the scope of improvements;
 Pay excess costs directly;
 Construct the improvements itself, with the Applicant contributing the capped amount;  Offset excess costs through legally available fees; or  Approve another mutually acceptable solution.

These revisions provide a clear process for addressing unforeseen construction cost increases.

4. Impact Fee Payment Timing (Section 4.3.3)
The existing Development Agreement requires payment of all applicable impact fees at issuance of the first building permit.

The proposed First Amendment would defer payment until issuance of the first Certificate of Occupancy. The Applicant asserts that this change is necessary to improve project financing feasibility by postponing significant upfront costs until the project is closer to generating revenue.

The Finance Director and Public Works Director have advised that this change will not negatively affect the City's Capital Improvement Program or delay planned infrastructure improvements.

The Applicant remains separately responsible for constructing required water and storm drainage improvements, and costs associated with those improvements may exceed the applicable impact fee obligations.

Deferral of development impact fees is not uncommon for large development projects. Similar provisions have been approved in other jurisdictions and are generally consistent with the policy direction reflected in Senate Bill 937, which became effective January 1, 2025.

5. Assignment Rights (Section 10.2)
The proposed First Amendment would allow the Applicant to assign portions of its rights, duties, and obligations under the Development Agreement while retaining responsibility for other portions. Any assignment would require that all obligations remain enforceable against the Applicant, a successor, or another approved assignee.

This amendment provides additional flexibility for phased development, financing arrangements, and future ownership structures while preserving the City's ability to enforce the Development 303
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Agreement.

Legal Issues and Considerations

1. Development Agreement Statutory Authority
California Government Code Sections 65864 et seq. authorize cities to enter into development agreements with property owners to establish vested development rights. Government Code Section 65868 authorizes amendment of a development agreement by mutual consent of the parties, subject to the same procedures required for approval of the original agreement.

East Palo Alto Municipal Code Chapter 18.108 establishes local procedures governing development agreements and amendments. The proposed First Amendment must be approved by ordinance, is subject to public hearing requirements, and constitutes a legislative act subject to referendum.

Because this proposed action amends an existing Development Agreement, only a public hearing before the City Council is required pursuant to East Palo Alto Municipal Code Section

18.108.060(B). This process is also consistent with Section 6.2.2 (Major Amendments) of the existing Development Agreement.

2. General Plan and Specific Plan Consistency
Government Code Section 65867.5 requires that a development agreement remain consistent with the City’s General Plan and any applicable specific plan.

The proposed First Amendment does not modify the approved land uses, density, development intensity, building height, project footprint, or overall project scope. Instead, the amendment modifies affordable housing implementation mechanisms, impact fee payment timing, water infrastructure provisions, and administrative provisions related to assignments. Accordingly, staff finds that the First Amendment remains consistent with the City's General Plan, the Westside Area Plan, and the Development Code.

The Neighborhood Center Overlay (NCO) District and associated General Plan Amendment (GP19-001) remain in effect and are not modified by the proposed action.

3. Required Development Agreement Findings
Pursuant to East Palo Alto Municipal Code Section 18.108.030(D), the City Council may approve the amendment if the following findings can be made.
a) The Development Agreement is in the Best Interests of the City Staff finds this criterion satisfied because the amended Development Agreement continues to provide substantial community benefits while facilitating construction of one of the City's most significant housing developments.

The Development Agreement remains consistent with Westside Area Plan Policy 5.4, which requires negotiated agreements for projects seeking increased development intensity and calls for community benefits that support parks, open space, infrastructure, and community facilities.
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The amended Development Agreement continues to provide significant public benefits, including:
 A publicly accessible 9,300-square-foot park;
 Approximately 2,500 square feet of community function space;  A bus shelter on O'Connor Street;
 Major infrastructure improvements, including storm drainage improvements;  A 1.5-million-gallon water tank and pump system, or an alternative system that satisfies City requirements; and
 Dedication of approximately 20,350 square feet of roadway right-of-way.

These benefits advance Westside Area Plan Policy 8.4, which supports the creation of community gathering spaces and related public amenities. b) The Development Agreement is Consistent with the Purpose, Intent, Goals, Policies, Programs, and Land Use Designations of the General Plan, Any Applicable Specific Plan, and the Development Code
Staff finds this criterion satisfied because the proposed amendment does not alter any aspect of the project that formed the basis of the City's original consistency determinations.

The approved neighborhood-serving retail uses remain permitted within the Neighborhood Center Overlay designation and zoning district. The multifamily residential component remains permitted within the High Density Residential and Urban Residential General Plan designations and the R-HD and R-UHD zoning districts.

The purpose of the Neighborhood Center Overlay is to support higher-density housing combined with neighborhood-serving commercial uses. The project continues to advance that purpose through construction of 550 residential units, including approximately 160 rent-stabilized units, neighborhood-serving retail space, community space, and affordable housing obligations that satisfy the City's Inclusionary Housing Ordinance. The Tenant Relocation Plan also remains in place.

The project remains consistent with all applicable provisions of the Development Code and related City regulations.
c) The Development Agreement Will Promote the Public Convenience, Health, Interest, Safety, and General Welfare of the City
Staff finds this criterion satisfied because the amendment does not alter the project's previously approved design, circulation, setbacks, landscaping, or other features that support public health and safety.

The project remains subject to all mitigation measures identified in the certified Environmental Impact Report and Mitigation Monitoring and Reporting Program. The 305
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amendment does not introduce any new environmental impacts or public safety concerns.
d) The Project Will Be Compatible with Uses Authorized in, and Regulations Prescribed for, the Zone in Which the Property Is Located Staff finds this criterion satisfied because the amendment does not change the project's approved land uses.

The project site, 2001 Manhattan Avenue, consists of approximately 3.92 acres formerly occupied by 161 residential units and is surrounded by multifamily residential development and neighborhood-serving commercial uses. The approved mixed-use development remains compatible with surrounding development patterns and applicable zoning regulations.
e) The Project Will Not Adversely Affect the Orderly Development of Property or the Preservation of Property Values
Staff finds this criterion satisfied because the amendment does not alter the project's consistency with the General Plan, Westside Area Plan, or Development Code.

The General Plan identifies the project area as appropriate for increased residential intensity when specific policy objectives are satisfied. The project continues to meet the prerequisites established by Westside Area Plan Policies 5.3, 5.4, and 5.5 and continues to provide the infrastructure, community facilities, and public benefits contemplated by those policies.
f) The Project Will Further Important Citywide Goals and Policies Officially Recognized by the City Council
Staff finds this criterion satisfied because the project continues to be consistent with the General Plan and advance several important goals of the Westside Area Plan.

The project supports Goal W-1 by preserving opportunities for displaced residents to return to newly constructed rent-stabilized units and by maintaining relocation assistance requirements.

The project supports Goal W-3 by expanding affordable housing opportunities through replacement rent-stabilized units and off-site affordable housing obligations.

The project supports Goal W-5 by facilitating construction of new housing that improves housing opportunities and quality of life within the community. g) The Project Will Provide the City with Important and Tangible Benefits Beyond Those Required Through Conditions of Approval
Staff finds this criterion satisfied because the Development Agreement continues to provide substantial public benefits that exceed those otherwise required through standard project conditions of approval.

These benefits include the public park, community function space, water infrastructure improvements, transit amenities, landscaping improvements, roadway dedication, and other infrastructure enhancements identified in the Development Agreement. 306
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4. Inclusionary Housing Ordinance Compliance
East Palo Alto Municipal Code Section 18.37.080(D) allows alternative methods of compliance with inclusionary housing requirements if the approving body determines that the alternative compliance method provides greater public benefit than on-site inclusionary units.

The existing Development Agreement included findings that the combination of 160 replacement rent-stabilized units and off-site income-restricted affordable housing units satisfied this standard.

The proposed First Amendment introduces three new compliance options: an alternative affordable housing partnership, rehabilitation and deed restriction of existing Woodland Park units, and transfer of property combined with payment of an in-lieu fee.

In approving the First Amendment, the City Council should determine whether each alternative continues to provide a greater public benefit than on-site inclusionary housing, particularly the rehabilitation option, which deed restricts existing rent-stabilized units to make them permanently affordable units rather than creating new units; and the in-lieu fee option, which provides land, development plans, and funding but does not directly produce affordable housing units.

When considering public benefit, the City Council should also consider the extent to which these alternative options could advance development of the Woodland Park Euclid Improvements Project, as 160 newly constructed rent stabilized units and 390 net new units are also public benefits, as explained earlier in this report in the section labeled - The Importance of Advancing Construction the Woodland Park Euclid Improvements Project.

5. Vested Rights and Development Standards
The Development Agreement vests the Applicant's right to develop the project under regulations in effect at the time the agreement became effective for a seven-year term, with a potential fiveyear extension.

The proposed First Amendment does not modify the term of the Development Agreement or the vested development standards. Consistent with the Development Agreement, subsequently adopted building codes, utility regulations, and health and safety requirements continue to apply to the project as required by law.

6. RHNA 6 and Housing Element Implications
The City's sixth-cycle Regional Housing Needs Allocation requires development of 829 housing units by 2031.

As of 2025, the City had issued building permits for 221 units, representing approximately 27 percent of its RHNA allocation. The Woodland Park Euclid Improvements Project is the largest housing project currently in the City's development pipeline and is critical to achieving the City's RHNA obligations.

Government Code Section 65585 authorizes the California Department of Housing and Community Development to determine that a housing element is no longer in substantial compliance if a jurisdiction fails to make adequate progress toward meeting its housing obligations.
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7. Rent Stabilization and Ellis Act Considerations
The project replaces 161 demolished units, including 160 rent-stabilized units, with160 replacement rent-stabilized units.

The approved Relocation Plan requires compliance with the City’s Rent Stabilization Ordinance and state law, including the Ellis Act (Government Code Section 7060 et seq.), which governs the removal of rental units from the market. The proposed First Amendment does not modify any relocation requirements, tenant protections, right-to-return provisions, or rent stabilization obligations.

8. Recording Requirements
Government Code Section 65868.5 requires a development agreement and any amendment thereto to be recorded within 10 days after execution.

If approved, staff recommends that the City Clerk record the First Amendment in the Official Records of San Mateo County.

9. Annual Review
Government Code Section 65865.1 requires annual review of the Applicant's good-faith compliance with the Development Agreement.

Approval of the First Amendment does not alter this requirement. Staff will continue to conduct annual compliance reviews and report the results to the City Council.

10.Indemnification
The existing Development Agreement requires the Applicant to defend, indemnify, and hold the City harmless from legal challenges related to the project.

The proposed First Amendment does not modify these provisions, and the indemnification requirements will continue to apply to the Development Agreement as amended.

11.Assignment and Successor Obligations
The proposed First Amendment permits partial assignment of Development Agreement rights and obligations while requiring that all obligations remain enforceable against the Applicant, a successor, or another approved assignee.

Staff finds that the proposed language provides operational flexibility while preserving the City's ability to enforce all obligations contained in the Development Agreement. The proposed changes require that all rights, duties, and obligations remain held by the Applicant or any predecessor or successor in interest, which should prevent any gap in obligation coverage.

Fiscal Impact
The proposed First Amendment does not create a direct fiscal impact on the General Fund at this time.

The Fiscal Impact Analysis prepared for the original project concluded that the development would generate a positive net fiscal benefit to the City, with estimated annual General Fund revenues exceeding annual General Fund expenditures by approximately $1,109,000. Because the proposed amendments do not modify the project's approved scope, density, or land uses, 308
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staff does not expect the amendments to alter that analysis.

Realization of these fiscal benefits depends on the project advancing to construction and occupancy.

The proposed amendment to defer payment of development impact fees from building permit issuance to issuance of the first Certificate of Occupancy will delay the City's receipt of impact fee revenues. The original Development Agreement estimated total local impact fees at approximately $11.6 million. While the amendment will affect the timing of revenues available for capital improvements, it will not reduce the total amount of fees ultimately collected by the City.

As discussed in the Analysis section, the Finance Director and Public Works Director have advised that deferral of impact fee payments is not expected to adversely affect the City's Capital Improvement Program or delay planned infrastructure projects. The Applicant remains separately responsible for constructing required project-related infrastructure improvements, including water system and storm drainage improvements, pursuant to the Development Agreement.

Accordingly, staff believes the proposed amendment appropriately balances short-term revenue timing considerations with the City's broader objectives of advancing housing production, restoring rent-stabilized units, and generating long-term fiscal benefits.

Public Notice
The public was provided notice by making the agenda and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto. Additionally, notice was published in the Daily News newspaper. As a legislative action requiring adoption by ordinance, the proposed First Amendment to the DA is subject to the public hearing requirements of Government Code Sections 65867 and 65090, which require published notice in a newspaper of general circulation at least 10 days before the public hearing. Pursuant to Government Code Section 36933, the adopted ordinance must also be published following adoption. The public notice was published in the Palo Alto Daily Journal on June 5, 2026, more than ten days prior to the June 16 hearing date.

Environmental
The proposed First Amendment to the DA does not require further environmental review under the California Environmental Quality Act (CEQA). The environmental effects of the Project were fully analyzed in the certified Environmental Impact Report (EIR) (SCH #2020040270). An addendum to the EIR was adopted on July 16, 2024, for a subsequent design review amendment. The proposed changes to the DA relate to financial terms, timing of obligations, and operational flexibility and will not result in any new significant environmental effects or a substantial increase in the severity of previously identified effects.

The City has determined that the proposed revisions do not require a subsequent or supplemental EIR or Negative Declaration under Public Resources Code Section 21166 or CEQA Guidelines Sections 15162 and 15164, as there are no new significant effects, no substantial changes in the project, no substantial changes in circumstances, and no new information of substantial importance that was not known at the time the EIR was certified. 309
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Government Code § 84308
The Levine Act, codified at Government Code Section 84308, requires that Councilmembers disclose, recuse, and cure, where appropriate, any conflicts that arise from receipt of contributions of $250 or more from a “party,” “participant,” or any of their agents where an agenda item involves an “entitlement for use.” The approval of a development agreement amendment constitutes an entitlement for use and triggers Levine Act requirements. Councilmembers who have received qualifying contributions must disclose and may need to recuse themselves from voting on this item.

Applicability of Levine Act: Yes.

Analysis of Levine Act Compliance: The project Applicant is Sand Hill Property Company and is represented by Michael Kramer. Staff is unaware of any contributions from these parties to Councilmembers that would require disclosure or recusal. Councilmembers should independently confirm they have not received contributions of $250 or more from any party, participant, or their agents.

Parties: Sand Hill Property Company (Applicant); Michael Kramer (Applicant’s representative); Woodland Park Property Owner A, LLC (Developer).

Participant(s): Staff is unaware of any other parties or participants relevant to the City Council’s consideration of this item at this time.

Attachments:

1. Draft Ordinance Approving the First Amendment to the Development Agreement

2. First Amendment of Development Agreement

3. Original Executed Development Agreement
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ORDINANCE NO. ____ - 2026

AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO

APPROVING THE FIRST AMENDMENT TO THE DEVELOPMENT AGREEMENT

BETWEEN THE CITY OF EAST PALO ALTO AND WOODLAND PARK PROPERTY

OWNER A, LLC RELATING TO THE DEVELOPMENT OF THE WOODLAND PARK

EUCLID IMPROVEMENTS PROJECT
WHEREAS, to strengthen the public planning process, encourage private participation in comprehensive planning and reduce the economic risk of development, the Legislature of the State of California adopted Government Code Sections 65864 et seq. (the "Development Agreement Statute") which authorizes cities to enter into agreements for the development of real property with any person having a legal or equitable interest in such property in order to establish certain development rights in such property; and
WHEREAS, in accordance with the Development Agreement Statute, the City of East Palo Alto enacted Chapter 18.108 of the East Palo Alto Municipal Code (the "Development Agreement Regulations") to implement procedures for the processing and approval of development agreements in accordance with the Development Agreement Statute; and
WHEREAS, Woodland Park Property Owner, LLC ("Former Developer") submitted an application requesting approval of a General Plan Amendment (GP19- 001) and Development Code and Zoning Map amendments (ZC19-002), Design Review Permit (DR 19-028), Conditional Use Permit (CUP22-003), Tentative Parcel Map (TTM19-001), and Development Agreement to allow for the construction of a mixed-use residential project containing approximately 605 residential units within three buildings ranging in height from 5 to 13 stories with approximately 605 parking spaces in a structured garage and approximately 2,500 square feet of community function space and 2,215 square feet of neighborhood-serving retail space (the "Project"); and WHEREAS, pursuant to the Development Agreement Statute and Development Agreement Regulations, the Planning Commission held a duly noticed public hearing on July 25, 2022, on the proposed Project and found the proposed Development Agreement is consistent with the objectives of the general plan and the Westside Area Specific Plan, in conformity with public convenience and beneficial to the public welfare, and will not adversely impact the orderly development of property; and WHEREAS, the City Council, after published notice, held public hearings on September 6, September 20, October 4, November 1, and November 15, 2022, concerning the proposed Project, including the reports and documents presented by City staff, the Planning Commission’s recommendations, and the written and oral comments presented at the public hearings; and
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WHEREAS, on November 15, 2022, the City Council adopted Ordinance No. 08- 2022 approving the Development Agreement between the City of East Palo Alto and Woodland Park Property Owner, LLC (the "Original Development Agreement"), which was recorded in the Official Records of San Mateo County on June 23, 2023, as Instrument No. 2023-030130; and
WHEREAS, pursuant to an Assignment and Assumption of Development Agreement dated July 21, 2023, and recorded in the Official Records of San Mateo County as Instrument No. 2023-036726, the Original Development Agreement was assigned to Woodland Park Property Owner A, LLC, a Delaware limited liability company ("Developer"), as successor in interest to the Former Developer; and WHEREAS, on October 4, 2022, the City Council certified the Environmental Impact Report ("EIR") (SCH #2020040270), adopted a Mitigation Monitoring and Reporting Plan, and adopted a Statement of Overriding Considerations for the Project; and
WHEREAS, on July 16, 2024, the City Council adopted an Addendum to the EIR in connection with a design review amendment for the Project; and WHEREAS, the Developer, through its representative Sand Hill Property Company , has requested a First Amendment to the Development Agreement ("First Amendment") to modify certain provisions of the Original Development Agreement, including but not limited to: (a) Section 4.3.3 regarding the timing of Impact Fee payments; (b) Section 4.5.2 regarding Off-Site Affordable Housing Units; (c) a new Section 4.5.4 regarding Alternative Compliance Options; (d) Section 5.1.4 regarding Water Infrastructure; (e) Section 5.1.5 regarding Storm Drainage; and (f) Section 10.2 regarding the Right to Assign; and
WHEREAS, the City’s Regional Housing Needs Allocation (RHNA) for the 6th Cycle requires the production of 829 new housing units by 2031, and as of 2025, only 63 building permits have been issued, representing 7.6% of the City’s RHNA goal, making the Project—the largest in the City’s housing pipeline—critical to the City’s RHNA compliance; and
WHEREAS, City staff has reviewed the First Amendment and determined that none of the conditions described in Public Resources Code Section 21166 or California Environmental Quality Act ("CEQA") Guidelines Sections 15162 and 15164 requiring preparation of a subsequent or supplemental EIR have occurred; and WHEREAS, specifically, (i) no substantial changes are proposed to the Project that would require major revisions of the EIR due to the involvement of new significant environmental effects or a substantial increase in the severity of previously identified significant effects; (ii) no substantial changes have occurred with respect to the circumstances under which the Project is undertaken that would require major revisions of the EIR due to the involvement of new significant environmental effects or a substantial increase in the severity of previously identified significant effects; and (iii) no new information of substantial importance, which was not known and could not have 312
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been known with the exercise of reasonable diligence at the time the EIR was certified, shows the Project will have new or substantially more severe significant effects, that mitigation measures previously found infeasible would in fact be feasible and would substantially reduce significant effects, or that mitigation measures or alternatives considerably different from those analyzed in the EIR would substantially reduce significant effects; and
WHEREAS, the City Council has considered the staff report, the First Amendment, the Original Development Agreement, the EIR and its Addendum, and all written and oral testimony presented regarding the proposed First Amendment.

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO DOES ORDAIN AS FOLLOWS:

SECTION 1. Findings and Determination.

The City Council hereby finds and declares the above recitals are true and correct. The City Council further finds that:

1. The provisions of the First Amendment to the Development Agreement are consistent with the City’s General Plan and Westside Area Specific Plan as they exist on the effective date of this Ordinance.

2. The provisions of the Development Agreement, as amended by the First Amendment, that constitute the Project’s Inclusionary Housing Plan are consistent with East Palo Alto Municipal Code Section 18.37.080(D) and the alternative compliance method proposed provides greater public benefit than would provision of the inclusionary units on-site due to the preservation of on-site rent-controlled units, provision of off-site income-restricted units, and the inclusion of alternative compliance options.

3. The First Amendment does not alter the fundamental terms and conditions of the Original Development Agreement but rather modifies certain implementation provisions to facilitate the timely development of the Project and the delivery of community benefits, affordable housing, and critical infrastructure improvements.

4. The development agreement is in the best interests of the City; This finding can be made because the development agreement amendment continues to include significant community benefits with a term length of seven to twelve years (dependent on if an automatic extension is invoked). The development agreement and community benefits are consistent with Westside Area Plan Policy 5.4, which calls for projects requesting increased intensity to enter into a development agreement and/or pay fees to support the development of new parks, open spaces, infrastructure and community facilities necessary to support a higher level of development on the Westside. In addition, Westside Area Plan Policy 8.4, which calls for new community meeting spaces. The community benefits include a 9,300 square feet new public park, community function space of approximately 2,500 square feet, and 313
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a 1.5 million gallon water tank and pump system to improve the overall water conveyance, supply, and pressure in the neighborhood.

5. The development agreement is consistent with the purpose, intent, goals, policies, programs, and land use designations of the General Plan, any applicable specific plan, and the Development Code;
This finding can be made because amendment does not propose any changes that would make the project inconsistent. The proposed neighborhood service use is permitted in the Neighborhood Center Overlay Land Use Designation and within the Neighborhood Center zoning district. The multiple family residential use is permitted in the High Density Residential and Urban Residential Land Use Designations in the General Plan and the R-HD and RUHD Zoning Districts. The purpose of the NCO designation is to support the development of housing at increased intensities with ancillary neighborhoodserving retail uses. The project would provide community space and neighborhood serving retail uses, as well as 605 residential units, 160 of which would be rent-controlled. The project also includes construction of off-site income-restricted affordable housing as alternative compliance with the City’s inclusionary housing ordinance, and a Tenant Relocation Plan that is compliant with the City’s ordinances and the Westside Area Plan requirements. Further, the proposed project meets all applicable provisions of the Development Code, including the NCO District, and City ordinances and regulations.

6. The development agreement will promote the public convenience, health, interest, safety and general welfare of the City;
This finding can be made because the project was designed to ensure public health, safety and general welfare. The amendment does not propose any changes that would impact this finding. The project includes appropriate project setbacks, circulation, and landscaping. The proposed mixed-use project has been designed to be compatible with the NCO zoning district, and mitigation measures identified in the EIR and MMRP prepared for the project are incorporated to avoid potential environmental effects related to public health and safety.

7. The project will be compatible with the uses authorized in, and the regulations prescribed for, the zone in which the real property is located; This finding can be made because there are no changes to the uses. The proposed mixed-use is permitted in the proposed General Plan Neighborhood Center Overlay (NCO) Land Use Designation and within the proposed NCO zoning district. The General Plan and Development Code amendments meet the required findings, as described above. The project site, 2001 Manhattan Avenue, comprises approximately 3.92 acres of land and is occupied 161 existing units and is surrounded by other multiple-family housing development as well as neighborhood serving commercial uses. Therefore, the proposed mixed-use building will be compatible with the other authorized uses in the area.

8. The project will not adversely affect the orderly development of property or the preservation of property values;
This finding can be made as the project, inclusive of the General Plan and Development Code amendments, is consistent with both the General Plan and 314
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the Development Code which plan for and regulate the development of property and set forth property value expectations. The amendment does not propose any changes that would impact the finding. The General Plan provides a comprehensive framework for the physical development of the city through 2035 and highlights the project area as appropriate for increases in intensity on a project-by-project basis. The project meets the prerequisites for increases in intensity laid out by Westside Area Plan Policy 5.3, supports the development of new parks, open spaces, infrastructure and community facilities set forth by Westside Area Plan Policy 5.4, and meets application requirements set forth by Westside Area Plan Policy 5.5.

9. The project will further important Citywide goals and policies that have been officially recognized by the Council; and
This finding can be made because the proposed project is still consistent with the General Plan and Westside Area Plan, specifically Goals W-1, W-3, and W5. Westside Area Plan W-1 is to prevent displacement and preserve affordable housing. The project would provide right of return units, temporary units during construction, and other relocation benefits for existing tenants and would include 160 rent-controlled units in the new development. The project would also further Westside Area Plan Goal W-3 by creating new, high-quality affordable housing, both at the project site (rent-controlled units) and at the offsite income restricted affordable housing development. The project would additionally support Westside Area Plan Goal W-5 by developing of new buildings to improve housing opportunities and improve quality of life.

10. The project will provide the City with important, tangible benefits beyond those that may be required by the City through project conditions of approval
This finding can be made because the proposed project will continue to provide important and tangible benefits including a community function space, public park, 1.5 million gallon water tank, and bus stop and landscaping improvements around the project site.

SECTION 2. CEQA
The environmental effects of the Project subject to the Development Agreement were analyzed in the Environmental Impact Report (EIR) (SCH #2020040270), Mitigation Monitoring and Reporting Plan, and Statement of Overriding Considerations, which were certified and adopted by the City Council on October 4, 2022, and an Addendum to the EIR adopted on July 16, 2024.

The City Council finds that, based on the whole of the record before it, including but not limited to the EIR, the EIR Addendum, the Original Development Agreement, and the proposed First Amendment:
(a) No substantial changes are proposed in the Project or with respect to the circumstances under which the Project is undertaken that would require major revisions 315
Ordinance No. _ - 2026 [Page #]
of the EIR due to the involvement of new significant environmental effects or a substantial increase in the severity of previously identified significant effects; (b) No new information of substantial importance, which was not known and could not have been known with the exercise of reasonable diligence at the time the EIR was certified, has been identified that shows: (i) the Project will have one or more significant effects not discussed in the EIR; (ii) significant effects previously examined will be substantially more severe than shown in the EIR; (iii) mitigation measures or alternatives previously found to be infeasible would in fact be feasible and would substantially reduce one or more significant effects of the Project; or (iv) mitigation measures or alternatives that are considerably different from those analyzed in the EIR would substantially reduce one or more significant effects on the environment; and (c) The First Amendment does not change the physical characteristics of the Project, the Project site, the number of residential units, building heights or massing, or any other physical aspect of the Project as previously analyzed in the EIR and EIR Addendum.

SECTION 3. Approval of First Amendment to the Development Agreement Based on the findings herein and in the resolution included in the above recitals, the City Council hereby approves the First Amendment to the Development Agreement attached hereto as Exhibit 1 and incorporated herein by reference, and authorizes the City Manager to execute the First Amendment, subject to such minor, conforming, or clarifying changes consistent with the terms thereof as may be approved by the City Manager prior to execution thereof, and any and all other documents necessary to effectuate the First Amendment.

SECTION 4. Recording
The City Clerk is hereby directed to record the First Amendment with the County Recorder of San Mateo County within ten (10) days after the effective date of this Ordinance, as required by Government Code Section 65868.5.

SECTION 5. Severability
If any section, subsection, sentence, clause or phrase of this Ordinance is for any reason held to be unconstitutional, invalid or ineffective by a court of competent jurisdiction, such decision shall not affect the validity or effectiveness of the remaining portions of this Ordinance. The City Council hereby declares that it would have adopted this Ordinance, and each section, subsection, sentence, clause and phrase thereof irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared unconstitutional, invalid or ineffective.

SECTION 6. Effective Date
This Ordinance shall be in full force and effect thirty (30) days after its adoption. 316
Ordinance No. _ - 2026 [Page #]
SECTION 7. Publication
The City Clerk is directed to cause publication of this Ordinance as required by Government Code Section 36933.

INTRODUCED at a regular City Council meeting held __________, 2026, and PASSED AND ADOPTED this ___ day of ____ 20__, by the following vote:

Webster Lincoln, Mayor
ATTEST: APPROVED AS TO FORM:

James Colin, City Clerk John D. Lê, City Attorney
317
1 RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

City Clerk’s Office
City of East Palo Alto
2415 University Ave.

East Palo Alto, CA 94303
Exempt from Recording Fee Pursuant to
Government Code Section 27383
Space above this line for recorder’s use

FIRST AMENDMENT OF DEVELOPMENT AGREEMENT
THIS FIRST AMENDMENT OF DEVELOPMENT AGREEMENT (“First Amendment”) is made this ____ day of _______________, 2026, (“Effective Date”) by and between the City of East Palo Alto, a California municipal corporation (the “City”), and Woodland Park Property Owner A, LLC, a Delaware limited liability company (“Developer”), as successor in interest to Woodland Park Property Owner, LLC, a Delaware limited liability company (“Former Developer”).

RECITALS:

A. Developer is the fee owner of that certain real property in the City located at 2021 Euclid Ave., 2025 Euclid Ave., 2031 Euclid Ave., 2041 Euclid Ave. (previously known as 420 E. O'Keefe), 2043 Euclid Ave., 2012 Euclid Ave., 2032 Euclid Ave., 2036 Euclid Ave., 2040 Euclid Ave., 2042 Euclid Ave., 2044 Euclid Ave., 2054 Euclid Ave., 501 O'Connor St., 2001 Manhattan Ave., and 2033 Manhattan Ave., designated as Assessor's Parcel Nos. 063282010, 063282020, 063282030, 063282040, 063282050, 063282060, 06328207, 063282080, 063282090, 063281020, 063281030, 063281040, 063281100, and 063281110, and more particularly described in Exhibit A attached hereto and incorporated herein by this reference (the “Property”).

B. The Former Developer and City are parties to a Development Agreement passed and adopted by the City Council on November 15, 2022, by Ordinance No. 07-2022 and recorded in the Official Records of San Mateo County on June 23, 2023, as Instrument No. 2023- 030130 (the “Original Development Agreement”), which was assigned to and assumed by Developer in that certain Assignment and Assumption of Development Agreement dated as of July 21, 2023, and recorded in the Official Records of San Mateo County July 31, 2023, as Instrument No. 2023-036726 (the “Assignment”).

C. The City’s Regional Housing Needs Allocation for the sixth cycle (“RHNA 6”) is 829 new housing units by 2031. In 2025, the City reported its RHNA 6 progress to the state.

The City had issued 63 building permits toward the 829 required, which is 7.6% of the housing goal during the first 25% of the sixth cycle. The City also reported pipeline projects anticipated to 318
2 proceed during the sixth cycle, including the Project. During 2025, however, several of those pipeline projects have stalled. The Project comprises the largest share of units within the pipeline estimates. If the Project cannot move forward, there are no other identified projects to fulfill the RHNA 6.

D. Developer has been working to proceed with the Project in compliance with the Original Development Agreement.

E. When they entered into the Original Development Agreement, the parties intended for Developer’s affordable housing obligations to be met by the Approved Compliance Option, which entailed the construction of Off-Site AH Units on an Off-Site AH Parcel by AH Developer. As of the date of this First Amendment, Developer and AH Developer have completed the entitlement process for the Off-Site AH Units on an Off-Site AH Parcel located at 851 Weeks Street in East Palo Alto and have applied for several rounds of affordable housing funding, but no funding has been awarded. Developer is working to ensure it can meet its affordable housing obligations so that the Project can be constructed. Certain amendments to the Original Development Agreement are necessary to ensure that affordable housing can be created and the Project can proceed.

F. Developer has also been working to design and construct the water tank and pump system in coordination with the City’s Public Works Department and Menlo Fire District to improve the overall water conveyance, supply, and pressure in the neighborhood, as required by Section 5.1.4 of the Original Development Agreement. Condition of Approval #75 implements the Original Development Agreement. It requires that a 1.5 million gallon water tank at 375 Donohoe Street be constructed in accordance with the Development Agreement unless an alternate option is approved by the City based on the proposed tank design providing adequate storage, flow, and pressure to serve the development. Analyses completed since the Original Development Agreement indicate that an alternate option would provide adequate storage, flow, and pressure to serve the development, and the alternate option would have smaller visual effects on the neighborhood than the original design. A minor amendment to the Original Development Agreement would confirm the approach set forth by Condition #75.

G. The Development Agreement contemplates different timeframes for the completion of Community Benefits and the payment of impact fees. It also provides for fee credits against Impact Fees payable by Developer. Given the timing differences, it is not possible to know the fee credit amounts prior to the payment of the Impact Fees.

H. Developer and City enter into this Agreement for the purposes of (i) clarifying the Affordable Housing Plan; (ii) clarifying the obligations regarding the construction of a water tank; (iii) clarifying the timing of the payment of Impact Fees to align with the Fee Credit and Community Benefit provisions; and (iv) making certain other adjustments to the Original Development Agreement to facilitate the construction of the Project. The Original Development Agreement, as amended by the Assignment and this First Amendment, shall be referred to herein as the “Development Agreement.”
NOW, THEREFORE, in reliance on the foregoing and in consideration of the mutual 319
3 covenants, agreements and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Full Force and Effect; Capitalized Terms. Except as amended hereby, the Development Agreement remains unmodified and in full force and effect. All capitalized terms used but not defined in this First Amendment have the meaning set forth in the Original Development Agreement.

2. Off-Site Affordable Housing Units.
a. The first sentence of Section 4.5.2(a) shall be deleted in its entirety and replaced with the following:

Eden Housing or such other affordable housing developer (or partnership or limited liability company controlled by Eden Housing and/or such other affordable housing developer) (the “AH Developer”) under appropriate contract with Developer to provide AH Units off-site of the Property (“OffSite AH Units”) will construct a total number of Off-Site AH Units equal to or greater than 20% of the Net New Units (the “Minimum Off-Site AH Units”) at one or more off-site parcels in the City owned or controlled partially or entirely by Developer or a Developer Affiliate (the “Off-Site AH Parcel”).
b. Section 4.5.2(c) shall be deleted in its entirety and replaced with the following:

Developer shall donate the Off-Site AH Parcel to the AH Developer no later than the issuance by City to the AH Developer of building permits for construction of the Off-Site AH Units on the Off-Site AH Parcel.

Concurrently with such donation and following review by Developer, the AH Developer shall execute a regulatory agreement with the City pursuant to the City AH Regulations, to be recorded against the Off-Site AH Parcel.

If a regulatory agreement with the City has been recorded against any properties containing Safety Net Units pursuant to Section 4.5.3(g), such regulatory agreement shall be released, in whole or in part, from Safety Net Location title (one for one per AH Unit). Developer also shall provide "gap" financing to the AH Developer ("AH Gap Financing"), with a total value per Off-Site AH Unit (for which building permits have been obtained) equal to the value of the amount of the inclusionary housing in-lieu fee in effect at the time the AH Gap Financing is made to the AH Developer, based on the calculation set forth in the Inclusionary Housing Guidelines in effect as of the Effective Date of this Agreement (the "Guidelines Calculation"), less the amount of the credit set forth in Section 4.5.2(e) below. Developer shall provide the AH Gap Financing prior to or simultaneously with obtaining the first residential building permit. Notwithstanding any provision herein to the contrary, in no event shall Developer be obligated hereunder to construct 320
4 any Off-Site AH Units. Notwithstanding the foregoing, if the AH Developer’s planning application for the Off-Site AH Units is for greater than the Minimum Off-Site AH Units, the AH Gap Financing shall be reduced on a proportional basis for each additional AH Unit above the Minimum Off-Site AH Units.
c. Section 4.5.2(d) shall be deleted in its entirety and replaced with the following:

The Parties anticipate that, based on the anticipated estimated size of an OffSite AH Parcel, the AH Developer would construct approximately between 70-89 Off-Site AH Units thereon. If the AH Developer's planning application for the Off-Site AH Units is for fewer than the Minimum OffSite AH Units, then Developer shall be required to pay to the City upon issuance of building permits for dwelling units in the Project, with respect to each Minimum Off-Site AH Unit not then constructed, an in-lieu fee in the amount of the inclusionary housing in-lieu fee amount in effect at the time of issuance of the first building permit for the Project, based on the Guidelines Calculation (the "AH In-Lieu Fee"). If the AH Developer has not submitted planning applications for the Off-Site AH Units before issuance of the first building permit for the Project because of the occurrence of one or more of the types of events described within the definition of Permitted Delay in Section 1.1.29 or Developer’s or AH Developer’s inability to obtain Project or other financing (together, "AH Force Majeure"), Developer shall pay the AH In-Lieu Fee at the time such planning applications are submitted but in no event later than the issuance of the first Certificate of Occupancy for the Project. For avoidance of doubt, the AH In-Lieu Fee is intended to cover the difference between the number of Off-Site AH Units actually constructed on the Off-Site AH Parcel and the number of AH Units that would otherwise be required under the City AH Regulations to meet the requirement for Minimum On-Site AH Units in Section 4.5.2(a). The total amount of AH In-Lieu Fees payable under this Section 4.5.2(d) shall be adjusted to reflect any variance in the number of AH Units actually constructed on the Off-Site AH Parcel at the time that building permits are issued for the Off-Site AH Units and also to reflect any Safety Net Units (defined in Section 4.5.3) that remain occupied by households ineligible to occupy an Off-Site AH Unit. Any adjustment to the AH In-Lieu Fees will be further adjusted once a Safety Net Unit tenant ineligible for an Off- Site AH Unit vacates the Safety Net Unit, or their income exceeds that specified in Section 4.5.3(i).
d. Section 4.5.2(e) shall be deleted in its entirety and replaced with the following:

Developer shall receive, for the transfer of the Off-Site AH Parcel pursuant to Section 4.5.2(c) above, a credit (the “AH Credit”) against the amount of 321
5 any AH Gap Financing required to be provided by Developer pursuant to Section 4.5.2(c), equal to the cost of all expenses incurred by Developer to entitle and develop the Off-Site AH Parcel (including without limitation design, engineering and pre-construction costs) plus the Fair Market Value (as defined and determined below) of the Off-Site AH Parcel as of the date of such transfer. The Fair Market Value shall mean the appraised value of the Off-Site AH Parcel based upon its highest and best use as determined by an appraiser licensed in the State of California as a real estate appraiser, who is a member of the Appraisal Institute, and has at least ten (10) years' experience appraising properties similar to and in the vicinity of the OffSite AH Parcel. The Developer shall pay the full cost of the appraiser.

3. Safety Net Units.
a. Section 4.5.3(b) shall be deleted in its entirety and replaced with the following:

Developer shall not displace any then-current tenant at any Safety Net Location in order to accommodate the required number of AH Units available to lower income households. A current tenant whose income qualifies for the Safety Net Unit may remain in the Safety Net Unit. b. Section 4.5.3(f) shall be deleted in its entirety and replaced with the following:

The Safety Net Units shall have the same number of bedrooms or more bedrooms as applied for the Off-Site AH Units and besides bedroom counts and size will be comparable to other rental dwelling units in the same building per Municipal Code 18.38.070(D), unless otherwise agreed to in writing by the City.
c. Section 4.5.3(g) shall be deleted in its entirety and replaced with the following:

If building permits for the Off-Site AH Units have not been obtained by the end of the Term of this Agreement due to AH Force Majeure or if Developer so elects in its discretion prior to the end of the Term of this Agreement, then the temporary affordability restrictions for the Safety Net Units shall thereupon become permanent, a regulatory agreement restricting the Safety Net Units in perpetuity shall be recorded against the Safety Net Units (which agreement shall include the ability of Developer to relocate, from time to time and with City approval, the Safety Net Units to one or more other Safety Net Locations and thereupon the regulatory agreement shall be released from title to the prior location concurrently with a regulatory agreement being recorded against title to the new location), and the inclusionary and other affordable housing requirements under the City AH 322
6 Guidelines with respect to the Project shall thereupon be deemed fully satisfied.
d. Section 4.5.3(i) shall be deleted in its entirety and replaced with the following:

If for any reason a household occupying a Safety Net Unit is ineligible to occupy one of the Off-Site AH Units, or if insufficient Off-Site AH Units are available for all tenants in the Safety Net Units, Developer shall be obligated to maintain the Safety Net Unit as an affordable unit as long as such household continues to occupy such unit and continues to be eligible for an affordable unit at or below 80% of area median income. A household shall be deemed to continue to be eligible to occupy a Safety Net Unit until such household's income exceeds 140% of 80% of the area median income, at which time the rent for such unit may be raised to the extent allowed by law.

4. Alternative Compliance Options. A new Section 4.5.4 shall be added as follows:

Alternative Compliance Options. Notwithstanding anything to the contrary in Section 4.5.2 or 4.5.3; in Developer’s sole and absolute discretion, Developer may elect, no later than the time Developer seeks issuance of the first Certificate of Occupancy for dwelling units in the Project, to comply with the plain terms of the City’s Inclusionary Housing Ordinance as it exists at that time or to pursue any one of the following alternative compliance options to fulfill the City AH Regulations in place of complying with the requirements set forth in Sections 4.5.2 and 4.5.3. Fulfilment of any of the following alternative compliance options shall be deemed complete satisfaction of the City AH Regulations.
(a) Alternative Partnership. Developer may enter into an agreement with a non-profit affordable housing developer, developer, or public entity (“Alternative Partner”) for the provision of new AH Units within the City of East Palo Alto. Pursuant to the agreement, Developer shall provide “gap” financing to the Alternative Partner to facilitate the construction of AH Units in the City. Developer shall provide such gap financing to Alternative Partner in one or more phases, prior to or simultaneously with obtaining the first residential building permit for the alternative project, but in no event after the time that Developer obtains the first Certificate of Occupancy for the Project. In no event shall Developer be obligated hereunder to construct any alternative project. The total number of new AH Units provided by the Alternative Partner shall be equal to or greater than 20% of the Net New Units.

Developer targets to include 25% of the AH Units at or lower than rents affordable to 35% AMI households, 50% of the AH Units at or lower than rents affordable to 50% AMI households, and 25% of the AH Units 323
7 at or lower than rents affordable to 60% AMI households. The average affordability levels for the AH Units shall be at or lower than rents affordable to 50% AMI households. The AH Units shall be encumbered by a recorded regulatory agreement.
(b) Renovated Neighborhood Units. Developer may renovate a number of units on any land in the City owned by Developer or by a Developer Affiliate. Renovation shall include, at a minimum, the replacement of flooring, cabinetry, and fixtures together with painting the unit. Any such units shall be known as “Renovated Neighborhood Units.” The number of Renovated Neighborhood Units shall be 20% of the Net New Units. Half (50%) of the Renovated Neighborhood Units shall be AH Units affordable for 35% to 50% AMI households and the other half (50%) of the Renovated Neighborhood Units shall be AH Units affordable for 81% to 120% AMI households. The Renovated Neighborhood Units shall be encumbered by a recorded regulatory agreement. The Renovated Neighborhood Units shall have at least as many bedrooms as applied for the Off-Site AH Units. Existing tenants of the Renovated Neighborhood Units shall be eligible to remain in the Renovated Neighborhood Units. The City’s local preference shall apply to the Renovated Neighborhood Units to the extent permissible pursuant to applicable law.

5. New Water Infrastructure. Section 5.1.4 of the Original Development Agreement shall be deleted in its entirety and replaced with the following:

Developer will provide a 1.5 million gallon (or such other size or system as may be agreed upon in writing by City staff) water tank and pump system (and the land it is on), in coordination with the City of East Palo Alto Public Works and Menlo Fire District, to improve the overall water conveyance, supply, and pressure in the neighborhood. The design shall be confirmed by a fire flow/pressure analysis, based on the proposed water tank design, confirming the water tank provides adequate storage, flow, and pressure to serve the Project. The design will be completed by the Applicant with review and approval by the City and Menlo Park Fire. In accordance with Section 4.3.3, a portion of this new infrastructure will be credited against the water capacity fees and public facilities fees otherwise payable by Developer for the Project. The cost incurred by the Developer in excess of the required water capacity fees and public facilities fees are considered a community benefit.

6. Storm Drainage Improvements. The following sentence shall be added to the end of Section 5.1.5:

For the avoidance of doubt, in the event that the construction costs of the storm drainage infrastructure improvements specified herein are anticipated 324
8 to or do exceed $500,000, as such amount is increased each year by the increase in the ENR (“Storm Drainage Cap”), Developer shall provide written notice of the same to the City. Within fifteen (15) days of receipt of such notice, City shall elect whether to (a) reduce the scope of the required storm drainage infrastructure improvements so that the construction costs do not exceed the Storm Drainage Cap or (b) agree to pay directly to contractor(s) any construction costs that exceed the Storm Drainage Cap. In no event shall Developer have any obligation to pay any construction costs for storm drainage infrastructure improvements that exceed the Storm Drainage Cap.

7. Impact Fees.
a. Subsection 4.3.3(b)(i) shall be deleted in its entirety and replaced with the following:

Subject to the provisions of this Section 4.3.3, Developer shall pay all applicable Impact Fees at the time that Developer obtains the first Certificate of Occupancy for the Project.
b. Subsection 4.3.3(c)(1) shall be deleted in its entirety and replaced with the following:

Water Tank and Pump Station Credit. Developer shall receive a credit against water capacity fees for the cost of the water tank improvements and related land. Developer shall receive a credit against public facilities fees for the cost of pump station improvements and related land. The cost of the water tank, pump station and related land that exceeds the amount of the required fees shall be considered a community benefit. If for any reason, Developer is not required to build the water tank, Developer shall be required to pay the full amount of water capacity fees and public facilities fees;

8. Right to Assign. The following sentence shall be added to the end of Section 10.2:

Developer may retain a portion of the rights, duties, and obligations created by the Agreement with respect to all or a portion of the Property while assigning a different portion of the rights, duties, and obligations created by the Agreement with respect to all or a portion of the Property so long as all of the rights, duties, and obligations created by the Agreement are held by Developer or any predecessor or successor in interest to Developer.

9. Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and all of which shall be taken together shall be deemed one document.
325
9 IN WITNESS WHEREOF, the parties have executed this First Amendment effective as of the Effective Date.

CITY OF EAST PALO ALTO,
a municipal corporation
By: __________________________
Mayor
Dated: __________________________

WOODLAND PARK PROPERTY OWNER A,
LLC, a Delaware limited liability company
By: __________________________
Name: __________________________
Title: __________________________
Dated: __________________________
ATTEST:
________________________________
City Clerk
Dated: __________________________
APPROVED AS TO FORM:
____________________________________
City Attorney
Dated: __________________________
326
10 ACKNOWLEDGMENT
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

State of California )
County of_________ )
On ____________, 2026 before me __________________________, a notary public, personally appeared ________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.
___________________________________
Signature of Notary Public
327
11 ACKNOWLEDGMENT
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

State of California )
County of_________ )
On ____________, 2026 before me __________________________, a notary public, personally appeared ________________________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.
___________________________________
Signature of Notary Public
328
12 EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY
501 O'Connor Street and 2012 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Beginning at the intersection of the center line of O'Connor Street with the center line of Euclid Avenue running thence Easterly along the center line of O'Connor Street 187.53 feet; thence North 7° 27' East 210.49 feet; thence Westerly 175.40 feet to a point in the center line of Euclid Avenue which said point is distant Northerly 234.09 feet to the point of beginning; thence southerly along the center line of Euclid Avenue, 234.09 feet to the point of beginning. Said description includes within its boundaries Lots Numbered 1, 2 and 3 in Block 9 as shown on that certain Map entitled "Map of Woodland Place, Subdivision No. One of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24.

JPN: 063-028-282-01A and 063-028-282-02A
APN: 063-282-010, 063-282-020
2001 Manhattan Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Beginning at the point of intersection of the centerline of O'Connor Street with the centerline of Manhattan Avenue; running thence North 4° 44' East 229.10 feet to the Easterly prolongation of the Southerly line of the lands described in Deed to Jeanette A. Meek, recorded on April 21, 1913 in Book 224 of Deeds at Page 227, Records of San Mateo County, California; thence Westerly along said last mentioned prolongation and Southerly line 174.85 feet to the centerline of an alley way; thence Southerly along the centerline of said alley way 235.61 feet to the centerline of O'Connor Street; thence Easterly along the centerline of O'Connor Street 184.68 to the point of beginning. Being the property described as Lots Nos. 23 and 24 and the Southerly 25 feet of Lot No. 22 in Block 9, according to that certain Map entitled "Map of Woodland Place Subdivision No. 1 of Ravenswood, San Mateo County, Cal.", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24. Excepting therefrom that portion thereof conveyed to the third road district of San Mateo County, by Agnes M. West, et al, by Deed dated March 12, 1921 and recorded June 6, 1921 in Book 14, of Official Records at Page 237, Records of San Mateo County, California.
329
13 APN: 063-282-090
2021 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

LOT 2 AND THE SOUTHWESTERLY 5 FEET, FRONT AND REAR MEASUREMENTS OF LOT 3, BLOCK 10, MAP OF WOODLAND PLACE, SUBDIVISION NO. ONE OF RAVENSWOOD, FILED AUGUST 1, 1910, BOOK 7 OF MAPS, PAGE 24, SAN MATEO COUNTY RECORDS.

JPN: 063-028-281-02A
APN: 063-281-020
2025 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

The Northeasterly 45 feet, front and rear measurements of Lot 3 in Block 10 as shown on that certain Map entitled "Map of Woodland Place Subdivision No. 1 of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24.

JPN: 063-28-281-03A
APN: 063-281-030
2031 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Lot 4 and the Southerly 1/2, front and rear measurements of Lot 5 in Block 10, as shown on that certain Map entitled "Map of Woodland Place, Subdivision No. 1 of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California, on August 1, 1910 in Book 7 of Maps at Page(s) 24.

JPN: 063-028-281-04A
APN: 063-281-040
330
14 2032 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Lots 4 and 5 in Block 9 and portions of Euclid Avenue and the alley adjacent thereto, all as shown on that certain Map entitled "Map of Woodland Place, Subdivision No. One of Ravenswood, San Mateo County, California of Ravenswood Investment Co. Inc.", filed in the Office of the County Recorder of San Mateo County, State of California, on August 1, 1910 in Book 7 of Maps at Page(s) 24, described as: Beginning at a point in the centerline of Euclid Avenue distant thereon North 10° 19' East 234.00 feet from the intersection thereof with the centerline of O'Connor Street; running thence along said centerline of Euclid Avenue, North 10° 19' East 50.03 feet; thence leaving said line South 79° 41' East 172.77 feet to the centerline of alley running through said Block 9; thence along said centerline, South 7° 27' West 50.18 feet and thence North 79° 41' West 175.40 feet to the point of beginning. Excepting therefrom the Northwesterly 20 feet thereof for a public highway.

JPN: 063-028-282-03A
APN: 063-282-030
2033 Manhattan Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Parcel I:

Portion of Lots 20 and 21 and alley in Block 9, as delineated upon that certain Map entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California", filed for record in the Office of the Recorder of the County of San Mateo, State of California, on August 1st, 1910 in Book 7 of Maps, at Page 24, more particularly described as: Beginning at a point on the Westerly line of Manhattan Avenue where it is intersected by the line dividing Lots 21 and 22 in said Block 9; thence North 4° 44' East along said Westerly line 28.42 feet to the Southwesterly line of lands described in Deed from Retta J. Donaghu to the State of California, recorded September 7, 1955 in Book 2871, Page 396 of Official Records; thence along said Southwesterly line of a tangent curve to the left with a radius of 60 feet and a central angle of 53° 18' 46" an arc distance of 55.83 feet and North 48° 34' 46" West 117.29 feet to a point in the Northerly line of lands described in Deed from Claude C. Taylor and wife to Retta Donaghu, by Deed recorded November 24, 1942 in Book 1037,

87° West 17.27 feet, South 7° 27' West 145.68 feet and South 87° East 142.50 feet to the point of beginning.

Parcel II:

The Northerly 50 feet front and rear measurements of Lot 22 in Block 9, and the adjacent portion of 331
15 the Easterly one-half of unnamed alley way, as delineated upon that certain Map entitled "Map of Woodland Place, Subdivision No. One of Ravenswood, San Mateo County, California", filed for record in the Office of the Recorder of the County of San Mateo, State of California, on August 1st, 1910 in Book 7 of Maps, at Page 24.

JPN: 063-028-282-08A
APN: 063-282-080
2036 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Lots 5 and 6 in Block 9 and portion of Euclid Avenue and the alley adjacent thereto, all as shown on the Map entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24, more particularly described as follows:

Beginning at a point in the centerline of Euclid Avenue, distant thereon North 10° 19' East 284.12 feet from the point of intersection thereof with the centerline of O'Connor Street; running thence along said centerline of Euclid Avenue, North 10° 19' East 50.03 feet; thence leaving said line South 79° 41' East 170.13 feet to a point in the centerline of the alley running through said Block; thence along said centerline, South 7° 27' West 50.18 feet and thence North 79° 41' West 172.77 feet to the point of beginning. Excepting therefrom the Northwesterly 20 feet thereof. Also excepting therefrom that parcel of land conveyed to Isabel Lang and husband, by Deed from Elmer D. Cole and wife, dated December 22, 1948 and recorded December 2, 1949 in Book 1753, of Official Records at Page 716, Records of San Mateo County, California.

JPN: 063-028-282-04A
APN: 063-282-040
2040-2042 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

PORTION OF LOTS 5 AND 6 IN BLOCK 9, AS DESIGNATED ON THE MAP ENTITLED, "MAP OF WOODLAND PLACE SUBDIVISION NO. ONE OF RAVENSWOOD SAN MATEO COUNTY CALIFORNIA", WHICH MAP WAS FILED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, ON AUGUST 1, 1910 IN BOOK 7 OF MAPS AT PAGE 24, MORE PARTICULARLY DESCRIBED AS: BEGINNING AT A POINT ON THE CENTERLINE OF EUCLID AVENUE, DISTANT THEREON NORTH 10° 19' EAST 332.15 FEET FROM THE INTERSECTION OF SAID CENTERLINE WITH THE CENTERLINE 332
16 OF O'CONNOR STREET, AS SAID AVENUE AND STREET APPEAR ON THE MAP ABOVE REFERRED TO; THENCE RUNNING NORTH 10° 19' EAST AND ALONG SAID CENTERLINE OF EUCLID AVENUE 43.10 FEET, TO THE SOUTHWESTERLY CORNER OF THE LANDS DESCRIBED IN THE DEED FROM DEWEY G. LANG AND WIFE TO ELMER D. COLE AND WIFE, DATED DECEMBER 14, 1948 AND RECORDED DECEMBER 16, 1948 IN BOOK 1604 OF OFFICIAL RECORDS OF SAN MATEO COUNTY, PAGE 3 (67437-H) THENCE SOUTH 79° 41' EAST ALONG THE SOUTHERLY LINE OF THE LAST MENTIONED LANDS 167.99 FEET TO THE WESTERLY LINE OF THE LANDS DESCRIBED IN THE DEED FROM CLAUDE C.

TAYLOR AND WIFE TO ROTTA J. DONAGHU, DATED NOVEMBER 20, 1942 AND RECORDED NOVEMBER 24, 1942 IN BOOK 1037 OFFICIAL RECORDS OF SAN MATEO AT PAGE 410 (69331-E); THENCE ALONG THE LAST MENTIONED LINE SOUTH 7° 27' WEST

43.02 FEET MORE OR LESS TO A POINT WHICH BEARS SOUTH 79° 41' EAST 170.23 FEET FROM THE POINT OF BEGINNING; THENCE NORTH 79° 41' WEST 170.23 FEET TO THE POINT OF BEGINNING.

JPN: 063-028-282-05A
APN: 063-282-050
2041 Euclid Avenue, also known as 420 E. O'Keefe

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

PORTION OF LOTS 5, 6 AND 7 IN BLOCK 10, AS SHOWN ON THAT CERTAIN MAP ENTITLED "MAP OF WOODLAND PLACE SUBDIVISION NO. ONE OF RAVENSWOOD, SAN MATEO COUNTY, CALIFORNIA, PROPERTY OF RAVENSWOOD INVESTMENT CO., INC.", FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE OF CALIFORNIA, ON AUGUST 1, 1910 IN BOOK 7 OF MAPS AT PAGE 24, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE WESTERLY BOUNDARY LINE OF SAID BLOCK 10, DISTANT THEREON NORTH 10° 19' EAST 12.87 FEET FROM THE NORTHWESTERLY CORNER OF SAID LOT 6 IN BLOCK 10,

SAID POINT OF BEGINNING BEING ON THE SOUTHERLY BOUNDARY LINE OF O'KEEFE STREET, AS ESTABLISHED BY THAT CERTAIN DEED FROM LLOYD G. SLOAN AND IRENE L. SLOAN, HIS WIFE TO THE COUNTY OF SAN MATEO, DATED SEPTEMBER 15, 1961 AND RECORDED NOVEMBER 6, 1961 IN BOOK 4087 OF OFFICIAL RECORDS AT PAGE 338 (FILE NO. 11817-U), RECORDS OF SAN MATEO COUNTY, CALIFORNIA;

THENCE FROM SAID TO THE POINT OF BEGINNING ALONG SAID SOUTHERLY LINE OF O'KEEFE STREET, SOUTH 79° 41' EAST 59 FEET; THENCE SOUTH 10° 19' WEST 87.87 FEET; THENCE NORTH 79° 41' WEST 59 FEET TO THE ABOVE MENTIONED WESTERLY LINE OF BLOCK 10; THENCE ALONG SAID LAST MENTIONED LINE, NORTH 10° 19' EAST 87.87

FEET TO THE POINT OF BEGINNING
JPN: 063-028-281-11A
APN: 063-281-110
333
17 2043 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Lots 5, 6 and 7 in Block 10, as shown on that certain Map Entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California, property of Ravenswood Investment Co., Inc.", filed in the Office of the County Recorder of San Mateo County, State of California, on August 1, 1910 in Book 7 of Maps at Page 24, being more particularly described as follows: Beginning at a point on the Westerly boundary line of Euclid Avenue, at the intersection thereof with the dividing line between Lots 6 and 7 in said Block 10; thence from said point of beginning along said Westerly line of Euclid Avenue, North 10° 19' East, 12.87 feet to the intersection thereof with the Southerly boundary line of O'Keefe Street, as established by that certain Deed from Laurence R. Hubbard and Leona J. Hubbard, his wife, and Kenneth R. Hubbard, to the County of San Mateo, Dated November 21, 1960 and Recorded July 10, 1961 in Book 4014 of Official Records, at

thence leaving said Southerly line of O'Keefe, South 10° 19' West, 87.87 feet; thence parallel with said dividing line between Lots 6 and 7, South 79° 41' East, 61 feet to said Westerly line of Euclid Avenue, thence along said last mentioned line, North 10° 19' East 75 feet to the point of beginning.

JPN: 063-028-281-10A
APN: 063-281-100
2044 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Beginning at a point in the centerline of Euclid Avenue distant thereon North 10° 19' East 375.25 feet from its intersection with the centerline of O'Connor Street; thence from said point of beginning at right angles with Euclid Avenue, South 79° 41' East 167.99 feet , more or less, to the Westerly line of property now or formerly of Retta J. Donaghu; thence along said boundary North 7° 27' East 55.06 feet, more or less, to the Southerly boundary of property conveyed to Richard Jordan and Lillian Jordan, his wife, by Deed dated January 21, 1942 and recorded January 22, 1942 in Book 1005 of Official Records at Page 42; thence along said Southerly boundary North 79° 41' West 165.24 feet to said centerline of Euclid Avenue; thence along said centerline of Euclid Avenue South 10° 19' West

55.00 feet to the point of beginning. Being a portion of Block 9 as shown on that certain Map entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California, property of Ravenswood Investment Co., Inc.", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24. 334
18 JPN: 063-028-282-06A
APN: 063-282-060
2054 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Block 9 as shown on that certain Map entitled "Map of Woodland Place, Subdivision No.

One or Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24, more particularly described as follows: Beginning at a point on the Easterly line of Euclid Avenue said point being North 10° 19' East 430.25 feet and South 79° 41' East 30 feet from the intersection of the centerline of Euclid Avenue with the centerline of O'Connor Street as said Avenue and Street are shown on the above mentioned map; thence from said point of beginning South 79° 41' East 135.24 feet, more or less, to the Westerly line of property now or formerly of Claude C. Taylor and wife; thence along said boundary North 7° 27' East 37.47 feet to the Southwesterly line of the lands described in the Deed from Nelson D. Gustin and wife to the State of California dated December 27, 1955 and recorded April 29, 1956 in Book 3009 at Page 327 of Official Records (47170-N); thence Northwesterly along said Southwesterly line 156.66 feet to the said Easterly line of Euclid Avenue; thence along said Easterly line South 10° 19' West 118 feet, more or less, more or less, to the point of beginning.

JPN: 063-02-282-07A
APN: 063-282-070
335

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

City Clerk's Office
City of East Palo Alto
2415 University A venue
East Palo Alto, CA 94303
Exempt from Recording Fee
Pursuant to Government
Code Section 27383
2023-030130
12:38 pm 06/23/2023AG Fee: NO FEE
Count of Pages 53
Recorded in Official Records
County of San Mateo
Mark Church
Assessor-County Clerk-Recorder
111111111111111111111111111111111111111111 I Ill 111111111111111 I I 111111111111 * $ R O O O 3 3 6 8 7 8 5 $ *
Space above this line for Recorder's Use Only

DEVELOPMENT AGREEMENT
551 \95\3398553.1
by and between

THE CITY OF EAST PALO AL TO
and

WOODLAND PARK PROPERTY OWNER, LLC
City of East Palo Alto, California
336

TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS ...................................................................................................... 3

1.1 Definitions: ................................................................................................................. 3

1.2 Capitalized Terms ...................................................................................................... 7 ARTICLE II GENERAL PROVISIONS .................................................................................. 7

2.1 Parties. .. ................................................................................................................. 7

2.2 Recording ................................................................................................................... 8

2.3 Term. .. ................................................................................................................. 8 ARTICLE III DEVELOPMENT OF THE PROPERTY ....................................................... 8

3.1 Use of the Property and Applicable Law ................................................................... 8

3.2 No Conflicting Enactments ........................................................................................ 9

3.3 Reservations of Authority ........................................................................................ 10 3 .4 Subsequently Enacted Rules and Regulations ......................................................... 10

3.5 Nexus/Reasonable Relationship Waiver .................................................................. 11

3.6 Initiatives and Referenda .......................................................................................... 11

3. 7 Compliance With Requirements of Other Governmental Entities ........................... 12

3.8 City's Police Power. ................................................................................................. 13

3.9 Subsequent City Approvals for the Property ............................................................ 13

3.10 Life of City Approvals ........................................................................................... 14 ARTICLE IV OTHER RIGHTS AND OBLIGATIONS OF THE PARTIES ................... 14

4.1 Generally ................................................................................................................. 14

4.2 Agreement Controls ................................................................................................. 14

4.3 Payment of Fees, Taxes and Assessments ............................................................... 14

4.4 Public Improvements ................................................................................................ 17

4.5 Affordability Requirements ...................................................................................... 17 551 \95\3398553.1
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TABLE OF CONTENTS
Page

4.6 City Obligations ....................................................................................................... 21 ARTICLE V COMMUNITY BENEFITS .............................................................................. 21 5 .1 Provision by Developer ............................................................................................ 21 ARTICLE VI AMENDMENT OF AGREEMENT AND APPROVALS ............................ 25

6.1 Amendment or Termination by Mutual Consent. .................................................... 25

6.2 Minor Modifications and Major Amendments to Agreement.. ................................ 25

6.3 Requirement for a Writing ....................................................................................... 25

6.4 Amendments to Development Agreement Legislation ............................................ 25

6.5 Modification of City Approvals ............................................................................... 26

6.6 Effect of Termination on Developer's Obligations .................................................. 26 ARTICLE VII ANNUAL REVIEW ........................................................................................ 27

7.1 Time of Review ........................................................................................................ 27

7.2 Compliance Letter .................................................................................................... 27 7 .3 Determination of Good Faith Compliance ............................................................... 27

7.4 No Waiver ................................................................................................................ 28 ARTICLE VIII DEFAULT, REMEDIES, AND TERMINATION ..................................... 28

8.1 Notice of Breach ....................................................................................................... 28

8.2 Remedies for Breach ................................................................................................ 28

8.3 Termination by Mutual Consent. ............................................................................. 29 ARTICLE IX ESTOPPEL CERTIFICATE .......................................................................... 29 ARTICLE X TRANSFERS, ASSIGNMENTS ....................................................................... 29

10.1 Agreement Runs With the Land ............................................................................. 29

10.2 Right to Assign ....................................................................................................... 30

10.3 Release Upon Assignment. .................................................................................... 30 ii
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TABLE OF CONTENTS
Page
ARTICLE XI MORTGAGEE PROTECTION ..................................................................... 30

11.1 Mortgage Protection ............................................................................................... 30

11.2 Mortgagee Not Obligated ....................................................................................... 30

11.3 Notice of Default to Mortgagee ............................................................................. 31

11.4 No Supersession ..................................................................................................... 31 ARTICLE XII INDEMNIFICATION .................................................................................... 31

12.1 No Duty of City; Hold Harmless ............................................................................ 31

12.2 Indemnification ...................................................................................................... 31 ARTICLE XIII NOTICES ....................................................................................................... 32

13.1 Notices .................................................................................................... 32 ARTICLE XIV MISCELLANEOUS ...................................................................................... 33

14.1 Cooperation in the Event of Third-party Legal Challenge ..................................... 33

14.2 Invalidity ................................................................................................................ 33

14.3 Applicable Law and Venue .................................................................................... 33

14.4 Severability ............................................................................................................. 33

14.5 Nondiscrimination .................................................................................................. 33

14.6 Headings ................................................................................................................. 34

14.7 Agreement is Entire Understanding ....................................................................... 34

14.8 Interpretation .......................................................................................................... 34

14.9 Further City Actions ............................................................................................... 34

14.10 Computation of Time; Time of the Essence ......................................................... 35

14.11 Permitted Delay .................................................................................................... 35

14.12 Recordation of Termination ................................................................................. 35

14.13 Counterparts ......................................................................................................... 36 l1l
55 l\95\3398553. l
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DEVELOPMENT AGREEMENT
This Development Agreement ("Agreement"), dated for reference purposes only as of this 15th day of December, 2022, and effective as of the Effective Date (as defined herein), is entered into by and between the CITY OF EAST PALO AL TO, a California municipal corporation (the "City"), and WOODLAND PARK PROPERTY OWNER, LLC, a Delaware limited liability company, doing business as Woodland Park Communities (the "Developer"), with reference to the following facts, purposes, and understandings:

RECITALS
A. Section 65864 et seq. of the California Government Code authorizes City to establish procedures for and to enter into binding development agreements with persons having legal or equitable interests in real property located within the City that is the subject of the development agreement.

B. The City's Municipal Code establishes the procedures for review and approval of development agreements in Chapter 18.108. This Agreement is consistent with the City's development agreement provisions.

C. Developer is the fee owner of that certain property in the City located at 2021 Euclid Ave., 2025 Euclid Ave., 2031 Euclid Ave., 2041 Euclid Ave. (previously known as 420 E.

O'Keefe), 2043 Euclid Ave., 2012 Euclid Ave., 2032 Euclid Ave., 2036 Euclid Ave., 2040 Euclid Ave., 2042 Euclid Ave., 2044 Euclid Ave., 2054 Euclid Ave., 501 O'Connor St., 2001 Manhattan Ave., and 2033 Manhattan Ave., designated as Assessor's Parcel Nos. 063282010, 063282020, 063282030,063282040,063282050,063282060,06328207,063282080,063282090,063281020, 063281030, 063281040, 063281100, and 063281110, and more particularly described in Exhibit A attached hereto and incorporated herein by this reference (the "Property").

D. Developer desires to develop on the Property a project (the "Project") consisting of the replacement of several aging, outdated structures containing, as of the Effective Date, 160 rentstabilized rental apartment units and one single family rental (non-RSO) unit, with new buildings containing up to 605 rental apartment units, 160 of which will be subject to the RSO in accordance with a deed restriction, replacing the existing apartment units one-for-one, together with publicly available private open space, common areas (including meeting room), parking, and associated facilities, in accordance with the provisions of this Agreement, the Project Approvals ( defined below), and other applicable regulations of the City of East Palo Alto and other governmental agencies having jurisdiction over the Property.

E. On July 25, 2022, City's Planning Commission held a duly noticed public hearing on this Agreement and (i) determined that this Agreement complies in all respects with CEQA, (ii) determined that this Agreement is consistent with the City's General Plan, and, (iii) recommended that the City Council approve this Agreement.

F. The following approvals (including all conditions of approval thereto), entitlements, and findings are being concurrently reviewed and approved herewith by the City with 551 \95\3398553.1
340
respect to the Property and the Project and, collectively together with this Agreement, constitute the "Existing City Approvals":
(1) The EIR (as defined below) and applicable prov1s1ons of the related Mitigation, Monitoring, and Reporting Program ("MMRP"), by City Council Resolution No. 122-2022;
(2) General Plan Amendment by City Council Resolution No. 145-2022 ("GPA");
(3) Zone Change by City Ordinance No.09-2022;
(4) Development Code (Zoning Text) Amendment by City Ordinance No. 08- 2022;
(5) Conditional Use Permit for Merger, Demolition or Elimination of Affordable Dwelling Units by City Council Resolution No. 146-2022; (6) Vesting Tentative Parcel Map, by City Council Resolution No. 146-2022; (7) Design Review Permit, by City Council Resolution No. 146-2022; (8) Tree Removal Permit, by City Council Resolution No. 146-2022; (9) The Adopting Ordinance (as defined below); and
(10) Relocation Plan, by City Council Resolution No. 146-2022.

G. On September 6, 2022, September 20, 2022, and October 4, 2022, the City examined the environmental effects of the Project in an Environmental Impact Report (State Clearing House # 2020040270), comprised of a Draft Environmental Impact Report and Final Environmental Impact Report (the "EIR") prepared pursuant to CEQA. On October 4, 2022, the City Council reviewed and certified as adequate and complete the EIR by Resolution No. 122- 2022 and adopted written findings and approved the MMRP.

H. On November 1, 2022, the City Council held a duly noticed public hearing on this Agreement and considered the Planning Commission's recommendations and testimony and information submitted by City staff, Developer, and members of the public, and found this Agreement to be consistent with the City's General Plan and introduced Ordinance No. 07-2022, approving this Agreement.

I. On November 15, 2022, the City Council adopted Ordinance No. 07-2022 enacting this Agreement (the "Adopting Ordinance").

J. The development of the Project also may require certain Subsequent City Approvals (as defined below).
2 551 \95\3398553.1
341
NOW, THEREFORE, in consideration of the foregoing recitals of fact and the mutual covenants and promises set forth herein, the City and Developer hereby agree as follows:

AGREEMENT

ARTICLE I

DEFINITIONS

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following defined terms are used in this Agreement:

1.1.1 "Adopting Ordinance" shall mean City Council Ordinance No. 07-2022 approving and adopting this Agreement.

1.1.2 "Agreement" shall mean this Development Agreement, as the same may be amended from time to time.

1.1.3 "Applicable City Regulations" shall mean and consist of:
(a) The General Plan of the City in effect as of the Effective Date; (b) The Municipal Code of the City ("Municipal Code") in effect as of the Effective Date;
(c) The City Approvals (including this Agreement) and their terms and conditions;
(d) Other City Regulations applicable to the Property in effect as of the Effective Date, except as provided in Section 3.2.
( e) New City Regulations that apply to the Property as set forth in Section 3.4; and
(f) Other City Regulations that apply to the Property as set forth in Section 3.3.

1.1.4 "Applicable Law" shall mean (a) all State and Federal laws and regulations applicable to the Property and the Project as enacted, adopted and amended from time to time and (b) the Applicable City Regulations.

1.1.5 "Approved Plans" shall mean those plans and specifications with respect to the Project, titled "Woodland Park- Euclid Improvements," dated August 23, 2022, prepared by David Baker Architects, comprised of Sheets 0000 through WT-001, inclusive, and approved by the City by the Design Review Permit for the Project.

1.1.6 "CEQA" shall mean the California Environmental Quality Act (California Public Resources Code Sections 21000-21177) and the implementing regulations promulgated 3 551 \95\3398553.1
342
thereunder by the Secretary for Resources (California Code of Regulations, Title 14, section 15000 et seq.).

1.1.7 "City" shall mean the City of East Palo Alto, a municipal corporation, and any successor or assignee of the rights and obligations of the City of East Palo Alto hereunder.

1.1.8 "City Approvals" shall mean, collectively, the Existing City Approvals and the Subsequent City Approvals.

1.1.9 "City Council" shall mean the governing body of the City.

1.1.10 "City Planning Commission" shall mean the duly appointed and constituted planning commission of the City.

1.1.11 "City Regulations" shall mean, individually and collectively, (i) the General Plan and the Municipal Code, as adopted and amended by the City from time to time, and (ii) all other ordinances, resolutions, rules, regulations, requirements, standards, policies, conditions, specifications, and plans of the City, as adopted and amended by the City from time to time, including those governing zoning, subdivisions and subdivision design, land use, rate of development, growth control, density, building size, public improvements and dedications, construction standards, new construction and use, design standards, permit restrictions, development fees or exactions, terms and conditions of occupancy, or environmental guidelines or review, including those relating to hazardous substances.

1.1.12 "Compliance Letter" shall mean a letter submitted by Developer describing Developer's compliance with the terms of the City Approvals and this Agreement.

1.1.13 "Conditions " shall mean any and all conditions, terms, restrictions, or requirements (including dedications, fees, and exactions) imposed by the City on any City Approvals or otherwise imposed by the City on the Project or the Property.

1.1.14 "Developer" shall mean the Developer identified in the first paragraph of this Agreement and any successor or assignee to all or any portion of its right, title, and/or interest in and to ownership of all or a portion of the Property and/or the Project.

1.1.15 "Developer Affiliate" shall mean an entity or person that is directly or indirectly controlling, controlled by, or under common control with Developer. For purposes of this definition, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity or a person, whether through the ownership of voting securities, by contract, or otherwise, and the terms "controlling" and "controlled" have the meanings correlative to the foregoing.

1.1.16 "Development Agreement Statute" shall mean California Government Code Sections 65864-65869.5, inclusive.

1.1.17 "Director" shall mean the City's Planning Division Manager or his/her authorized designee.
4 551\95\3398553. I
343

1.1.18 "Effective Date" shall mean the date the Adopting Ordinance becomes effective.

1.1.19 "Exactions" shall mean exactions imposed by the City as a condition of developing the Project, including requirements for acquisition, dedication or reservation of land or provision of tenant relocation benefits ( on-site or off-site); and obligations to construct on-site or off-site public and private infrastructure improvements such as roadways, utilities or other improvements necessary to support the Project, whether such exactions constitute subdivision improvements, mitigation measures in connection with environmental review of the Project, or impositions made under Applicable City Regulations.

1.1.20 "Freeze Period" shall mean the time period from the date Developer submits a complete application for the first building permit until the date such building permit is issued.

The Freeze Period shall not extend beyond the expiration or earlier termination of this Agreement.

1.1.21 "General Plan" shall mean the City's 2035 General Plan adopted by the City Council on October 4, 2016, the final version of which was published in March 2017, as amended by the GPA.

1.1.22 "Mitigation Measures" shall mean the mitigation measures and related monitoring program applicable to the Project as set forth in the MMRP, as may be modified in any required subsequent CEQA review for the Project Approvals.

1.1.23 "Mortgage" shall mean the mortgage, deed of trust, sale and leaseback arrangement, or any other form of conveyance in which the Property, or a part or interest in the Property, is pledged as security and contracted for in good faith and for fair value.

1.1.24 "Mortgagee" shall mean the holder of a beneficial interest under a Mortgage or any successor or assignee of the Mortgagee.

1.1.25 "Net New Units" shall mean the number of net new rental housing units in the Project for which the City issues all necessary City Approvals (including building permits), calculated by subtracting from the total number of new rental housing units approved for the Project the total number of rental housing units existing at the Property as of the Effective Date (which total number of existing rental housing units is 161 ).

1.1.26 "Other Agency" shall mean any Federal, State, regional, or local governmental agency ( other than City) with jurisdiction over the Property or the Project.

1.1.27 "Parks, Recreation, and Open Space Master Plan" shall mean a parks, recreation, and open space master plan, and amendments thereto, as may be adopted by the City prior to the Developer's application for a grading permit for the Project.

1.1.28 "Parties" shall mean Developer and City, and their respective successors and assigns under this Agreement.

1.1.29 "Permitted Delay" shall mean a delay in the performance by any Party of an obligation under this Agreement caused by an event beyond the reasonable control and without 5 551\95\3398553. I
344
the fault of the Party claiming the delay (and despite the good faith efforts of such Party) first arising after the Effective Date, including, but not limited to: (i) acts of God; (ii) civil commotion; (iii) riots; (iv) strikes, picketing or other labor disputes; (v) shortages of materials or supplies; (vi) damage to work in progress by reason of fire, floods, earthquake or other casualties; (vii) a default under this Agreement by the other Party; (viii) as to City only, with respect to completion of the Annual Review or to processing applications for City Approvals, the failure, delay or inability of Developer to provide adequate information or substantiation as reasonably required to complete the Annual Review or process applications for Subsequent City Approvals; (ix) restrictions imposed or mandated by any Other Agencies, or delays by any Other Agencies in processing or issuing any Other Agency Approvals (including but not limited to any "will serve" letters); (x) enactment of conflicting State or Federal laws or regulations, (xi) judicial decisions or similar legal incapacity to perform, (xii) epidemics and pandemics, including COVID 19 ( or variant)-induced restrictions on the ability of any Party to perform its obligations of this Agreement; and (xiii) litigation brought by a third party attacking the validity of this Agreement or any provision thereof or any action to be taken pursuant to this Agreement. Developer's inability to obtain Project or other financing and any Party's inability to make a payment when due shall not be basis of a Permitted Delay.

1.1.30 "Project" shall mean the Project as described and defined in Recital D.

1.1.31 "Project Approvals" shall mean, collectively, the City Approvals and the Other Agency Approvals.

1.1.32 "Property" is defined in Recital C.

1.1.33 "Public Improvements" shall mean all roads, parks, drainage, sewer, water, and utility improvements, and all other infrastructure and improvements for the Project that may or are to be dedicated or otherwise made available for public use pursuant to this Agreement or the Project Approvals.

1.1.34 "RSO" shall mean the Rent Stabilization and Just Cause for Eviction Ordinance of 2010 (Municipal Code Chapter 14.04) in effect as of the Effective Date.

1.1.35 "Subdivision Maps" shall mean any tentative or vesting tentative map, final map, tentative or vesting tentative parcel map, and parcel map, as those terms are defined in the Subdivision Map Act (California Government Code Sections 66410 et seq.) and the Municipal Code, and any amendments or modifications thereto and any lot line adjustments.

1.1.36 "Subsequent City Approvals" shall mean any and all subsequent City land use approvals, entitlements, permits, consents, and agreements ( other than the Existing City Approvals), as may be necessary or desirable for implementation of the Project and this Agreement, including without limitation, the following: amendments of the Existing City Approvals, grading permits, building permits, sewer and water connection permits, certificates of occupancy, lot line adjustments, site plans, development plans, land use plans, building plans and specifications, Subdivision Maps, conditional use permits, variances, design review, demolition permits, improvement agreements, encroachment permits, regulatory agreements, TOM plan or program, and any amendments to, or repealing of, any of the foregoing. 6 551\95\3398553. I
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1.1.37 "Term" is defined in Section 2.3.

1.1.38 "Third Party Challenge" shall mean any legal action instituted by a third party or other governmental entity or official challenging the validity of any provision of this Agreement.

1.2 Capitalized Terms. If any capitalized terms contained in this Agreement are not defined above, then any such terms shall have the meaning otherwise ascribed to them in this Agreement.

2.1 Parties.

ARTICLE II

GENERAL PROVISIONS

2.1.1 Developer Representations and Warranties.
(a) Developer represents and warrants that, as of the Effective Date of this Agreement, Developer is:
(i) the sole fee owner of the Property;
(ii) Duly organized and validly existing under the laws of the State of California;
(iii) Qualified and authorized to do business in the State of California and has duly complied with all requirements pertaining thereto; (iv) In good standing and has all necessary powers under the laws of the State of California to own property and in all other respects enter into and perform the undertakings and obligations of this Agreement.
(b) Developer further represents and warrants:
(i) That no approvals or consents of any persons are necessary for the execution, delivery or performance of this Agreement by Developer, except as have been obtained;
(ii) That the execution and delivery of this Agreement and the performance of the obligations of Developer have been duly authorized by all necessary actions and approvals required under any management and operating agreement for the limited liability company constituting Developer; and
(iii) That this Agreement 1s a valid obligation of Developer enforceable in accordance with its terms.
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2.1.2 Relationship of City and Developer.

It is understood that this Agreement is a contract that has been negotiated and voluntarily entered into by City and Developer and that the Developer is an independent contractor and not an agent or partner of City.

City and Developer hereby renounce the existence of any form of joint venture or partnership between them, and agree that nothing contained in this Agreement or in any document executed in connection with this Agreement shall be construed as making City and Developer joint venturers or partners.

2.2 Recording.

Within ten (10) days after the Effective Date, the City Clerk shall cause recordation of this Agreement with the County Recorder against the Property.

2.3 Term.

The term of this Agreement (the "Term") shall commence upon the Effective Date and shall terminate seven (7) years following the Effective Date, unless sooner terminated as hereinafter provided. Notwithstanding the above Term, if prior to the seventh (7th) anniversary of the Effective Date, the Developer submits to the City a complete application for a building permit for the Project including construction drawings, the Term of this Agreement shall be automatically extended for five (5) years.

ARTICLE III

DEVELOPMENT OF THE PROPERTY

3.1 Use of the Property and Applicable Law.
3 .1.1 Subject to Agreement.

The Property is hereby made subject to the provisions of this Agreement. All development of, or on, the Property, or any portion thereof, shall be undertaken only in compliance with the provisions of this Agreement and with Applicable Law.

3.1.2 Vested Rights.

The overall design, development, construction, and use of the Project and all improvements in connection therewith, including without limitation, permitted uses of the Property, the maximum density and/or number of residential units and commercial development, the intensity of use, the maximum height and size of the proposed buildings,. provisions for reservation or dedication of land for public purposes, provisions for payment of fees and other exactions, the conditions, terms, restrictions, and requirements for subsequent discretionary actions, the provisions for and financing for Public Improvements, and the other terms and conditions of development applicable to the Property as set forth in:
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• This Agreement;
• The City Approvals; and
• The Applicable City Regulations;
are hereby vested in Developer, subject to the provisions of this Agreement (the "Vested Elements"). The intent of this Section 3.1.2 is to cause all development rights which may be required to develop the Project in accordance with this Agreement and the City Approvals to be deemed to be "vested rights" as that term is defined under California law applicable to the development of land or property and the right of a city to regulate or control such development of land or property. City hereby agrees to be bound with respect to the Vested Elements, subject to Developer's compliance with the terms and conditions of this Agreement and the Project Approvals. By stating that the terms and conditions of this Agreement and the Project Approvals control the overall design, development and construction of the Project, this Agreement is consistent with the requirements of California Government Code Section 65865.2 (requiring a development agreement to state permitted uses of the property, the density or intensity of use, the maximum height and size of proposed buildings and provisions for reservation or dedication of land for public purposes). Notwithstanding the preceding provisions of this Section 3.1.2 or any other provision in this Agreement to the contrary, in the event of any conflict between the terms and conditions of any City Approvals (including Developer's rights and obligations thereunder) other than this Agreement, including without limitation any Subsequent City Approvals, and the terms and conditions of this Agreement (including Developer's rights and obligations hereunder), the terms and conditions of this Agreement (including Developer's rights and obligations hereunder) shall control.

3.1.3 Existing City Approvals and Applicable City Regulations. Prior to the Effective Date, the Develope~ shall have prepared two (2) sets of the Existing City Approvals and Applicable City Regulations, one (1) set for City and one (1) set for Developer, to which shall be added from time to time, Subsequent City Approvals, so that if it becomes necessary in the future to refer to any of the City Approvals or Applicable City Regulations, there will be a common set available to the Parties. Failure to include in the sets of City Approvals and Applicable City Regulations any rule, regulation, policy, standard or specification that is within the Applicable City Regulations and City Approvals as described in this Agreement shall not affect the applicability of such rule, regulation, policy, standard or specification.

3.2 No Conflicting Enactments.

Except as otherwise expressly provided in this Agreement, any City Regulations that conflict with any Vested Elements shall not apply to the Project or the Property. For purposes of this Section

3.2 and Sections 3.3, 3.4 and 3.9, the word "conflict" means and refers to any City Regulation that has or purports to have any of the following effects: (i) reduces or limits the maximum density and intensity of use (including but not limited to the number, square footage and floor area ratios of buildings, the overall maximum number and square footage ofresidential units, parking or loading spaces, and the maximum amount of development space), or the maximum height, bulk or size of proposed buildings from that permitted by the City Approvals; (ii) changes any land use designation or permitted use of the Property from that shown in the City Approvals; (iii) limits, 9 551\95\3398553. l
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controls or delays the rate, timing, phasing or sequencing of the development, or construction of . all or any part of the Property except as set forth in the Vested Elements; (iv) limits or restricts any right or use specifically granted by the Vested Elements; (v) limits the location of building sites, grading or other improvements on the Property in a manner that is inconsistent with the Project Approvals; (vi) imposes conditions upon development of the Property other than as permitted by the Vested Elements; (vii) contravenes, precludes or renders infeasible compliance with any provision of the Vested Elements; (viii) applies to the Project or the Property any New City Regulations (as defined in and subject to Section 3.4) that are not uniformly applied on a City-wide basis to all substantially similar types of development projects and project sites (i.e., to all rental residential projects, to all commercial projects, to all mixed-use projects etc.); (ix) imposes against the Project or the Property any condition, dedication or other Exaction not specifically authorized by the Vested Elements; or (x) imposes against the Project or the Property any obligations regarding affordable housing or relocation not specifically required by the Existing City Approvals.

3.3 Reservations of Authority.

The development of the Project will require Subsequent City Approvals. At the time Subsequent City Approvals are applied for, the following City Regulations shall apply to those Subsequent Approvals:

3.3.1 Subject to Section 4.3.2, all Processing Fees which are in force and effect within the jurisdiction of the City for the class of Subsequent City Approvals being applied for.

3.3.2 Subject to Section 4.3.3, all Impact Fees, other fees, or other monetary and non-monetary exactions imposed by the City which are in force and effect within the jurisdiction of the City for a broadly based class of land, projects, or discretionary or ministerial approvals, or taxpayers, as applicable, on which they are imposed.

3.3.3 Procedural regulations relating to hearing bodies, petitions, applications, notices, findings, records, hearings, reports, recommendations, appeals and any other matter of procedure, which are in force and effect within the jurisdiction of the City for the class of City Permits being applied for.
3 .3 .4 Regulations governing construction standards and specifications including, without limitation, the City's building code, plumbing code, mechanical code, electrical code, fire code and grading code, all provisions of Title 15 of the East Palo Alto Municipal Code, and all other uniform construction codes which are in force and effect within the jurisdiction of the City for the class of Subsequent City Approvals being applied for.

3.4 Subsequently Enacted Rules and Regulations.

The City may during the term of this Agreement apply such new City Regulations ("New City Regulations") that are in force and effect within the jurisdiction of the City for the class of Subsequent City Approvals being applied for and which are not in conflict with the terms of this Agreement (including the Vested Elements) or the City Approvals. To the extent any New City Regulation conflicts with the terms of this Agreement (including the Vested Elements) or the City 10 551\95\3398553. l
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Approvals, the terms of this Agreement or the City Approvals, as applicable, shall prevail and to such extent, such New City Regulation shall not apply to the Property or the Project.

3.5 Nexus/Reasonable Relationship Waiver.

Developer consents to, and waives any rights it may have now or in the future, to challenge with respect to the Project or Existing City Approvals, the legal validity of, the conditions, requirements, policies, or programs applicable to the Project pursuant to this Agreement, the Existing City Approvals or Applicable City Regulations, including, without limitation, any claim that they constitute an abuse of police power, violate substantive due process, deny equal protection of the laws, effect a taking of property without payment of just compensation, or impose an unlawful tax. In the event Developer challenges any newer, subsequently enacted, City Regulation, enacted by City in accordance with and subject to Section 3.4, or any increased or new fee permitted under and subject to Sections 3.3 and 4.3, on any grounds other than the City's breach of the provisions of those Sections, City shall have the right to withhold additional development approvals or permits until the matter is resolved; provided, however, Developer shall have the right to make payment or performance under protest, and thereby receive the additional approval or permit while the matter is in dispute.
3 .6 Initiatives and Referenda.

3.6.1 If any City Regulation is enacted or imposed by a citizen-sponsored initiative or referendum, or by the City Council directly or indirectly in connection with any proposed initiative or referendum, which City Law would conflict with this Agreement or the City Approvals, such City Law shall not apply to the Project. The parties, however, acknowledge that the City's approval of this Agreement is a legislative action subject to referendum.

3.6.2 Without limiting the generality of any of the foregoing, no City-adopted moratorium or other limitation (whether growth control or otherwise relating to the rate, timing, phasing or sequencing of development) affecting Subdivision Maps, building permits, or other Subsequent Approvals shall apply to the Project. Developer agrees and understands that the City does not have authority or jurisdiction over another public agency's authority to grant a moratorium or impose any other limitation that may affect the Project.

3.6.3 The timing, sequencing, and phasing of the development is solely the responsibility of Developer so long as it is consistent with Applicable Law. In particular, the parties desire to avoid the result of Pardee Construction Co. v. City of Camarillo (1984) 37 Cal.3d 465, where the failure of the parties therein to consider and expressly provide for the timing of the development resulted in a later adopted initiative restricting the timing of development to prevail over such parties' agreement. While, as of the Effective Date, the Parties anticipate development of the Project in no more than two phases, it may become necessary for financing, marketing, thencurrent market conditions or other reasons to develop the Project in more than two phases. The Parties therefore acknowledge that Developer shall have the right to develop the Project at such time, and in any such phases, as Developer deems appropriate so long as such development is consistent with Applicable Law.
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3.6.4 The City shall cooperate with Developer and shall undertake such actions as may be necessary to ensure this Agreement remains in full force and effect.

3.7 Compliance With Requirements of Other Governmental Entities.

3.7.1 During the Term, Developer, at no cost to City, shall comply with lawful requirements of, and obtain all permits and approvals required by Other Agencies in furtherance of this Agreement ("Other Agency Approvals"). Developer shall pay all required fees when due to Other Agencies and acknowledges that City does not control the amount of any such fees.

3.7.2 City shall cooperate with Developer in Developer's effort to obtain Other Agency Approvals, provided that same does not impose any costs on or require the City to incur any costs without compensation or reimbursement, or require the City to amend any of the City's policies, regulations, or ordinances.

3.7.3 As provided in California Government Code § 65869.5, this Agreement shall not preclude the application to the Property and Project of changes in laws, regulations, plans, or policies, to the extent that such changes are specifically mandated and required by changes in State or Federal laws or regulations. In the event changes in the law prevent or preclude compliance with one or more provisions of this Agreement, this Agreement shall be modified or suspended as may be necessary to comply with such State or Federal laws or regulations. The parties shall meet and confer in good faith in order to determine whether such provisions of this Agreement shall be modified or suspended as may be necessary to comply with changes in the law, and City and Developer shall agree to such action as may be reasonably required. It is the intent of the parties that any such modification or suspension be limited to that which is necessary and to preserve to the extent possible the original intent of the parties in entering into this Agreement. This Agreement shall remain in full force and effect to the extent it is not inconsistent with such laws or regulations. Nothing in this Agreement shall preclude the City or Developer from contesting by any available means (including administrative or judicial proceedings) the applicability to the Property or Project of any such State or Federal laws or regulations.

3.7.4 To the extent that any actions of Federal or State agencies (or actions of other governmental agencies, including City, required by Federal or State agencies, or actions of City taken in good faith to prevent adverse impacts upon City by actions of Federal, State or other governmental agencies) have the effect of preventing, delaying, or modifying development of the Property or any portion thereof, City shall not in any manner be liable for any such prevention, delay, or modification. Such actions include, but are not limited to, flood plain or wetlands designations and actions of City or other governmental agencies as a result; the imposition of air quality or transportation measures or sanctions and actions of City or other governmental agencies as a result; or changes to CEQA and actions of City or other governmental agencies as a result.

As a condition to being able to proceed with development, Developer may be required, at its cost, to participate in such regional or local programs and to be subject to such development restrictions as may be necessary or appropriate by reason of actions of Federal, State or other governmental agencies ( or action of City taken in order to prevent adverse impacts upon City by actions of Federal, State, or other governmental agencies).
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3.8 City's Police Power.

The parties acknowledge and agree that the limitations, reservations, and exceptions contained in this Agreement are intended to reserve to the City that part of its police power which cannot be limited by contract, and this Agreement shall be construed to reserve to the City that part of its police power which cannot be restricted by contract.

3.9 Subsequent City Approvals for the Property.

3.9.1 Processing of Subsequent City Approvals. Applications for Subsequent City Approvals are anticipated to be submitted to the City by Developer. Applications for Subsequent City Approvals shall be processed and considered in a manner consistent with the rights granted by this Agreement and Applicable Law, including without limitation the Existing City Approvals. At such time as any Subsequent City Approval is approved by the City, then such Subsequent Approval shall become subject to all the terms and conditions of this Agreement applicable to City Approvals and shall be treated as a "City Approval" for all purposes under this Agreement.
3 .9 .2 Scope of Review of Subsequent City Approvals. By approving the Existing City Approvals, City has made a final policy decision that the development of the Project consistent with the Vested Elements is in the best interests of the public health, safety and general welfare. Accordingly, City shall not use its authority in considering any application for a Subsequent City Approval that is consistent with the Vested Elements to change the policy decisions reflected by the Vested Elements, or otherwise to prevent, delay or render infeasible development of the Project as set forth in the City Approvals. The City shall not deny an application for a Subsequent Project Approval that is consistent with the Vested Elements, unless and to the extent otherwise required pursuant to Section 3.7.3 or Section 3.7.4. Nothing herein shall limit the ability of the City to require the necessary reports, analysis, or studies to assist in determining whether the requested Subsequent City Approvals are consistent with the Vested Elements. Notwithstanding the foregoing, this Agreement shall not prevent the City, in acting on Subsequent City Approvals, from applying land use regulations which do not conflict with the Vested Elements.

3.9.3 Conditions of Subsequent City Approvals. City shall have the right to impose reasonable Conditions upon Subsequent City Approvals; provided, however, such Conditions (a) shall not limit or prevent development of the Property for the uses and to the density and intensity of development included in the Existing City Approvals and any other City Approvals previously granted, (b) shall not require dedications or reservations for, or construction or funding of, Public Improvements beyond those already included or referenced in the Existing City Approvals, the Mitigation Measures (except to the extent required by CEQA in connection with any Subsequent City Approvals) or Section 4.4, and (c) shall not otherwise conflict with the Vested Elements. Developer may protest any Conditions while continuing to develop the Property, provided however, if Developer's protest relates to fees or exactions Developer may pay such fees or exactions under protest pursuant to Section 3.5.

3.9.4 Subdivision Maps. Developer may from time to time file applications for Subsequent City Approvals of Subdivision Maps (including provisions therein for phased 13 551 \95\3398553.1
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Subdivision Maps) with respect to some or all of the Property in accordance with applicable provisions of the Subdivision Map Act and the Municipal Code. All Subdivision Maps may be processed in phases. City shall exercise its discretion in reviewing such Subdivision Map applications in accordance with this Section 3.9.
3 .10 Life of City Approvals.

The terms of (a) any Subdivision Maps included within the City Approvals and (b) all other City Approvals shall automatically be extended for the longer of the duration of this Agreement (including any extensions thereof) or the term otherwise applicable to the City Approvals if this Agreement is no longer in effect.

ARTICLE IV

OTHER RIGHTS AND OBLIGATIONS OF THE PARTIES

4.1 Generally. In addition to any other obligations of Developer set forth herein, in consideration of City entering into this Agreement, Developer has agreed that if Developer commences development of the Property and proceeds to develop the Property, such development shall be in conformance with all of the terms, covenants, and requirements of this Agreement and Applicable Law, and Developer shall perform those specific obligations identified in the Project Approvals. Without limiting the preceding sentence, Developer shall pay when due any and all processing fees, impact fees, and costs which are lawfully imposed with respect to all or any portion of the Project in accordance with and subject to the terms of this Agreement, whether imposed by City or other agencies. As a material inducement to City to enter into this Agreement, Developer further agrees that, as long as this Agreement is in effect, Developer shall comply with all of its payment and other obligations under this Article IV.

4.2 Agreement Controls. To the greatest extent allowed by law, the provisions of this Agreement shall govern and control the City Regulations to be applied to the Project and the Property over any contrary or inconsistent provisions of the Development Agreement Statute. The Parties waive the benefits of the Development Agreement Statute to the extent it may be inconsistent or contrary to the provisions of this Agreement.

4.3 Payment of Fees, Taxes and Assessments.

4.3.1 General. All fees, exactions, dedications, reservations or other impositions to which the Project would be subject, but for this Agreement, are referred to in this Agreement either as "Processing Fees" or "Impact Fees" (as defined below). Developer shall timely pay or perform, as applicable, all Processing Fees and Impact Fees applicable to the Project or the Property in accordance with the terms of this Agreement.

4.3.2 Processing Fees. As used in this Agreement, "Processing Fees" means all fees charged on a City-wide basis to cover the cost of City review and processing of development project applications, including any required supplemental or other further environmental review, plan checking (time and materials) and inspection and monitoring for land use approvals, design review, grading and building permits, General Plan maintenance fees, and other permits and 14 551\95\3398553. l
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entitlements required to implement the Project, which are in effect at the time those permits, approvals or entitlements are applied for, and which fees are intended to cover the City's actual and reasonable costs of processing the foregoing. Processing Fees are not Impact Fees. Subject to Developer's right to protest and/or pursue a challenge in law or equity to any new or increased Processing Fees, City may charge and Developer agrees to pay all Processing Fees which are in effect on a City-wide basis at the time Subsequent City Approvals are applied for. Processing Fees shall be paid in accordance with any separate reimbursement agreement between the City and Developer ("Reimbursement Agreement") in effect at the time of such payment, the provisions of which shall control in the event of any conflict with the provisions of this Agreement regarding Processing Fees. If no such Reimbursement Agreement is then in effect, Processing Fees shall be paid in accordance with applicable provisions of the Municipal Code and the provisions of this Section. Without limiting the foregoing, Developer shall reimburse City or pay directly all reasonable and actual costs relating to the hiring of consultants and the performing of studies as may be necessary to review or process any applications for City Approvals or perform any related environmental review.

4.3.3 Impact Fees.
(a) Definition. As used in this Agreement, "Impact Fees" means all fees, charges, contributions, exactions, dedications, reservations, or impositions, other than taxes and assessments, whether established for or imposed upon the Project individually or as part of a class of projects, that are imposed by City on the Project in connection with any City Approval for any purpose, including, without limitation, defraying all or a portion of the cost of public services and/or facilities construction, improvement, operation and maintenance attributable to the impact or burden created by the Project. Impact Fees do not include: (a) any Processing Fees; (b) any Mitigation Measure (unless the Mitigation Measure consists of payment of an Impact Fee); ( c) any inclusionary or other affordable housing in-lieu fees (which are governed by the provisions of Section 4.5); (d) any Community Benefits to be provided by Developer hereunder (which are governed by the provisions of Article V); (e) taxes or special assessment; (f) any utility connection fees in effect from time to time generally applicable on a City-wide basis to similar land uses as the Project; (g) any fees, taxes, assessments, or impositions imposed by the City or other entities that the City collects on behalf of such other entities, including without limitation school fees or regional transportation impact fees, all of which shall be due and payable by -Developer as and when due in accordance with Applicable Law; or (h) any relocation payments or benefits. Without limiting the preceding, the Impact Fees in existence as of the Effective Date are set forth in attached Exhibit B ("Existing Impact Fees").
(b) Payment.
(i) Generally. Subject to the provisions of this Section 4.3.3, Developer shall pay all applicable Impact Fees at the time that Developer obtains the first building permit for the Project.
(ii) Freeze Period. Notwithstanding any provision herein to the contrary, during the Freeze Period no new or increased Impact Fees shall apply to the development of the Project, except that the amounts of the Existing Impact Fees shall be subject to adjustment for inflation pursuant to Municipal Code Section 13.28.100.A in effect as of the start of the Freeze 15 551 \95\3398553.1
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Period. Notwithstanding the foregoing, if the East Palo Alto Sanitary District becomes integrated into the City government, new or increased Impact Fees related to sewer and sanitation are not subject to the Freeze Period.
( c) Fee Credits. Developer shall receive the benefit of the following types and amounts of credits against Impact Fees payable by Developer hereunder:
(i) Water Tank and Pump Station Credit. Developer shall receive a credit against water capacity fees for the cost of the water tank improvements and related land. Developer shall receive a credit against public facilities fees for the cost of pump station improvements and related land. The cost of the water tank, pump station and related land that exceeds the amount of the required fees shall be considered a community benefit provided the value of the community benefit is not less than $2,000,000. If the cost of the water tank, pump station and related land is less than the sum of $2,000,000 plus the total amount of the required fees, the Developer shall pay the difference to the City as a community benefit payment. If for any reason, Developer is not required to build the water tank, Developer shall be required to pay the full amount of water capacity fees and public facilities fees as well as a community benefit payment of $2,000,000;
(ii) Transportation Infrastructure Credit. Developer shall receive a credit against transportation infrastructure impact fees for specific streetscape or frontage improvements, including on-street parking that increases the number of on-street stalls beyond what would be provided with parallel parking, bike lanes, and other transportation infrastructure, above City standards as stated in Municipal Code Section 15.04.040. Improvements included toward the credit against transportation infrastructure impact fees will include a high-visibility crosswalk with appropriate traffic calming measures at the intersection of O'Connor Street and Manhattan Avenue to connect the Project to the University Circle complex, to facilitate greater neighborhood connection and to provide a convenient path for nearby residents to access the future University A venue pedestrian and bike overpass. City approval of the crosswalk will be required as part of the building permit review;
(iii) Park Credit. Developer shall receive a credit against parks and trails fees for the cost of constructing the Park Space (including children's play area, gathering area, and fitness area together with associated landscaping and hardscaping) for public use as described in Section 5.1.1. The cost of the Park Space above the required fees shall be considered a community benefit; and
(iv) Storm Drainage Infrastructure Credit. Developer shall receive a credit against storm drainage fees for the cost of storm drainage infrastructure improvements to reduce storm water impacts and discharge rates. The cost of storm drainage improvements above the required fees will be considered a community benefit.

4.3.4 Connection Fees. Developer shall pay connection fees lawfully assessed by utility providers and other agencies assessing such fees at the rates in effect from time to time, including any utility or connection fees assessed by the City. 16 551\95\3398553. l
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4.3.5 Other Agency Fees. Nothing in this Agreement shall preclude the City from collecting fees from Developer that are lawfully imposed on the Project by an Other Agency, which the City is required to collect pursuant to Applicable Law.

4.4 Public Improvements. Except as expressly set forth in the Project Approvals or Section 4.3.3(b)(iv) or elsewhere in this Agreement, Developer shall be responsible, at its sole cost, for the construction and installation of all Public Improvements for the Project required by Applicable Law and the City Approvals.

4.5 Affordability Requirements. Except as otherwise defined herein, all capitalized terms used in this Section 4.4 shall have the meanings ascribed to them in the City Affordable Housing Guidelines (as defined in Section 4.5.1 below).

4.5.1 Affordable Housing Plan. This Section 4.5 shall constitute both the Affordable Housing Plan for the Project required by Municipal Code section 18.38.060 and the Inclusionary Housing Plan required by Municipal Code section 18.37.090.A, as well as the affordable housing agreement required by Municipal Code section 18.37.090.B, which incorporates an alternative compliance option, and shall be deemed to satisfy, and satisfy, any and all of the Project's obligations pursuant to Municipal Code Chapters 18.35 (Affordable Housing - Basic Provisions), 18.37 (lnclusionary Housing) and 18.38 (Affordable Housing Impact Fee - Residential Development) (collectively, together with any and all inclusionary housing guidelines and other City Regulations pertaining to affordable housing, the "City AH Regulations"), including without limitation the obligation to provide any other or additional affordable rental housing units ("AH Units") or pay any Affordable Housing Impact Fee, and no additional Conditions with respect to affordable housing will be imposed by City under the City AH Regulations or otherwise.

4.5.2 Off-Site Affordable Housing Units. It is the mutual intent of the Parties under this Section 4.5 that the AH Developer ( defined below) shall construct the Off-Site AH Units (defined below) on an Off-Site AH Parcel (defined below), which Off-Site AH Parcel shall be encumbered by a regulatory agreement to be recorded against the Off-Site AH Parcel and transferred to the AH Developer (as defined below). The City AH Guidelines provide in this instance that, in the absence of an alternative compliance option approved by the City Council, a total number of on-site AH Units (affordable to households meeting the income levels specified in the City AH Guidelines) ("On-Site AH Units") equal to 20% of the Net New Units would be required to be developed on the Property. In accordance with all applicable requirements of the City AH Regulations, the City Council hereby approves the following alternative compliance option (the "Approved Compliance Option"):
(a) Eden Housing or such other nonprofit affordable housing developer ( or partnership or limited liability company controlled by Eden Housing and/or such other nonprofit affordable housing developer) (the "AH Developer") reasonably acceptable to City and under appropriate contract with Developer to provide AH Units off-site of the Property ("Off-Site AH Units") will construct a total number of Off-Site AH Units equal to 20% of the Net New Units at one or more off-site parcels in the City owned or controlled by Developer or a Developer Affiliate as of the time of donation of such parcel(s) to the AH Developer pursuant to the provisions hereof (the "Off-Site AH Parcel"). Developer shall notify City in writing of the precise location and description of the anticipated Off-Site AH Parcel no later than the issuance of the first building 17 551\95\3398553. l
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permit for dwelling units at the Project. The 5% difference between the number of On-Site AH Units (that would otherwise be required in the absence of the Approved Compliance Option) and the number of Off-Site AH Units that would be required under the City AH Regulations will be achieved or exceeded by Developer providing within the Project 160 units subject to the RSO pursuant to a deed restriction recorded against the Property (pursuant to the provisions of the RSO in effect as of the Effective Date) ("RSO Units").
(b) Affordability levels for the Off-Site AH Units shall be at or lower than the following income levels (based on the standard requirements for On-Site AH Units): (i) 25% of such units available to and rented at rents affordable to 35% AMI households; (ii) 50% of such units available to and rented at rents affordable to Very Low Income Households (up to 50% AMI); and (iii) 25% of such units available to and rented at rents affordable to Low Income Households (up to 60% AMI).
( c) Developer shall donate the Off-Site AH Parcel to the AH Developer no later than the issuance by City to the AH Developer of building permits for construction of the Off-Site AH Units on the Off-Site AH Parcel. Concurrently with such donation, and following review by Developer, the AH Developer shall execute a regulatory agreement with the City pursuant to the City AH Regulations, to be recorded against the Off-Site AH Parcel. If a regulatory agreement with the City has been recorded against any properties containing Safety Net Units pursuant to Section 4.5.3(g). such regulatory agreement shall be released, in whole or in part, from Safety Net Location title (one for one per AH Unit). Developer also shall provide "gap" financing to the AH Developer ("AH Gap Financing"), with a total value per Off-Site AH Unit (for which building permits have been obtained) equal to the value of the amount of the inclusionary housing in-lieu fee in effect at tlie time the AH Gap Financing is made to the AH Developer, based on the calculation set forth in the Inclusionary Housing Guidelines in effect as of the Effective Date of this Agreement (the "Guidelines Calculation"), less the amount of the credit set forth in Section

4.5.2(e) below. Developer shall provide the AH Gap Financing prior to or simultaneously with obtaining the first residential building permit. Notwithstanding any provision herein to the contrary, in no event shall Developer be obligated hereunder to construct any Off-Site AH Units. ( d) The Parties anticipate that, based on the anticipated estimated size of an Off-Site AH Parcel, the AH Developer would construct approximately between 70-89 OffSite AH Units thereon. If the AH Developer's planning application for the Off-Site AH Units is for fewer than 20% of the Net New Units (the "Minimum Off-Site AH Units"), then Developer shall be required to pay to the City upon issuance of building permits for dwelling units in the Project, with respect to each Minimum Off-Site AH Unit not then constructed, an in-lieu fee in the amount of the inclusionary housing in-lieu fee amount in effect at the time of issuance of the first building permit for the Project, based on the Guidelines Calculation (the "AH In-Lieu Fee"), plus an additional five percent (5%) of the AH In-Lieu Fee for each of the Minimum Off-Site Units not constructed. If the AH Developer has not submitted planning applications for the Off-Site AH Units before issuance of the first building permit for the Project because of the occurrence of one or more of the types of events described within the definition of Permitted Delay in Section 1.1.25 (together, "AH Force Majeure"), Developer shall pay the AH In-Lieu Fee at the time such planning applications are submitted but in no event later than the issuance of the first Certificate of Occupancy for the Project. For avoidance of doubt, the AH In-Lieu Fee is intended to cover the difference between the number of Off-Site AH Units actually constructed on the Off-Site AH 18 551 \95\3398553.1
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Parcel and the number of AH Units that would otherwise be required under the City AH Regulations to meet the requirement for 20% On-Site AH Units. The total amount of AH In-Lieu Fees payable under this Section 4.5.2(d) shall be adjusted to reflect any variance in the number of AH Units actually constructed on the Off-Site AH Parcel at the time that building permits are issued for the Off-Site AH Units and also to reflect any Safety Net Units (defined in Section 4.5.3) that remain occupied by households ineligible to occupy an Off-Site AH Unit. Any adjustment to the AH In-Lieu Fees will be further adjusted once a Safety Net Unit tenant ineligible for an OffSite AH Unit vacates the Safety Net Unit or their income exceeds that specified in Section 4.5 .3(i). ( e) Developer shall receive, for the transfer of the Off-Site AH Parcel pursuant to Section 4.5.2(c) above, a credit against the amount of any AH Gap Financing required to be provided by Developer pursuant to Section 4.5.2(c). equal to the Fair Market Value (as defined and determined below) of the Off-Site AH Parcel as of the date of such transfer. City and Developer shall meet and confer commencing not later than fifteen (15) days prior to the then anticipated date of transfer of the Off-Site AH Parcel, or by such other date as may be mutually agreed upon by the Parties and expiring upon such subsequent date that either Party notifies the other of the termination of such meet and confer process (the "FMV Negotiation Period"), in a good faith effort to reach agreement upon the fair market value of the Off-Site AH Parcel, based upon its highest and best use (the "Fair Market Value"). If City and Developer are unable to agree upon Fair Market Value within the FMV Negotiation Period, City and Developer agree that the Fair Market Value shall be determined by a board of two appraisers (each an "Appraiser"), one of whom shall be named by the City and one of whom shall be named by Developer, both of whom shall appraise the Off-Site AH Parcel based on appraisal instructions mutually agreed upon by the Parties. Developer shall pay the costs of the Appraisers. Each of the Appraisers shall be licensed in the State of California as a real estate appraiser, be a member of the Appraisal Institute, and have at least ten (10) years' experience appraising properties similar to and in the vicinity of the Off-Site AH Parcel. City and Developer agree to make their appointments within fifteen ( 15) days after the expiration of the FMV Negotiation Period, or by such other date as may be mutually agreed upon by the Parties. Within forty-five (45) days after the expiration of the FMV Negotiation Period, City's Appraiser and Developer's Appraiser shall submit to one another his or her determination of the Fair Market Value. If the determinations by the two Appraisers differ by less than ten percent (10%) of the highest appraisal, then the FMV shall be deemed to be the average of the two determinations. If the preceding sentence does not apply, then City's Appraiser and Developer's Appraiser shall select a third Appraiser (with the same qualifications as set forth above) within fifteen (15) days after the City's Appraiser and Developer's Appraiser submit their determinations to one another. Within ten (10) days after the Third Appraiser is selected, City's Appraiser and Developer's Appraiser shall submit their determinations to the Third Appraiser in order for the Third Appraiser to select either Developer's or City's Appraisers' determination as closest to the Fair Market Value. The third Appraiser shall make such selection within fifteen (15) days after receipt of the City's Appraiser's and Developer's Appraiser's determinations, and such selection by the third Appraiser shall be deemed the Fair Market Value and shall be binding upon the Parties. The Developer shall pay the full cost of the third Appraiser. (f) The planning application for the Off-Site AH Units shall be submitted to the City prior to issuance of building permits for the Project. Further, building permits for the Off-Site AH Units shall be pulled at or before the City's issuance of the first Certificate of Occupancy, either temporary or permanent, for dwelling units in the Project. 19 551 \95\3398553.1
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(g) To the extent permitted by law and by the requirements of any financing source(s) for development of the Off-Site AH Units, AH Developer shall give a preference in the rental of Off-Site AH Units to households who as a result of the Project were required to or elected to move and are beneficiaries of the Relocation Plan approved by the City as part of the Existing City Approvals, provided such households meet all eligibility requirements for tenancy in an Off-Site AH Unit. Determination of whether this preference is permitted by law or financing source shall be at the sole and reasonable discretion of the legal counsel for the AH Developer and substantiated in a letter by same counsel.

4.5.3 Safety Net Units.
(a) If, by reason of any AH Force Majeure, building permits for all of the Off-Site AH Units at the Off-Site AH Parcel have not been obtained by the AH Developer by the time Developer seeks issuance of the first Certificate of Occupancy for dwelling units in the Project, Developer shall make the same number of AH Units (for which such building permits have not been pulled) available as On-Site AH Units on any land in the City owned by Developer or a Developer Affiliate (each, a "Safety Net Location"), available to lower income households consistent with the City's 2019 Inclusionary Housing Ordinance (Ord. No. 425) (i.e., 25% of units available to 35% AMI households (or lower); 50% of units available to Very Low Income Households (or lower); 25% of the units available to Low Income Households (or lower), as those terms are defined above) until Off-Site AH Units are available for occupancy ("Safety Net Units"). (b) Developer shall not displace any then-current tenant at any Safety Net Location in order to accommodate the required number of AH Units available to lower income households.
( c) All AH Units shall be in decent, safe and sanitary condition, meeting HUD's Housing Quality Standards and shall not have any code or habitability violations. (d) Safety Net Units may be dispersed throughout one or more Safety Net Locations, including the Property, and also may be clustered within certain buildings at a Safety Net Location at Developer's option.
( e) The City and Developer shall enter into a binding affordability restriction, which will be recorded against title for the Property, which shall be released from title once a Certificate of Occupancy is issued for the Off-Site AH Units and the occupants of the Safety Net Units are relocated to the Off-Site AH Units. Developer shall be required to report to the City annually the rent and household income of the occupants of the Safety Net Units as well as any other information reasonably requested by the City and will be required to provide notice of such units, including the income and reporting requirements to any potential buyer of a building containing such Safety Net Units and provide notice to the City if a building containing such Safety Net Units is sold.
(f) The Safety Net Units shall have the same number of bedrooms as applied for the Off-Site AH Units and besides bedroom counts and size will be comparable to other rental dwelling units in the same building per Municipal Code l 8.38.070(D), unless otherwise agreed to in writing by the City.
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(g) If building permits for the Off-Site AH Units have not been obtained by the end of the Term of this Agreement due to AH Force Majeure, then the temporary affordability restrictions for the Safety Net Units shall thereupon become permanent, a regulatory agreement restricting the SafetyNet Units in perpetuity shall be recorded against the Safety Net Units (which agreement shall include the ability of Developer to relocate, from time to time and with City approval, the Safety Net Units to one or more other Safety Net Locations and thereupon the regulatory agreement shall be released from title to the prior location concurrently with a regulatory agreement being recorded against title to the new location), the Developer shall pay, if not already paid, the AH In Lieu Fees, then the Developer shall also pay an amount equal to twentyfive percent (25%) of the AH In Lieu Fee in effect at such time multiplied by twenty percent (20%) of the number of Net New Units and the inclusionary and other affordable housing requirements under the City AH Guidelines with respect to the Project shall thereupon be deemed fully satisfied. (h) Households occupying the Safety Net Units shall be required to meet the occupancy requirements for the Off-Site AH Units with the goal that all such households will be relocated to the Off-Site AH Units once Certificates of Occupancy are issued for such OffSite AH Units. (i) If for any reason a household occupying a Safety Net Unit is ineligible to occupy one of the Off-Site AH Units, or if insufficient Off-Site AH Units are available for all tenants in the Safety Net Units, Developer shall be obligated to maintain the Safety Net Unit as an affordable unit as long as such household continues to occupy such unit and continues to be eligible for an affordable unit at or below 60% of area median income. A household shall be deemed to continue to be eligible to occupy a Safety Net Unit until such household's income exceeds 140% of 60% of the area median income, at which time the rent for such unit may be raised to the extent allowed by law.

4.6 City Obligations.

4.6.1 In addition to any other obligations of City set forth herein, and in consideration of Developer entering into this Agreement, City acknowledges and agrees that the primary purpose of this Agreement is to effectuate the terms of the City Approvals so that the Project is developed.

4.6.2 To the extent that a Subsequent City Approval requires an action to be taken by the City, the City shall timely and promptly process such Subsequent City Approval in accordance with Section 3.9. If requested by Developer, the Parties agree to have their respective staff persons hold regular periodic meetings to discuss the processing of Subsequent City Approvals. If requested by Developer, the City shall consider retaining outside consultants to assist the City in processing Developer's development applications, at Developer's sole cost.

ARTICLE V

COMMUNITY BENEFITS

5.1 Provision by Developer. Developer shall provide the following benefits to the City, which are essential consideration to the City, without which the City would not have entered into this Agreement:
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5.1.1 New Public Park Space. An area at the corner of O'Connor Street and Euclid Ave shall be developed with a children's play area, a gathering area, and a fitness area reserved for the benefit of the City and the East Palo Alto community and residents (the "Park Space"), as shown on Sheet L-1.0 of the Approved Plans and otherwise consistent with the Parks, Recreation, and Open Space Master Plan. This Park Space shall be in addition to the minimum required private, common, and public open space. It will be adjacent or in close proximity to neighborhood-serving retail, community space, and common resident amenity spaces. Pursuant to Section 4.3 .3, the cost of constructing the Park Space will be credited against the Project's required parks and trails fees. The Developer's grant of a public access easement ( or license) over the Park Space as well as the Developer's obligation to maintain the Park Space will be considered a community benefit. The Developer shall conduct community outreach to finalize the design and programming for the Park Space. The final Park Space design shall be included in the on-site grading and improvement plans submitted to the City prior to building permit issuance for the Project.

Developer will grant a public access easement ( or license) over the Park Space to the City to ensure public use and enjoyment of the Park Space as well as to memorialize Developer requirements for upkeep and maintenance. The easement ( or license) shall be finalized prior to grading permit issuance for the Project and shall be granted and recorded with the Final Map and prior to issuance of the first grading permit for the Project:
a) The Park Space shall be approximately 9,300 square feet and shall be built out in accordance with the final approved building permit at the Developer's sole cost. b) The Park Space shall be available for use by the public in perpetuity including the East Palo Alto community and residents between 8:00 a.m. and sunset free of charge for activities that conform to the purposes specified in the approved Park Space design.

Use of the Park Space will be operated and managed by the Developer. c) Should the City receive complaints or observe that the Park Space is not sufficiently available for community use, Developer and City shall meet to resolve the issues within seven (7) days of the City providing written notice to the Developer. d) The Developer shall be responsible for all maintenance, repair and replacements necessary to maintain the Park Space to a high quality. The Park Space easement (or license) will include requirements for repair and maintenance of the Park Space. e) Use of the Park Space shall at all times be consistent with the purposes specified in approved design of the Park Space and be conducted in compliance with all City Regulations and all State and Federal laws and regulations applicable to the Park Space and the following rules: use shall be in such a manner as not to interfere with or obstruct (i) any portion of the Property, and (ii) any business operations or other activities being conducted by the Developer or its permittees on the Property; no person shall enter, remain, stay, or camp in the Park Space when it is closed to the public; Developer may temporarily close the Park Space in the event of a risk to the public health or safety created by causes including but not limited to flood, storm, fire, 22 551\95\3398553. I
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earthquake or other natural disaster, explosion, accident, criminal activity, riot, civil disturbances, civil unrest, or unlawful assembly; Developer may temporarily close that portion of the Park Space as is necessary to undertake repair and maintenance activities of the Park Space in order to make any such necessary repairs and maintenance after providing notice to the City. If the City desires to have security cameras posted at the Park Space, the Developer shall fund and install security camera's according to the City's direction.
f) The Park Space shall be completed prior to the issuance of the first Certificate of Occupancy for the dwelling units in the Project.

5.1.2 Community Function Space. A portion of an area on the ground floor of Building B on O'Connor Street between Euclid Ave and Manhattan Ave as shown on Sheet A201 of the Approved Plans shall be space reserved for the benefit of the City and the East Palo Alto community and residents (the "Community Function Space"). (a) The Community Function Space shall be approximately 2,500 square feet. The Developer shall pay for and construct the Community Function Space as a multiuse space appropriate for City and community groups to use for meetings, events, educational purposes, cultural celebrations, and similar gatherings. The Community Function Space shall be built out to include: finished flooring, drop down or open concept ceilings, furniture, fixtures and equipment, and other decorations appropriate for the purpose of the space. (b) The Community Function Space may also host art installations of a temporary or permanent nature, provided they do not interfere with the community meeting hosting orientation of the space.
( c) The Community Function Space shall be available for use by the community and City between the hours of 8:00 a.m. and 10:00 p.m. free of charge for events that conform to the purposes specified in Section (a). Use of the space will be operated and managed by the Developer in consultation with the City.
( d) Reservation for the Community Function Space will be through an online reservation system on Developer's website, and also via a link to Developer's online reservation system on the City's website, via USPS mail, email, or in person requests at the property management office. Reservation priority will be given to the community and City up to ten (10) days before the requested time reservation. Inside of the ten (10) day period, and subject to the reasonable discretion of Developer, community groups, City, residents, and other groups may have access to the Community Function Space on a first come first served basis. In the event the City or a community group makes a request for a time when the Community Function Space is not available, Developer shall give the City or community group priority access to the nearest convenient available time slot. Should the City receive complaints or observe that the Community Function Space is not sufficiently available for community use, Developer and City shall meet to resolve the issues within seven (7) days of the City providing notice to the Developer. 23 551\95\3398553.1
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( e) The Developer shall provide, operate, and pay for the reservation system, and all utility, janitorial, and routine maintenance and repair services to the Community Function Space.
(f) No fewer than ninety (90) days before the Developer requests final inspection of the Project, Developer shall demonstrate the functionality of the Community Function Space reservation system for City's approval, which shall not be unreasonably withheld. 5 .1.3 Bus Shelter / Transit Infrastructure. Developer shall build a high-quality bus shelter, including wind and rain screening and transit schedule information, on O'Connor Street near Euclid Ave. It is intended to be served by Sam Trans routes 81, 280, and 281 and Ravenswood City School District school buses.

5.1.4 New Water Infrastructure. Developer will provide a 1.5 million gallon water tank and pump system (and the land it is on), in coordination with City of East Palo Alto Public Works and Menlo Fire District, to improve the overall water conveyance, supply, and pressure in the neighborhood. In accordance with Section 4.3.3, a portion of this new infrastructure will be credited against the water capacity fees and public facilities fees otherwise payable by Developer for the Project. The cost incurred by the Developer in excess of the required water capacity fees and public facilities fees are considered a community benefit, provided, the cost of the water tank and pump station as well as related land exceeds the required water capacity and public facilities fees by at least $2,000,000. If the costs incurred by the Developer for the water tank, pump station and related land is less than the sum of the required water capacity fees, the public facilities fees and $2,000,000, Developer shall pay that difference to the City as a community benefit payment. If for any reason Developer is not required to construct the water tank and pump station, Developer shall be required to pay the required water capacity fees and public facilities fees for the Project and make a community benefit payment to the City of $2,000,000, to be paid at time of issuance of the first building permit.

5.1.5 Storm Drainage Improvements. Developer will build storm drainage infrastructure improvements in the Project-adjacent street segments of Euclid Ave., O'Connor Street, Manhattan Ave, and/or West Bayshore Ave consistent with the existing City of East Palo Alto Storm Drain Master Plan to reduce storm water impacts and discharge rates, up to a maximum cost of $500,000, as such amount is increased each year by the increase in the Engineering News Record Construction Cost Index ("ENR"). Pursuant to Section 4.3.3, a portion of the cost of constructing the storm drainage improvements will be credited against storm drainage fees, and the remainder will be a community benefit.

5.1.6 Dedication of Roadway. Developer will dedicate approximately 20,350 square feet (roughly ½ acre) of land to the City of East Palo Alto, along the entire frontage of O'Connor Street between Manhattan Ave and Euclid Ave, and a portion of the frontage of Euclid Ave between O'Connor Street and West Bayshore Road. This includes existing roadway, sidewalk, and building-related open space. This will be contributed at no cost to the City. The Developer still intends to improve much of this area as part of the Euclid Improvements, consistent with or above the standards in Municipal Code section 15.04.040. Any such improvements to the new frontage dedicated by the Developer shall be made by the Developer to ADA standards. 24 551 \95\3398553.1
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ARTICLE VI

AMENDMENT OF AGREEMENT AND APPROVALS

6.1 Amendment or Termination by Mutual Consent.

Subject to the provisions of this Article VI, City and Developer by mutual written agreement may terminate or amend, in whole or in part, the terms of this Agreement.

6.2 Minor Modifications and Major Amendments to Agreement.

6.2. l Minor Modification. The Parties acknowledge that refinement and further implementation of the Project may demonstrate that certain clarifications, minor changes, or minor adjustments may be appropriate with respect to the details and performance of the Parties under this Agreement. The Parties desire to retain a certain degree of flexibility with respect to the details of the Project and with respect to those items covered in the general terms of this Agreement. If and when the Parties find that clarifications, minor changes, or minor adjustments are necessary or appropriate and do not constitute a Major Amendment under Section 6.2.2, they shall effectuate such clarifications, minor changes or minor adjustments as Minor Modifications through a written memorandum of Minor Modification ("Minor Modification Memorandum") approved in writing by the Developer and Director following Directors' consultation with the City Manager and submittal to the Planning Commission on the consent calendar, in conformance with Municipal Code section 18.108.040.A.3. For avoidance of doubt, any Minor Modification Memorandum shall not require any public hearing or any action by the Planning Commission or the City Council as a prerequisite to its execution or effectiveness. As used herein, "Minor Modification" shall mean any clarification, change, or adjustment to this Agreement which, in the context of the overall Project contemplated by this Agreement, does not substantially affect (i) the Term of this Agreement; (ii) permitted uses of the Property; (iii) provisions for the reservation or dedication of land; (iv) Conditions for Subsequent City Approvals; (v) the density or intensity of use of the Property or the maximum height or size of proposed buildings; or (vi) the nature, timing of delivery, or scope of Public Improvements required by the City Approvals.

6.2.2 Major Amendment. Any proposed amendment to this Agreement that does not constitute a Minor Modification under Section 6.2. shall be accomplished in the manner provided under Municipal Code Section 18.108.060.B and subject to approval by the City Council.

6.3 Requirement for a Writing.

No amendment, minor amendment, or cancellation of this Agreement or any provision hereof shall be effective for any purpose unless adopted in the manner set forth in Section 6.2.1 or Section

6.2.2, as applicable, and specifically set forth in a writing, which refers expressly to this Agreement and is signed by duly authorized representatives of the Parties. The City Clerk shall record an appropriate notice of any amendment or cancellation with the County Recorder not later than ten (10) days after the effective date of the action effecting such amendment or cancellation, accompanied by a legal description of the Property.

6.4 Amendments to Development Agreement Legislation.
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This Agreement has been entered into in reliance upon the provisions of the Development Agreement Statute, as those provisions existed at the date of execution of this Agreement. No amendment or addition to those provisions which would materially affect the interpretation or enforceability of this Agreement shall be applicable to this Agreement unless such amendment or addition is specifically required by the California State Legislature, or is mandated by a court of competent jurisdiction. If such amendment or change is permissive (as opposed to mandatory), this Agreement shall not be affected unless the parties mutually agree in writing, after following the procedures in Section 5 .1, to amend this Agreement to permit such applicability.

6.5 Modification of City Approvals.

6.5.1 Generally. City Approvals (except for this Agreement, the amendment process for which is set forth in Section 6.2) may be amended or modified from time to time by means of a Subsequent City Approval, but only at the written request of Developer or with the written consent of Developer at its sole discretion. All amendments to the City Approvals shall automatically become part of the City Approvals. The permitted uses of the Property or portion thereof, the maximum density and/or number of residential units, the intensity of use, the maximum height and size of the proposed buildings, provisions for reservation or dedication of land for public purposes, the conditions, terms, restrictions and requirements for subsequent discretionary actions, the provisions for public improvements and financing of public improvements, and the other terms and conditions of development as set forth in all such amendments shall be automatically vested pursuant to this Agreement, without requiring any amendment to this Agreement. City shall not request, process or consent to any amendment to the City Approvals that would affect the Property or the Project, or applicable portion thereof, without Developer's prior written consent.

6.5.2 Minor Changes in Site Plan and Design Review. Notwithstanding the provisions of Section 6.5.1, upon the request of Developer, the Director may administratively approve minor modifications to any Site Plan and Design Review for the Project in accordance with Section 18.86.080 of the Municipal Code, and any such approval shall not require any amendment to this Agreement. Major modifications, as determined by the Planning Manager, shall require review and approval from the Planning Commission at a public hearing, and any such approval shall not require any amendment to this Agreement to the extent such approval does not change the Project as defined in this Agreement or require modification of this Agreement.

6.6 Effect of Termination on Developer's Obligations.

6.6.1 Notwithstanding any other provision to the contrary, termination or cancellation of this Agreement or termination of the rights of Developer as to the entire Property, or any part of the Property, shall not affect any of Developer's rights under or requirement to comply with the Development Approvals, the terms and conditions of any other Subsequent Approval, nor any payments then due and owing to City, nor shall it affect the covenants of Developer specified in Section 6.6.2 below, to continue after the termination or cancellation of this Agreement. Developer understands and agrees that the Development Approvals may be substantially modified in light of the circumstances resulting from the termination or cancellation of this Agreement or Developer's rights under this Agreement, and Developer shall have no rights 26 551 \95\3398553.1
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to challenge such a modification by reason of this Agreement other than the rights, if any, Developer would have in the absence of this Agreement.

6.6.2 Notwithstanding anything in this Agreement to the contrary, the following prov1s1ons of this Agreement shall survive and remain in effect following termination or cancellation of this Agreement for so long as necessary to give them full force and effect with respect to claims or rights of City arising prior to termination or cancellation:
(a) From and following development of the Project, Section 5.1.2 (Community Function Space);
cancellation);
(b) Section 6.6 (Developer's obligations upon termination or (c) Section 8.2 (Remedies; limitation on damages); and
(d) Section 12.2 (Indemnification).

ARTICLE VII

ANNUAL REVIEW

7.1 Time of Review.

City and Developer shall review all actions taken pursuant to the terms of this Agreement once annually, within sixty (60) days prior to each anniversary of the Effective Date, during each year of the Term unless the City and Developer agree in writing to conduct the review at another time.

Review of compliance with the terms of this Agreement shall be conducted by the Director.

Pursuant to East Palo Alto Municipal Code Section 18.108.070, Developer shall initiate the review by filing an application with the City and provide all the documents and information necessary for the City to complete the annual review and make a determination of whether Developer is in compliance.

7.2 Compliance Letter.

Before each anniversary of the Effective Date, Developer shall submit a letter ("Compliance Letter"), along with all necessary supporting documentation, to the Director describing Developer's compliance with the terms of the Development Approvals and this Agreement during the preceding year. The Compliance Letter shall include a statement that the Compliance Letter is submitted to the City pursuant to the requirements of Government Code Section 65865.1 and of the City's regulations on Development Agreements.

7.3 Determination of Good Faith Compliance.

Within thirty (30) days after receipt of the Compliance Letter, the Director shall determine whether, for the year under review, Developer has demonstrated good faith substantial compliance with the terms of this Agreement. If the Director finds and determines that Developer has complied substantially with the terms of this Agreement, or does not determine otherwise within thirty (30) 27 551 \95\3398553: I
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days after delivery of the Compliance Letter, the annual review shall be deemed concluded and this Agreement shall remain in full force and effect. Upon its determination of compliance, the Developer may request a recordable certificate confirming Developer's compliance through the year under review. Developer may record the certificate with the San Mateo County Recorder's Office.

If the Director initially determines the Compliance Letter to be inadequate in any respect, the Director shall provide notice to that effect to Developer and schedule a public hearing. If after a duly noticed public hearing, the City Council finds and determines, on the basis of substantial evidence, that Developer has not complied substantially in good faith with the terms of this Agreement for the year under review, the City Council shall give written notice thereof to Developer specifying the noncompliance. If Developer fails to cure the noncompliance within a reasonable period of time as established by the City Council, but in no event less than 60 days from the date of receipt of such notice, the City Council, in its discretion, may (a) grant additional time for Developer's compliance, or, following the hearing, modify this Agreement to the extent necessary to remedy or mitigate the noncompliance, (b) may modify this Agreement pursuant to the provisions of Section 8 below, or ( c) terminate the Agreement pursuant to Article VI below.

7.4 No Waiver.

Failure of City to conduct an annual review shall not constitute a waiver by City of its rights to otherwise enforce the provisions of this Agreement nor shall Developer have or assert any defense to such enforcement by reason of any failure to conduct an annual review. City does not waive any claim of defect or breach by Developer if, following periodic review pursuant to this Article VII, City does not propose to modify or terminate this Agreement.

ARTICLE VIII

DEFAULT, REMEDIES, AND TERMINATION

8.1 Notice of Breach.

Failure by either party to perform any material term or provision of this Agreement shall constitute a default hereunder, provided that the party alleging the default shall have given the other party advance written notice thereof and sixty (60) days within which to cure the condition, or, if the nature thereof is such that it cannot be cured within that time, the party receiving notice shall not be in default hereunder if the party promptly commences to perform its obligations hereunder and thereafter diligently completes performance. Written notice hereunder shall specify in detail the nature of the obligation to be performed by the party receiving notice.

8.2 Remedies for Breach.

It is acknowledged by the parties that City and Developer would not have entered into this Agreement if it were to be liable in damages under, or with respect to, this Agreement or the application thereof. The City and Developer shall not be liable in damages to the other party (except for Developer's indemnity obligation to City under Section 12.2), or to any assignee, transferee or any other person, and Developer covenants not to sue for or claim damages, while reserving the right to initiate legal proceedings to specifically enforce this Agreement. Upon 28 551 \95\3398553.1
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Developer's material default pursuant to Article VIII hereof, City shall be entitled to initiate legal proceedings to specifically enforce this Agreement or the City may terminate thi~ Agreement.

8.3 Termination by Mutual Consent.

This Agreement may be voluntarily terminated in whole or in part by the mutual consent of the parties or their successors in interest, in the sole and absolute discretion of each as to its consent.

ARTICLE IX

ESTOPPEL CERTIFICATE
Either party may, at any time, and from time to time, deliver written notice to the other party requesting such party to certify in writing that, to the knowledge of the certifying party, (a) this Agreement is in full force and effect and is a binding obligation of the parties, (b) this Agreement has not been amended or modified or, if so amended or modified, identifying the amendments or modifications, and (iii) the requesting party is not in default in the performance of its obligations under this Agreement, or if in default, to describe the nature of any defaults. The party receiving a request under this Article IX shall execute and return the certificate within fifteen (15) days following receipt of the request. The Director shall be authorized to execute any certificate requested by Developer. Developer and City acknowledge that a certificate hereunder may be relied upon by transferees and Mortgagees. Developer shall pay the City's reasonable costs involved in providing such estoppel certificate.

ARTICLEX

TRANSFERS, ASSIGNMENTS

10.1 Agreement Runs With the Land.

10.1.1 This Agreement and all of its prov1s10ns, agreements, rights, powers, standards, terms, covenants and obligations, shall be binding upon the parties and their respective heirs, successors (by merger, consolidation, or otherwise) and assigns, devisees, administrators, representatives, lessees, and all other persons or entities acquiring the Property or any portion thereof, or any interest therein, whether by sale, operation of law, or in any manner whatsoever, and shall inure to the benefit of the parties and their respective heirs, successors (by merger, consolidation or otherwise) and assigns.

10.1.2 All of the provisions of this Agreement shall be enforceable during the Term as equitable servitudes and constitute covenants running with the land pursuant to applicable law, including, but not limited to Section 1468 of the Civil Code of the State of California. Each covenant to do or refrain from doing some act on the Property hereunder, (a) is for the benefit of the Property and is a burden upon the Property, (b) runs with the Property, and ( c) is binding upon Developer and each successive owner during its ownership of the Property or any portion thereof, and each person or entity having any interest in the Property. Every person who now or hereafter owns or acquires any right, title or interest in or to any portion of the Property is and shall be conclusively deemed to have consented and agreed to every provision contained herein, whether 29 551\95\3398553. l
368
or not any reference to this Agreement is contained in the instrument by which such person acquired an interest in the Property.

10.2 Right to Assign.

10.2.1 Developer shall have the right to assign its rights to develop the Property (by sale, transfer, or otherwise) to any person, business entity, or other similar entity ("Assignee").

Any such transfer shall be deemed to include an assignment of all rights, duties, and obligations created by this Agreement with respect to all or any portion of the Property.

10.3 Release Upon Assignment.

10.3.1 Upon the express written assumption by the Assignee of Developer's rights and interests under this Agreement (the "Assignment Agreement"), Developer shall be free from any and all liabilities accruing on or after the date of assignment with respect to those obligations assumed by the Assignee pursuant to the Assignment Agreement, except to the extent that Developer is in default with respect to any and all obligations at the time of the proposed transfer.

ARTICLE XI

MORTGAGEE PROTECTION

11.1 Mortgage Protection.

This Agreement shall be superior and senior to any lien placed upon the Property or any portion of the Property after the date of recording of this Agreement, including the lien of any deed of trust or mortgage ("Mortgage"). Notwithstanding the foregoing, no breach of this Agreement shall defeat, render invalid, diminish, or impair the lien of any Mortgage made in good faith and for value, but all of the terms and conditions contained in this Agreement (including but not limited to City's remedies to terminate the rights of Developer ( and its successors and assigns) under this Agreement, to terminate this Agreement, and to seek other relief as provided in this Agreement) shall be binding upon and effective against any person or entity, including any deed of trust beneficiary or mortgagee ("Mortgagee") who acquires title to the Property, or any portion thereof, by foreclosure, trustee's sale, deed in lieu of foreclosure, or otherwise.

11.2 Mortgagee Not Obligated.

Notwithstanding the provisions of Section 10.1 above, no Mortgagee shall have any obligation or duty under this Agreement to construct or complete the construction of improvements on the Property, or to guarantee such construction or completion; provided, however, that a Mortgagee shall not be entitled to devote the Property to any uses or to construct any improvements on the Property other than those uses or improvements provided for or authorized by this Agreement, or otherwise under Applicable Law. City, upon receipt of a written request from a Mortgagee, shall permit the Mortgagee to succeed to the rights and obligations of Developer under this Agreement, provided that all defaults by Developer hereunder that are reasonably susceptible of being cured are cured by the Mortgagee as soon as is reasonably possible after the Mortgagee takes possession of the Property.
30 551\95\3398553. l
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11.3 Notice of Default to Mortgagee.

If City receives a written notice from a Mortgagee, Developer, or any approved Assignee requesting a copy of any notice of default given Developer or any approved Assignee and specifying the address for service, then City shall deliver to the Mortgagee at Mortgagee's cost ( or Developer's cost), concurrently with service to Developer, any notice given to Developer with respect to any claim by City the Developer is in default under this Agreement, and if City makes a determination of default, City shall if so requested by the Mortgagee likewise serve at Mortgagee's cost (or Developer's cost) notice of noncompliance on the Mortgagee concurrently with service on Developer. Each Mortgagee shall have the right during the same period available to Developer to cure or remedy, or to commence to cure or remedy, the event of default claimed or the areas of noncompliance set forth in City's notice.

11.4 No Supersession.

Nothing in this Article X shall be deemed to supersede or release a Mortgagee or modify a Mortgagee's obligations under any subdivision improvement agreement or other obligation incurred with respect to the Property outside this Agreement, nor shall any provision of this Article X constitute an obligation of City to the Mortgagee, except as to the notice requirements of Section

10.3. ARTICLE XII

INDEMNIFICATION

12.1 No Duty of City; Hold Harmless.

It is specifically understood and agreed by the parties that the development contemplated by this Agreement is a private development, that City has no interest in or responsibility for or duty to third persons concerning any of said improvements, and that Developer shall have full power over and exclusive control of the Property subject only to the limitations and obligations of Developer under this Agreement.

12.2 Indemnification.

Developer hereby agrees to and shall indemnify, defend (with counsel approved by the City), and hold harmless City and its elected and appointed representatives, officers, agents, and employees from any loss, liability, fines, penalties, forfeitures, costs, and damages (whether in contract, tort, or strict liability, including but not limited to personal injury, death at any time, and property damage) and from any and all claims, demands, and actions in law or equity (including attorneys' fees and litigation expenses) directly or indirectly arising or alleged to have arisen out of or in any way related to: (a) the approval of this Agreement or the City Approvals; (b) any development or use of the Property under this Agreement or the Project Approvals; and ( c) any actions or inactions by the Developer or its contractors, subcontractors, agents, or employees in connection with the construction or improvement of the Property and the Project; excepting to the extent arising from the intentional acts or willful misconduct or gross negligence of City, its elected and appointed representatives, officers, agents, employees, contractors or subcontractors. 31 551\95\3398553. l
370
This indemnification and hold harmless agreement applies to all damages and claims for damages suffered or alleged to have been suffered by reason of the operations referred to in this Section

12.2, regardless of whether or not City prepared, supplied, or approved plans or specifications for the Property, but does not apply to damages and claims for damages caused by City with respect to public improvements and facilities after City has accepted responsibility for them.

13.1 Notices.

ARTICLE XIII

NOTICES
Any notice, demand, correspondence, or communication required hereunder between the City and Developer ("Notice") must be in writing and shall be sufficiently given if: (a) personally delivered; or (b) dispatched by next day delivery by a reputable carrier such as Federal Express or DHL to the offices of City and Developer indicated below, provided that a receipt for delivery is provided; or ( c) if dispatched by certified mail, postage prepaid, to the offices of City and Developer indicated below. Such Notice may be sent in the same manner to such persons and addresses as either party may from time-to-time designate by Notice as provided in this Section. A copy of the Notice should be sent via e-mail as well to the email addresses provided in this Section.

With copy to:

DEVELOPER:

With copy to:
551 \95\3398553.1
City Manager
City of East Palo Alto
2415 University A venue
East Palo Alto, CA 94303
email: [email protected]
City Attorney
City of East Palo Alto
2415 University A venue
East Palo Alto, CA 94303
email: [email protected]
Michael Kramer
Woodland Park Property Owner, LLC
2600 El Camino Real Suite 410
Palo Alto, CA 94306
email: [email protected]
Corinne Calfee
Opterra Law, inc.

P.O. Box 2369
Davis, CA 95616
[email protected]
32 371

ARTICLE XIV

MISCELLANEOUS

14.1 Cooperation in the Event of Third-party Legal Challenge.

In the event of any legal action instituted by a third party or other governmental entity or official challenging the validity of any provision of this Agreement or the Project Approvals or otherwise relating to the Project ("Third Party Challenge"), the Parties shall mutually cooperate with each other relating to the Third Party Challenge.

14.2 Invalidity.

If any part of this Agreement is held by a court of competent jurisdiction to be invalid or unlawful, the parties shall use their best efforts to cure any inadequacies or deficiencies identified by the court in a manner consistent with the express and implied intent of this Agreement, and then to adopt or re-enact such part of this Agreement-as necessary or desirable to permit implementation of this Agreement.

14.3 Applicable Law and Venue.

This Agreement shall be construed and enforced in accordance with the laws of the State of California. Any action at law or in equity arising under this Agreement or brought by any Party for the purposes of enforcing, construing, or determining the validity of any provision of this Agreement shall be filed and tried in the County of San Mateo, or the United States District Court for the Northern District of California

14.4 Severability.

In addition to and without limiting the provisions of Section 14.1.1, if any provision(s) of this Agreement is (are) held invalid, then to fullest extent feasible, the remainder of this Agreement shall not be modified, reformed, or otherwise affected except as may be necessarily required or permitted by the determination of invalidity, and shall remain in full force and effect in accordance with its terms as may be so modified, reformed, or otherwise affected, unless further amended or modified by mutual consent of the Parties. For avoidance of doubt, the Parties acknowledge their mutual intent and agreement that, in the event of any such determination of invalidity, this Agreement shall be appropriately reformed to the extent necessary in order to achieve the mutual primary goals, purposes and intent of the Parties as set forth in this Agreement.

14.5 Nondiscrimination.

Developer covenants by and for itself and any successors in interest that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the development of the Property in furtherance of this Agreement. The foregoing covenant shall run with the land. 33 551\95\3398553. l
372

14.6 Headings.

The language in this Agreement in all cases shall be construed as a whole and in accordance with its fair meaning. Section and subsection headings in this Agreement are for convenience only and are not intended to be used in interpreting or construing the terms, covenants, or conditions of this Agreement.

14.7 Agreement is Entire Understanding.

This Agreement is executed in one original, which constitutes the entire understanding and agreement of the parties. The parties acknowledge and agree that neither of them has made any representation with respect to the subject matter of this Agreement or any representations inducing the execution and delivery hereof, except representations set forth herein, and each party acknowledges that it has relied on its own judgment in entering this Agreement. The parties further acknowledge that, except for those contained in Applicable City Regulations, all statements or representations that heretofore may have been made by either of them to the other are void and of no effect, and that neither of them has relied thereon in its dealings with the other. To the extent that there is any conflict between the Applicable Law and this Agreement, this Agreement shall govern the parties' respective rights and obligations.

14.8 Interpretation.

Each party to this Agreement has had an opportunity to review the Agreement, confer with legal counsel regarding the meaning of the Agreement, and negotiate revisions to the Agreement.

Accordingly, neither party shall rely upon Civil Code Section 1654 in order to interpret any uncertainty in the meaning of the Agreement. As used herein: (a) the singular shall include the plural (and vice versa) and the masculine or neuter gender shall include the feminine gender (and vice versa) where the context so requires; (b) locative adverbs such as "herein," "hereto," "hereof," and "hereunder" shall refer to this Agreement in its entirety and not to any specific section or paragraph; (c) the terms "include," "including," and similar terms shall be construed as though followed immediately by the phrase "but not limited to;" (d) "shall" and "must" are mandatory and "may" is permissive; and { e) "or" is not necessarily exclusive. Each reference in this Agreement to this Agreement shall be deemed to refer to this Agreement as amended from time to time pursuant to the provisions of this Agreement, as applicable, whether or not the particular reference refers to such possible amendment.

14.9 Further City Actions.

Except as may be otherwise specifically provided herein, whenever any approval, notice, direction, consent, request, waiver or other action by the City is required or permitted under this Agreement, such action may be given, made, or taken by the City Manager on behalf of the City, or by any person who shall have been designated in writing to Developer by the City Manager, without further approval or authorization required by the City Council, and any such action shall be in writing; provided, however, that the City Manager may seek such authorization when he or she deems it appropriate in his or her sole and absolute discretion. In addition to the provisions of Section 6.2 and without limiting the provisions of this Section 14.8, the City Manager may also, 34 551\95\3398553. I
373
at his or her discretion, agree in writing to modification of the dates by which actions are to be completed or to waive non-substantive terms and conditions of this Agreement, to make nonsubstantive amendments to this Agreement in furtherance of the goals and objectives of this Agreement, or to make reasonable modifications to this Agreement requested by Mortgagees. The City Manager or his or her designee is authorized to execute and deliver, on behalf of the City, any ancillary documents and to take any action necessary or desirable to effectuate the provisions and intent of this Agreement.

14.10 Computation of Time; Time of the Essence.

All references in this Agreement to "days" shall mean calendar days unless expressly referred to as "business days." The time in which any act is to be done under this Agreement is computed by excluding the first day, and including the last day, unless the last day is a Saturday, Sunday or holiday, and then that day is also excluded. If the day for performance of any obligation under this Agreement is a Saturday, Sunday or holiday, then the time for performance of that obligation shall be extended to the first following day that is not a Saturday, Sunday or holiday. The term "holiday" shall mean all holidays as specified in Sections 6700 and 6701 of the California Government Code. If any act is to be done by a particular time during a day, that time shall be Pacific Time Zone time. Time is of the essence in the performance of each and every covenant and obligation to be performed by the Parties under this Agreement.

14.11 Permitted Delay.

Subject to the limitations set forth below, the Term of this Agreement and the City Approvals and the time within which either Party shall be required to perform any act under this Agreement shall be extended by a period of time equal to the number of days during which performance of such act is delayed by a Permitted Delay. An extension of time for any Permitted Delay shall commence to run from the time of the commencement of the cause of such Permitted Delay, if Notice by the Party claiming such extension is sent to the other Party within thirty (30) days of the commencement of the cause and the Party receiving such notice does not object to such extension in writing within fifteen ( 15) days after receiving notice. Upon such an objection, the Parties shall meet and confer within thirty (30) days after the date of the objection in good faith to resolve their disagreement as to the existence and length of the Permitted Delay. If no mutually acceptable solution can be reached either Party may take action as permitted pursuant to Section 8.2. Except for any Permitted Delay attributable to a Third Party Challenge or a failure of the East Palo Alto Sanitary District to issue a "will serve" letter or certification for the Project, in no event shall this Agreement be extended for a single Permitted Delay for longer than one hundred eighty ( 180) days or for all Permitted Delays cumulatively for eighteen ( 18) months. Times of performance under this Agreement may also be extended in writing by the mutual agreement of the City Manager and Developer.

14.12 Recordation of Termination.

Upon completion of performance of the parties or termination of this Agreement, a written statement acknowledging such completion or termination shall be recorded by City in the Official Records of San Mateo County, California.
35 551\95\3398553. l
374

14.13 Counterparts.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but the counterparts together shall constitute only one Agreement. 36 551\95\3398553. l
375
IN WITNESS HEREOF, the patties have executed this Agreement effective as of the Effective Date.

CITY OF EAST PALO AL TO,
a municipal corporation
By:

Mayor
Dated: -----------
ATTEST:

City Clerk
Dated: -----------
APPROVED AS TO FORM:

City Attorney
Dated: -----------
551 \9513398553.1
37 LLC, a Dela

PERTY OWNER,
I' bility company
By:

Name: Peter Pau
-----------
Title: Manager
March 28, 2023
Dated: -----------
376
A notary public or other officer completing this ce1tificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

STATE OF CALIFORNIA )
)
COUNTY OF SAtif/A Uib'V! )
On 3/i-3 /z-0),"5 , before me, kA-[i f- ~ , Notary Public, personally appeared /J&,T~ ~ ' , who proved to me on the basis of satisfactory eviden& to be the p~rson(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify UNDER PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal.
551 \9513398553.1
········~ KATIE YAO
Notary Public - California z
Santa Clara County ~
Commission# 2426770 -
y Comm. Expires Dec 5, 2026
Name: /um~ ~
Notary Public I
38 377
IN WITNESS HEREOF, the parties have executed this Agreement effective as of the Effective Date.

CITY OF EAST PALO ALTO,
a municipal corporation
APPROVED AS TO FORM:

City Attorney ~,;-..,..)
Dated: +a Jl 1 ~~3
551 \9513398553 .1
37 WOODLAND PARK PROPERTY OWNER,
LLC, a Delaware limited liability company
By:

Name: -----------
Title:

Dated: -----------
378
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.

STATE OF CALIFORNIA
COUNTY OF --=~~~__._~~"-"-b-
)
)
) t
On _.,....____,_-----+----< fulJ , Notary Public,
personally appeare t - , who proved to me on the
basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify UNDER PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. f J. A RENFIELD ,... COMMISSION #2369082
WITNESS my hand and official seal. f Notary Public. ca~mia i ..... I XPIRES
39 551\95\3398553. l
379

EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY
501 O'Connor Street and 2012 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MA TEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Beginning at the intersection of the center line of O'Connor Street with the center line of Euclid Avenue running thence Easterly along the center line of O'Connor Street 187 .53 feet; thence North 7° 27' East 210.49 feet; thence Westerly 175 .40 feet to a point in the center line of Euclid Avenue which said point is distant Northerly 234.09 feet to the point of beginning; thence southerly along the center line of Euclid Avenue, 234.09 feet to the point of beginning. Said description includes within its boundaries Lots Numbered 1, 2 and 3 in Block 9 as shown on that certain Map entitled "Map of Woodland Place, Subdivision No. One of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24.

JPN: 063-028-282-0lA and 063-028-282-02A
APN: 063-282-010, 063-282-020
2001 Manhattan Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MA TEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Beginning at the point of intersection of the centerline of O'Connor Street with the centerline of Manhattan Avenue; running thence North 4° 44' East 229.10 feet to the Easterly prolongation of the Southerly line of the lands described in Deed to Jeanette A. Meek, recorded on April 21, 1913 in Book 224 of Deeds at Page 227, Records of San Mateo County, California; thence Westerly along said last mentioned prolongation and Southerly line 174.85 feet to the centerline of an alley way; thence Southerly along the centerline of said alley way 235.61 feet to the centerline of O'Connor Street; thence Easterly along the centerline of O'Connor Street 184.68 to the point of beginning. Being the property described as Lots Nos. 23 and 24 and the Southerly 25 feet of Lot No. 22 in Block 9, according to that certain Map entitled "Map of Woodland Place Subdivision No. 1 of Ravenswood, San Mateo County, Cal.", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24. Excepting therefrom that portion thereof conveyed to the third road district of San Mateo County, by Agnes M. West, et al, by Deed dated March 12, 1921 and recorded June 6, 1921 in Book 14, of Official Records at Page 23 7, Records of San Mateo County, California.

APN: 063-282-090
551\95\3398553. l

EXHIBIT A
-1-
380
2021 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MA TEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

LOT 2 AND THE SOUTHWESTERLY 5 FEET, FRONT AND REAR MEASUREMENTS OF LOT 3, BLOCK 10, MAP OF WOODLAND PLACE, SUBDIVISION NO. ONE OF RAVENSWOOD, FILED AUGUST 1, 1910, BOOK 7 OF MAPS, PAGE 24, SAN MATEO COUNTY RECORDS.

JPN: 063-028-281-02A
APN: 063-281-020
2025 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MA TEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

The Northeasterly 45 feet, front and rear measurements of Lot 3 in Block 10 as shown on that certain Map entitled "Map of Woodland Place Subdivision No. 1 of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24.

JPN: 063-28-281-03A
APN: 063-281-030
2031 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MATEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Lot 4 and the Southerly 1/2, front and rear measurements of Lot 5 in Block 10, as shown on that certain Map entitled "Map of Woodland Place, Subdivision No. 1 of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California, on August 1, 1910 in Book 7 of Maps at Page(s) 24.

JPN: 063-028-281-04A
APN: 063-281-040
551 \95\3398553.1

EXHIBIT A
-2-
381
2032 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MA TEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Lots 4 and 5 in Block 9 and portions of Euclid A venue and the alley adjacent thereto, all as shown on that certain Map entitled "Map of Woodland Place, Subdivision No. One of Ravenswood, San Mateo County, California of Ravenswood Investment Co. Inc.", filed in the Office of the County Recorder of San Mateo County, State of California, on August 1, 1910 in Book 7 of Maps at Page(s) 24, described as: Beginning at a point in the centerline of Euclid A venue distant thereon North 10° 19' East 234.00 feet from the intersection thereof with the centerline of O'Connor Street; running thence along said centerline of Euclid Avenue, North 10° 19' East 50.03 feet; thence leaving said line South 79° 41' East 172. 77 feet to the centerline of alley running through said Block 9; thence along said centerline, South 7° 27' West 50.18 feet and thence North 79° 41' West 17 5 .40 feet to the point of beginning. Excepting therefrom the Northwesterly 20 feet thereof for a public highway.

JPN: 063-028-282-03A
APN: 063-282-030
2033 Manhattan Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MATEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Parcel I:

Portion of Lots 20 and 21 and alley in Block 9, as delineated upon that certain Map entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California", filed for record in the Office of the Recorder of the County of San Mateo, State of California, on August 1st, 1910 in Book 7 of Maps, at Page 24, more particularly described as: Beginning at a point on the Westerly line of Manhattan A venue where it is intersected by the line dividing Lots 21 and 22 in said Block 9; thence North 4° 44' East along said Westerly line 28.42 feet to the Southwesterly line of lands described in Deed from Retta J. Donaghu to the State of California, recorded September 7, 1955 in Book 2871, Page 396 of Official Records; thence along said Southwesterly line of a tangent curve to the left with a radius of 60 feet and a central angle of 53° 18' 46" an arc distance of 55.83 feet and North 48° 34' 46" West 117.29 feet to a point in the Northerly line of lands described in Deed from Claude C. Taylor and wife to Retta Donaghu, by Deed recorded November 24, 1942 in Book 1037, Page 410 of Official Records; thence following the boundaries of said last mentioned Deed North 87° West 17 .27 feet, South 7° 27' West 145 .68 feet and South 87° East 142.50 feet to the point of beginning.

Parcel II:

The Northerly 50 feet front and rear measurements of Lot 22 in Block 9, and the adjacent portion 551 \95\3398553.1

EXHIBIT A
-3-
382
of the Easterly one-half of unnamed alley way, as delineated upon that certain Map entitled "Map of Woodland Place, Subdivision No. One of Ravenswood, San Mateo County, California", filed for record in the Office of the Recorder of the County of San Mateo, State of California, on August 1st, 1910 in Book 7 of Maps, at Page 24.

JPN: 063-028-282-08A
APN: 063-282-080
2036 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Lots 5 and 6 in Block 9 and portion of Euclid Avenue and the alley adjacent thereto, all as shown on the Map entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August I, 1910 in Book 7 of Maps at Page 24, more particularly described as follows: Beginning at a point in the centerline of Euclid Avenue, distant thereon North 10° 19' East 284.12 feet from the point of intersection thereof with the centerline of O'Connor Street; running thence along said centerline of Euclid Avenue, North 10° 19' East 50.03 feet; thence leaving said line South 79° 41' East 170.13 feet to a point in the centerline of the alley running through said Block; thence along said centerline, South 7° 27' West 50.18 feet and thence North 79° 41' West 172. 77 feet to the point of beginning. Excepting therefrom the Northwesterly 20 feet thereof. Also excepting therefrom that parcel of land conveyed to Isabel Lang and husband, by Deed from Elmer D. Cole and wife, dated December 22, 1948 and recorded December 2, 1949 in Book 1753, of Official Records at Page 716, Records of San Mateo County, California.

JPN: 063-028-282-04A
APN: 063-282-040
2040-2042 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MATEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

PORTION OF LOTS 5 AND 6 IN BLOCK 9, AS DESIGNATED ON THE MAP ENTITLED, "MAP OF WOODLAND PLACE SUBDIVISION NO. ONE OF RAVENSWOOD SAN MATEO COUNTY CALIFORNIA", WHICH MAP WAS FILED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, ON AUGUST 1, 1910 IN BOOK 7 OF MAPS AT PAGE 24, MORE PARTICULARLY DESCRIBED AS: BEGINNING

AT A POINT ON THE CENTERLINE OF EUCLID AVENUE, DISTANT THEREON NORTH 10° 19' EAST 332.15 FEET FROM THE INTERSECTION OF SAID CENTERLINE WITH THE 551\95\3398553. l

EXHIBIT A
-4-
383

CENTERLINE OF O'CONNOR STREET, AS SAID A VENUE AND STREET APPEAR ON THE MAP ABOVE REFERRED TO; THENCE RUNNING NORTH 10° 19' EAST AND ALONG SAID CENTERLINE OF EUCLID A VENUE 43.10 FEET, TO THE

SOUTHWESTERLY CORNER OF THE LANDS DESCRIBED IN THE DEED FROM DEWEY G. LANG AND WIFE TO ELMER D. COLE AND WIFE, DATED DECEMBER 14, 1948 AND RECORDED DECEMBER 16, 1948 IN BOOK 1604 OF OFFICIAL RECORDS OF SAN MATEO COUNTY, PAGE 3 (67437-H) THENCE SOUTH 79° 41' EAST ALONG THE SOUTHERLY LINE OF THE LAST MENTIONED LANDS 167.99 FEET TO THE WESTERLY LINE OF THE LANDS DESCRIBED IN THE DEED FROM CLAUDE C.

TAYLOR AND WIFE TO ROTT A J. DONAGHU, DATED NOVEMBER 20, 1942 AND RECORDED NOVEMBER 24, 1942 IN BOOK 1037 OFFICIAL RECORDS OF SAN MATEO AT PAGE 410 (69331-E); THENCE ALONG THE LAST MENTIONED LINE SOUTH 7° 27' WEST 43.02 FEET MORE OR LESS TO A POINT WHICH BEARS SOUTH 79° 41' EAST 170.23 FEET FROM THE POINT OF BEGINNING; THENCE NORTH 79° 41' WEST 170.23 FEET TO THE POINT OF BEGINNING.

JPN: 063-028-282-05A
APN: 063-282-050
2041 Euclid Avenue, also known as 420 E. O'Keefe

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MATEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

PORTION OF LOTS 5, 6 AND 7 IN BLOCK 10, AS SHOWN ON THAT CERTAIN MAP ENTITLED "MAP OF WOODLAND PLACE SUBDIVISION NO. ONE OF RAVENSWOOD,

SAN MATEO COUNTY, CALIFORNIA, PROPERTY OF RAVENSWOOD INVESTMENT CO., INC.", FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE OF CALIFORNIA, ON AUGUST 1, 1910 IN BOOK 7 OF MAPS AT PAGE 24, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE WESTERLY BOUNDARY LINE OF SAID BLOCK 10, DISTANT THEREON NORTH 10° 19' EAST 12.87 FEET FROM THE NORTHWESTERLY CORNER OF SAID LOT 6 IN BLOCK 10, SAID POINT OF BEGINNING BEING ON THE SOUTHERLY BOUNDARY

LINE OF O'KEEFE STREET, AS ESTABLISHED BYTHATCERTAIN DEED FROM LLOYD G. SLOAN AND IRENE L. SLOAN, HIS WIFE TO THE COUNTY OF SAN MA TEO, DATED SEPTEMBER 15, 1961 AND RECORDED NOVEMBER 6, 1961 IN BOOK 4087 OF OFFICIAL RECORDS AT PAGE 338 (FILE NO. 11817-U), RECORDS OF SAN MATEO COUNTY, CALIFORNIA; THENCE FROM SAID TO THE POINT OF BEGINNING ALONG SAID SOUTHERLY LINE OF O'KEEFE STREET, SOUTH 79° 41' EAST 59 FEET; THENCE SOUTH 10° 19' WEST 87.87 FEET; THENCE NORTH 79° 41' WEST 59 FEET TO THE ABOVE MENTIONED WESTERLY LINE OF BLOCK 1 O; THENCE ALONG SAID LAST MENTIONED LINE, NORTH 10° 19' EAST 87.87 FEET TO THE POINT OF BEGINNING JPN: 063-028-281-1 lA
551 \95\3398553.1

EXHIBIT A
-5-
384
APN: 063-281-110
2043 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Lots 5, 6 and 7 in Block 10, as shown on that certain Map Entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California, property of Ravenswood Investment Co., Inc.", filed in the Office of the County Recorder of San Mateo County, State of California, on August 1, 1910 in Book 7 of Maps at Page 24, being more particularly described as follows: Beginning at a point on the Westerly boundary line of Euclid Avenue, at the intersection thereof with the dividing line between Lots 6 and 7 in said Block 10; thence from said point of beginning along said Westerly line of Euclid Avenue, North 10° 19' East,

12.87 feet to the intersection thereof with the Southerly boundary line of O;'Keefe Street, as established by that certain Deed from Laurence R. Hubbard and Leona J. Hubbard, his wife, and Kenneth R. Hubbard, to the County of San Mateo, Dated November 21, 1960 and Recorded July 10, 1961 in Book 4014 of Official Records, at Page 243 (File No. 74244-T); thence along said last mentioned line, North 79° 41' West 61 feet; thence leaving said Southerly line of O'Keefe, South 10° 19' West, 87.87 feet; thence parallel with said dividing line between Lots 6 and 7, South 79° 41' East, 61 feet to said Westerly line of Euclid A venue, thence along said last mentioned line, North 10° 19' East 75 feet to the point of beginning.

JPN: 063-028-281-l0A
APN: 063-281-100
2044 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

AL TO, IN THE COUNTY OF SAN MATEO, STA TE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Beginning at a point in the centerline of Euclid Avenue distant thereon North 10° 19' East 375.25 feet from its intersection with the centerline of O'Connor Street; thence from said point of beginning at right angles with Euclid A venue, South 79° 41' East 167 .99 feet , more or less, to the Westerly line of property now or formerly of Retta J. Donaghu; thence along said boundary North 7° 27' East 55.06 feet, more or less, to the Southerly boundary of property conveyed to Richard Jordan and Lillian Jordan, his wife, by Deed dated January 21, 1942 and recorded January 22, 1942 in Book 1005 of Official Records at Page 42; thence along said Southerly boundary North 79° 41' West 165.24 feet to said centerline of Euclid Avenue; thence along said centerline of Euclid Avenue South 10° 19' West 55.00 feet to the point of beginning. Being a portion of Block 9 as shown on that certain Map entitled "Map of Woodland Place Subdivision No. One of Ravenswood, San Mateo County, California, property of Ravenswood Investment Co., Inc.", filed in the Office 551\95\3398553. l

EXHIBIT A
-6-
385
of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24.

JPN: 063-028-282-06A
APN: 063-282-060
2054 Euclid Avenue

THE LAND REFERRED TO HEREIN BELOW IS SITUATED IN THE CITY OF EAST PALO

ALTO, IN THE COUNTY OF SAN MATEO, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS:

Portion of Block 9 as shown on that certain Map entitled "Map of Woodland Place, Subdivision No. One or Ravenswood, San Mateo County, California", filed in the Office of the County Recorder of San Mateo County, State of California on August 1, 1910 in Book 7 of Maps at Page 24, more particularly described as follows: Beginning at a point on the Easterly line of Euclid Avenue said point being North 10° 19' East 430.25 feet and South 79° 41' East 30 feet from the intersection of the centerline of Euclid A venue with the centerline of O'Connor Street as said A venue and Street are shown on the above mentioned map; thence from said point of beginning South 79° 41' East 135.24 feet, more or less, to the Westerly line of property now or formerly of Claude C. Taylor and wife; thence along said boundary North 7° 27' East 37.47 feet to the Southwesterly line of the lands described in the Deed from Nelson D. Gustin and wife to the State of California dated December 27, 1955 and recorded April 29, 1956 in Book 3009 at Page 327 of Official Records ( 4 7170-N); thence Northwesterly along said Southwesterly line 156.66 feet to the said Easterly line of Euclid A venue; thence along said Easterly line South 10° 19' West 118 feet, more or less, more or less, to the point of beginning.

JPN: 063-02-282-07A
APN: 063-282-070
551\95\3398553. l

EXHIBIT A
-7-
386

EXHIBITB

EXISTING IMP ACT FEES
"
. Fee Level½ Fee F N . Wnttf Data Input :\1 .

N ee ame R . d t> Deposit o. equire z
1 Housing
Commercial Linkage (OfficeZMedical/R&D) Square Foot $12.81 2 Parks and Trails
Detached ADU Dwelling Unit 11,21 $1,885.61
Other Non-Residential Peak Service Population $1,047.18 Single-Family Dwelling Unit (Rental) $4,714.61
Townhouse Dwelling Unit (Rental) $4,714.61
Multi-Family Housing Dwelling Unit (Rental) $3,247.64
Office½Research & Development Square Foot $1.32
Industrial Square Foot $0.52
Retail Square Foot $0.87
3 Public Facllltles
Detached ADU Dwelling Unit [1,2] $3,306.96
Single-Family Dwelling Unit $8,267.96
Townhouse Dwelling Unit $8,267.96
Multi-Family Housing Dwelling Unit $5,695.63
Other Non-Residential Peak Service Population $1,837.71 Office½Research & Development Square Foot $2.29
Industrial Square Foot $0.93
Retail Square Foot $1.52
4 Storm Drainage
Detached ADU within RBD Dwelling Unit [1,2,3] $2,208.45 Single-Family within RBD Dwelling Unit [3] $5,521.10
Detached ADU outside RBD Dwelling Unit 11,2,3] $1,277.61 Single-Family outside RBD Dwelling Unit [3] $3,194.03
All other Land Uses within RBD Impervious acre 13) $138,027.50 All other Land Uses outside RBD Impervious acre {3] $79,850.62 5 Transportation
Detached ADU Dwelling Unit [1,2) $1,075.70
Single-Family Dwelling Unit $2,689.83
Townhouse Dwelling Unit $2,689.83
Multi-Family Housing Dwelling Unit $2,024.79
Other Non-Residential
PM Peak Hour Vehicle Trips $7,868.71 & Internal Trips Percentage Office½Research & Development Square Foot $8.36
Industrial Square Foot $5.45
Retail Square Foot $8.36
6 Water Capacity

EXHIBITB
-1-
551 \95\3398553.1
387
Single-Family Dwelling Unit
Townhouse Dwelling Unit
Multi-Family Housing Dwelling Unit
Detached ADU Dwelling Unit
Other Non-Residential Meter Size - 3/4"
Other Non-Residential Meter Size - 1"
Other Non-Residential Meter Size - 1.5"
Other Non-Residential Meter Size - 2"
Other Non-Residential Meter Size> 2",
Gallons Per Day
[Notes]
Fee is exempt for Accessory Dwelling Units (ADUs) equal to or smaller than 750 square feet. [1] For ADUs greater than 750 square feet, fee proportional.

Proportion allocated on square footage of ADU relative to primary residence. [2] The lessor of this amount or the maximum allowed by law. [3] RBD - Ravenswood Business District
551\95\3398553. I

EXHIBITB
-2-
$9,293.47
$9,293.47
$5,719.58
[2] $5,719.58
$13,582.59
$22,637.65
$45,276.45
$72,441.62
$35.74
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PUBLIC HEARING ITEM 14.4

EAST PALO ALTO

CITY COUNCIL

STAFF REPORT
DATE: June 16, 2026
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Tomohito Oku, Finance Director
SUBJECT: Adoption of the Fiscal Year 2026-27 Budget, Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP), and Fiscal Year 2026-27 Capital Budget Recommendation
Convene a public hearing, accept public comment, and take the following actions necessary to adopt the Fiscal Year 2026-27 budget.

1. Adopt a resolution adopting the Fiscal Year 2026-27 Budget.

2. Adopt a resolution adopting the Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP) and approving the related Fiscal Years 2026-27 Capital Budget.

Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
 Promote Housing, Economic and Workforce Development
 Implement the Comprehensive Transportation and Mobility Plan  Promote Health & Public Safety
 Ensure Our Financial and Organizational Health
 Improve the City's Water Infrastructure
 Develop and Implement a Comprehensive Facilities Master Plan  Enhance Community Services and Parks for Residents
Background
On May 12 and May 19, 2026, the City Council held two scheduled budget hearing sessions to 389
PUBLIC HEARING ITEM 14.4
review the proposed Fiscal Year 2026–2027 Operating and Capital Improvement Budget.

During these sessions, staff provided a comprehensive overview of the budget, including a summary of the City’s fiscal condition, key revenue and expenditure trends, and major policy priorities.

City departments and divisions presented their individual budgets, highlighting significant changes, operational needs, and proposed initiatives for the upcoming fiscal year. The Council also engaged in deliberations informed by detailed budget information, allowing for discussion of service levels, staffing proposals, and funding allocations.

These sessions provided the opportunity for Council to evaluate the budget in full and offer input in advance of formal adoption.

City Council Strategic Priorities Alignment:

The City’s budget is guided by the City Council’s Strategic Priorities and the FY 2027-28 Work Plan. This helps ensure that limited resources are focused on the community’s most critical needs.

Strategic Priorities were developed through a comprehensive community engagement process involving residents, stakeholders, and community leaders, and focus on:
 Emergency and Disaster Preparedness
 Public Infrastructure, Facilities, and Utilities
 Livability / Community Quality of Life
 Land Use, Economic, and Workforce Development
 Housing
 Governance, Organizational Strength, and Fiscal Sustainability  Civic Engagement
FY 2026-27 represents the second year of the two-year work plan cycle. Staff is focused on implementing these priorities while balancing limited financial and staffing resources. The FY 2026–27 Proposed Budget reflects these priorities through targeted investments.

Community Engagement and Alignment with Resident Priorities:

The FY 2026–27 Proposed Budget reflects the City’s continued commitment to aligning resources with the needs and priorities identified by East Palo Alto residents, including input from the “EPA Talks” initiative and a citywide survey conducted in late 2025.

Residents identified the following as top priorities:
 Providing safe and clean drinking water
 Replacing deteriorating water pipes
 Providing safe places for children and teens
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PUBLIC HEARING ITEM 14.4
 Improving storm drains to prevent flooding on City streets  Providing an Emergency Operations Center
Survey results indicate strong support for increased investment in infrastructure, community facilities, and public safety.

The FY 2026–27 Proposed Budget incorporates these community-identified priorities through targeted investments in infrastructure, service delivery, and capital planning. These investments are intended to address critical system needs, improve quality of life, and ensure the City continues to respond to the issues that matter most to its residents.

The City will continue to gather community input and use it to guide future budgets and longterm financial planning efforts.

EPASD Budget Integration:

The East Palo Alto Sanitary District (EPASD) has operated as a subsidiary of the City since October 1, 2024. Its finances are included in the City’s budget; however, the District’s budget is presented as a standalone enterprise fund within the City’s financial plan to maintain transparency and accountability. A separate EPASD budget document was reviewed by the EPASD Board on June 2, 2026.

This approach allows for clear oversight and public accountability specific to the District, while aligning with the City’s financial reporting and appropriation processes. The District will continue to maintain a distinct operational and capital budget and issue separate audited financial statements
Analysis
FY 2026-27 Proposed Budget Overview
The City budget is organized into four primary fund types:
 General Fund, which supports core services such as public safety and administration  Restricted Funds, which must be used for specific purposes  Capital Funds, which support infrastructure and major projects  Enterprise Funds, which support fee-based services such as sewer and water operations
Citywide revenues for FY 2026–27 are projected to total approximately $68.5 million, while expenditures are projected to total approximately $82.9 million. This results in an overall deficit of approximately $14.3 million. This deficit is largely driven by negative net positions in the Restricted and General Funds, which are proposed to be covered through use of reserves.

The projected fund balances by major fund type are:
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PUBLIC HEARING ITEM 14.4
 Restricted Funds: -$14.3 million (deficit)
 Capital Funds: $2.1 million surplus
 Enterprise Funds: $2.6 million surplus
 General Fund: -$4.7 million (deficit)
The table below summarizes the City’s FY 2026-27 proposed budget by fund type.

Fund Analysis by Fund Type:

The General Fund is the City’s primary operating fund and supports core municipal services, including public safety, public works, community development, administrative services, and other general governmental functions. General Fund revenues are largely derived from property taxes, sales taxes, transient occupancy taxes, utility users taxes, and other unrestricted revenues.

For FY 2026–27, the General Fund is projected to have a deficit of approximately $4.7 million.

Additional discussion of the General Fund’s fiscal condition, budget challenges, and long-term outlook is provided in subsequent sections of this report.

Restricted Funds consist of special revenue funds and account for revenues that are legally restricted for specific purposes and cannot be used for general governmental operations.

These funds include housing programs, transportation and infrastructure programs, and community programs funded through dedicated taxes, grants, fees, and intergovernmental revenues.

The FY 2026–27 budget reflects a net deficit of approximately $14.3 million within Restricted Funds. This result is primarily attributable to timing differences between when revenues are Description
General
Fund
Restricted
Funds
Capital
Funds
Enterprise
Funds
TOTAL
CITY
FUNDS
Total Revenues 35,349 10,974 4,793 17,360 68,475
Total Expenditures (39,095) (26,263) (2,727) (14,786) (82,872) Net Sources / (Uses) (3,747) (15,289) 2,066 2,574 (14,397) Net Transfers (989) 989 - - -
Change in Fund (4,736) (14,300) 2,066 2,574 (14,397)
Use of Reserve 4,736 16,409 764 2,664 24,573
FY 2026-27 Proposed - Citywide Funds ($ In 000's)
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PUBLIC HEARING ITEM 14.4
received and when expenditures occur. Many restricted revenues are collected and accumulated over multiple years before being expended on eligible programs or projects. As a result, annual surpluses or deficits within these funds do not necessarily indicate a structural imbalance but rather reflect the timing of project implementation and program expenditures.

Within the Restricted Funds category, Housing Programs reflect a deficit of approximately $13.3 million, primarily due to planned expenditures for the Affordable Housing Production Notice of Funding Availability (NOFA) program and the Affordable Housing Preservation program. These expenditures are supported by previously accumulated housing resources dedicated to advancing the City’s affordable housing goals. This deficit is not operational, it reflects a spending down of accumulated housing funds on specific housing efforts identified by the City Council.

Community Programs reflect a deficit of approximately $1.2 million, largely attributable to expenditures for the park lighting project and Transient Occupancy Tax (TOT)-funded community programs. These investments support community programs and events and quality-of-life initiatives throughout the City. The lighting project is a capital project, however, the City funds community programs every year. For program sustainability, as the City spends down reserves, it should ensure projected expenditures match projected expenditures.

Transportation and Infrastructure Programs reflect a surplus of approximately $192,000. The surplus is primarily the result of current-year revenues and available resources supporting various capital improvement projects and infrastructure investments that have been appropriated through the CIP.

The projected Restricted Funds deficit will be funded through previously accumulated restricted fund balances that are reserved for their intended purposes.

Capital Funds account for resources dedicated to the acquisition, construction, rehabilitation, and replacement of public infrastructure and facilities. These funds support major capital investments such as street improvements, storm drainage systems, public facilities, and other long-term assets.

For FY 2026–27, Capital Funds are projected to generate a surplus of approximately $2.1 million. While capital projects frequently experience timing differences between expenditures and grant reimbursements, the projected surplus in FY 2026–27 is primarily attributable to developer impact fee revenues that are collected in advance of project expenditures. These revenues are restricted for future capital improvements and will be utilized as projects advance through design and construction phases in future fiscal years.

Enterprise Funds account for business-type activities that are primarily supported through user fees and service charges. The City’s Enterprise Funds include garbage collection services, water utility operations, sewer utility activities associated with the East Palo Alto Sanitary District (EPASD).
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The FY 2026–27 Enterprise Funds budget reflects a surplus of approximately $2.6 million. The surplus is primarily driven by developer impact fee revenues within the sewer and water utility operations, including approximately $2.5 million in sewer connection and impact fee revenues and approximately $1.2 million in water impact fee revenues. These revenues are intended to support future capital infrastructure investments required to accommodate growth and maintain utility systems. Excluding these one-time development-related revenues, operating results within the utility funds are substantially more balanced and reflective of ongoing service delivery costs.

Key Budget Issues and Approach
The FY 2026–27 Proposed Budget reflects several financial challenges, including rising personnel costs, inflation, increased service demands, and the need for continued investment in infrastructure and technology.

Departments made significant efforts to reduce costs; however, many reductions are not sustainable without affecting service levels. In some cases, departments are deferring needs or absorbing additional workload to maintain services.

The proposed budget takes a constrained approach. It prioritizes maintaining essential services and advancing key City Council priorities, while limiting new spending to critical or one-time needs. Despite these efforts, the City is not able to fully address all infrastructure and facility needs.

Key considerations that shape the proposed budget include:
a. General Fund Condition
b. Available Reserves and Use of Reserves
c. City Council Strategic Priorities and Community Input d. Personnel Changes
e. Two-year Capital Improvement Program (CIP) Update
The remainder of this report is organized by sections that discuss considerations a). through e)., above, and provide context for the City’s fiscal strategy. a. General Fund Condition
City Council priorities and community input are the forefront of this budget; however, the General Fund condition establishes the scope of possibilities. That is, the City can only meet priorities that it can fund. The FY 2026–27 Proposed General Fund Budget is structurally imbalanced. General Fund revenues are projected to total approximately $35.3 million, while expenditures are projected at approximately $39.1 million. This results in an operating deficit of approximately $3.7 million and a total deficit of $4.7 million after transfers.

This condition reflects a structural imbalance in which ongoing expenditures exceed ongoing revenues. The projected $4.7 million General Fund deficit reflects a combination 394
PUBLIC HEARING ITEM 14.4
of revenue adjustments and increased costs. Staff will continue to monitor General Fund performance closely and recommend adjustments as needed to maintain long-term fiscal stability.

Structural General Fund Deficit
Revenue growth has not kept pace with rising costs. Key revenue sources, particularly tax revenues, have grown modestly or remained flat, while expenditures—especially personnel costs, insurance, and inflationary impacts on goods and services—continue to increase at a faster rate.

As a result, the City has experienced a structural General Fund deficit since FY 2020–21.

While recent budgets have been balanced—and in some cases have resulted in year-end surpluses—these outcomes have relied heavily on one-time factors, including federal relief funding, vacancy savings, delayed implementation of professional service contracts, and conservative expenditure management. These measures are not sustainable.

Key factors contributing to the structural imbalance include:

1. Property Tax In-Lieu of VLF Shortfalls: A projected $2.5 million shortfall in FY 2026–27 due to ongoing impacts of State legislation affecting school funding formulas and vehicle license fee (VLF) allocations. While the State has historically provided backfill payments, recent actions have reduced the backfill to approximately 60% of the shortfall, and no permanent solution has been enacted.

2. Slowing Property Tax Growth: Property tax revenue growth is projected at approximately 3.0% in FY 2026–27, significantly below the historical 10-year average of 7.5%. This slowdown reflects broader housing market conditions and limited new taxable development due to infrastructure constraints, sewer service challenges, commercial real estate market conditions, and delays in key planning efforts such as the Ravenswood Business District Specific Plan.

3. Measure L/JJ Revenue Shift: East Palo Alto voters approved Measure O, the East Palo Alto Residential Rental Business License Tax Measure in 2016. The tax was amended by voters in 2022 with Measure L. For eight years, from 2016 to 2024, revenues generated from the tax were unrestricted in the General Fund and appropriated by the City Council to meet various needs.

Voters amended the tax again in November 2024 with Measure JJ, restricting use of the tax revenues to housing efforts. Since FY 2025–26, the approximate $1.7 million in annual landlord business license tax revenues have been redirected from the General Fund to a Special Housing Fund. The General Fund retains only up to 20% of this revenue (approximately $340,000) for administrative purposes, resulting in an ongoing net reduction of approximately $1.3 million in flexible General Fund revenues. The City continues to adjust to this change, as planned operations around and relied on these tax revenues as general funds for eight years.

4. Weak Transient Occupancy Tax (TOT): The City only has one source of TOT revenues. TOT revenues remain below pre-pandemic levels due to slow recovery in 395
PUBLIC HEARING ITEM 14.4
the travel and hospitality sectors.

5. Flat or Declining Sales Tax: Sales tax growth has remained modest due to persistent inflation, reduced discretionary spending, and ongoing shifts in consumer behavior toward online and service-based spending.

6. Limited Revenue Diversity: The City’s General Fund relies heavily on a small number of economically sensitive revenue sources, including property tax, sales tax, and TOT, increasing exposure to economic volatility.

7. Temporary Reduction in RPTTF Revenues (Cash Defeasance): Redevelopment Property Tax Trust Fund (RPTTF) revenues are a component of property tax revenues and represent tax increment generated from former Redevelopment Agency (RDA) areas, net of pass-through payments to other taxing entities and enforceable obligations. The planned cash defeasance of the Successor Agency’s Tax Allocation Refunding Bonds will result in a temporary reduction of approximately $1.3 million in RPTTF revenues to the General Fund in FY 2026–27. While this action is expected to generate long-term fiscal benefits, including an estimated increase of approximately $1.6 million in ongoing annual revenues in average beginning in FY 2027–28, it contributes to near-term revenue pressure.

General Fund Revenue
General Fund revenue is projected to decrease by approximately $0.7 million, or 2.0 percent, compared to the prior year. This decline reflects a mix of economic challenges, policy changes, and evolving market conditions affecting key revenue sources, summarized below:
 Property Tax: Revenue is projected to decrease by $767,000 (4.3%). This decline is primarily driven by a reduction in Redevelopment Property Tax Trust Fund (RPTTF) revenues (former RDA incremental property tax) of approximately $1.3 million, resulting from the planned defeasance of the Successor Agency’s Tax Allocation Refunding Bonds, which the City Council authorized on February 24, 2026. This impact is expected to be temporary through FY 2026–27, with property tax revenues projected to increase by approximately $1.6 million annually in average beginning in FY 2027–28 following completion of the defeasance and dissolution of the Successor Agency.

In addition, growth in assessed property values has slowed significantly—estimated at 3.0% compared to the 10-year average of 7.5%. The projection also excludes any backfill for the loss of property tax in-lieu of VLF revenues experienced in FY 2025–

26. The State omitted property tax in-lieu of VLF backfill payments from its proposed budgets in consecutive years, but added those payments in revised budgets after significant lobbying efforts by East Palo Alto, County of San Mateo, and other cities within the County who rely on these payments to provide government services.

In FY 2024-25; however, the State only provided roughly 60 percent of the backfill owed. East Palo Alto and other San Mateo County governments are appealing to the State to provide the full FY 2025-26 backfill; however, given State budget challenges, 396
PUBLIC HEARING ITEM 14.4
a payment is not certain.
 Sales Tax: Revenue is projected to increase by $148,000 (2.6%) compared to the prior year. The FY 2026–27 projection of approximately $5.8 million remains below the $6.0 million achieved in FY 2023–24, reflecting ongoing softness in consumer spending. This trend appears to be driven by persistent inflation and restrictive monetary policy, as well as broader shifts in consumer behavior—from brick-andmortar retail to online purchases and from goods to service-oriented spending.  Business License Tax: Revenue is projected to increase modestly by approximately $30,000 compared to FY 2025–26. This increase is based on recent trends observed in FY 2024–25 and year-to-date collections. The projection reflects only revenues from regular business activity and excludes Measure JJ-related revenues. As noted above, since FY 2025–26, approximately $1.7 million in Measure JJ revenues were shifted from the General Fund to a special revenue housing fund and are no longer reflected in this category.
 Interest Income: Revenue is projected to decline by approximately $68,000 due to anticipated reductions in federal interest rates, which are expected to lower returns on the City’s permitted investments. This revenue is reported under the “Use of Money and Property” category in the table below.
 Transient Occupancy Tax (TOT): No growth is projected. Collections remain below 90% of pre-pandemic levels, and recent trends suggest ongoing stagnation. Staff will continue monitoring this revenue and adjust projections as new data becomes available.

Revenue growth remains limited and uncertain. The table below shows FY 2025-26 revenue at mid-year and FY 2026-27 projected General Fund revenue:
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PUBLIC HEARING ITEM 14.4
General Fund Expenditure
Total General Fund expenditures, including net transfers, are proposed at approximately $40.1 million for FY 2026-27. This amount reflects departmental requests to support ongoing operational services and select strategic initiatives. The proposed budget includes all currently authorized staff positions, including limited-term positions recommended for continuation, but does not assume any new positions. To better provide the level of service the community desires, staff requested new positions for various departments, but the City cannot afford to add head count. Projected expenditures also reflect current economic conditions, including elevated inflationary pressures and the results of prior union agreements.

Excluding net transfers, General Fund expenditures are projected to increase by $0.7 million (1.9%) compared to the FY 2025-26 Adopted Budget. Expenditures are increasing primarily due to higher personnel costs, including wages and benefits, as well as increased costs for insurance and other services. Inflation continues to impact the cost of goods and services across departments.

It is also important to note that, in recent years, the City has discontinued its practice of making General Fund contributions to the capital reserve funds in order to maintain operational balance for future capital improvement projects (CIP). While this approach has helped balance the budget in the short term, it limits the City’s ability to fund long-term infrastructure needs.

A summary of General Fund expenditures by department is provided in the following table.

General Fund Revenue FY 2025-26
Mid-year
FY 2026-27
Proposed Variance %
Property taxes $ 17,773,000 $ 17,006,190 $ (766,810) -4.3% Sales taxes 5,679,000 $ 5,827,100 148,100 2.6%
Transient Occupancy Tax 2,200,000 $ 2,200,000 - 0.0%
Business License Tax 800,000 $ 830,000 30,000 3.8%
Utility Users Tax 2,094,000 $ 2,160,558 66,558 3.2%
Other taxes 90,000 $ 140,000 50,000 55.6%
Licenses, fees and permits 1,552,000 $ 1,725,334 173,334 11.2% Charges for services 2,719,000 $ 2,206,280 (512,720) -18.9% Fines and forfeitures 495,000 $ 632,500 137,500 27.8%
Use of money and property 2,010,000 $ 1,941,764 (68,236) -3.4% Grants and intergovernmental 65,000 $ 65,000 - 0.0%
Other Miscellaneous Revenues 605,000 $ 613,800 8,800 1.5% Total GF Revenues $ 36,082,000 $ 35,348,525 $ (733,475) -2.0% 398
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Personnel costs across all departments increased due to merit increases, the Cost of Living Adjustments (COLAs) negotiated in labor agreements and other increased benefits costs.

See the summary of the major variances by department below:
 City Manager’s Office (incl. Administration, HR, IT, and Community Services): The FY 2026–27 proposed budget reflects a reduction of approximately $1.0 million compared to the prior year. The FY 2025–26 budget included several one-time and strategic priority initiatives, including a community survey and financing options study ($200,000), economic development strategic plan ($125,000), emergency planning and preparedness efforts ($100,000), compensation and classification studies ($100,000), citywide ergonomic assessments ($150,000), and park improvements ($350,000), totaling approximately $1.0 million. Most of these projects have been initiated, and any remaining balances are expected to be encumbered and carried forward through the FY 2026–27 mid-year budget process.
 Community and Economic Development (Incl. Administration, Building, Planning, Housing and RSP): The FY 2026–27 proposed budget reflects a reduction of approximately $739,000 compared to the prior year. The FY 2025-26 budget included a few one-time initiatives and contracts including proactive code enforcement efforts ($150,000), Outside Plan Review and Inspection contracts ($333,000), and Rent Registry ($150,000) totaling approximately $633,000. Most of these projects have been initiated, and any remaining balances are expected to be encumbered and carried forward through the FY 2026–27 mid-year budget process.  Police: the variance ($1.2 million) is largely related to an increase in the dispatch service contract ($0.5 million) and the personnel cost increase resulting from COLAs negotiated in the Police Officer’s Association (POA) labor agreement, regular promotions, and the rising health costs and other benefits.
 Capital and Technology:

The FY 2026–27 Proposed Budget includes $1.2 million in one-time funding for General Fund Expenditure by
Department
FY 2025-26
Adopted
FY 2026-27
Proposed Variance %
City Council 272,105 261,352 (10,753) -4.0%
City Attorney 1,461,060 1,617,805 156,745 10.7%
City Clerk 581,228 667,379 86,151 14.8%
City Manager 6,391,444 5,350,822 (1,040,622) -16.3%
Finance 1,963,136 1,928,635 (34,501) -1.8%
Community & Economic Development 4,282,954 3,544,234 (738,720) -17.2% Public Works 6,626,667 6,760,504 133,837 2.0%
Police 16,387,257 17,583,877 1,196,620 7.3%
Non-Departmental
Capital/Technology - 1,158,000 1,158,000 N/A
Insurance and Settlements 1,066,347 1,123,373 57,026 5.3% Other Non-Departmental 1,990,391 1,959,796 (30,595) -1.5% Overhead Allocation (2,647,709) (2,860,620) (212,911) 8.0% Sub-total 38,374,880 39,095,159 720,279 1.9%
Transfers - Operational 874,812 989,268 114,456 13.1%
Transfers - Capital - - - N/A
Total General Fund Expenditures $ 39,249,692 $ 40,084,427 $ 834,735 2.1% 399
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technology improvements. These investments include cybersecurity upgrades, system modernization, and improvements to internal systems and public-facing platforms. This reflects initial implementation of the IT Strategic Plan adopted by the Council on April 7, 2026. These prioritized projects from the IT Strategic Plan are intended to be funded on a one-time basis through the IT Projects Fund (IT Reserve). The total includes approximately $402,000 for Network and Security Projects, which are grouped as a single category to provide flexibility in addressing evolving cybersecurity and infrastructure risks.

The remaining approximately $756,000 supports a range of foundational technology initiatives, including:
 Disaster recovery and continuity program enhancements  ERP project support and consulting assistance
 Financial and operational business process review
 Website and intranet modernization, including consulting support  GIS assessment and technical expertise
 IT governance enhancements
 Document management system improvements
 Implementation of an electronic procurement (eBid) platform These investments are critical to addressing long-standing technology gaps and advancing the City’s operational capabilities. While these costs are proposed as onetime investments, certain components—such as GIS support and ongoing governance enhancements—may require future ongoing funding as systems are implemented and matured.

More detailed information will be provided by respective department presentations. b. Available Reserves and Use of Reserve
As of June 30, 2026, the General Fund reserve is projected to be approximately $17.9 million, excluding the $12.0 million contingency reserve, which is maintained at approximately 30% of General Fund expenditures in accordance with City policy. The remaining unassigned reserve is available at the City Council’s discretion to address fiscal imbalances and one-time needs.

To balance the FY 2026–27 Proposed General Fund Budget, staff recommend a one-time use of reserves totaling $4.7 million, consisting of $1.2 million from the IT reserve fund and $3.6 million from the General Fund unassigned reserve. This action is projected to reduce the unassigned reserve balance to approximately $14.3 million. The proposed General Fund expenditure includes approximately $1.9 million in Strategic Priority projects, which are primarily driven by professional services and consulting engagements. This amount reflects direct project costs only and excludes related indirect costs such as internal staff time for project management and oversight, and departmental administrative support.

The proposed use of unassigned reserves ($3.6 million) reflects both near-term fiscal 400
PUBLIC HEARING ITEM 14.4
pressures and timing-related revenue factors. The General Fund revenue projection does not assume potential backfill of the property tax in-lieu of VLF shortfall from FY 2025–26, which could range from approximately $1.5 million to $2.5 million based on recent State actions. In addition, the City will experience a temporary reduction of approximately $1.3 million in RPTTF revenues in FY 2026–27 due to the planned cash defeasance of Successor Agency bonds, with revenues expected to increase by approximately $1.6 million annually in average beginning in FY 2027–28.

While the use of reserves is necessary to maintain service levels in the near term, it is not a sustainable long-term solution. Continued reliance on one-time reserves to fund ongoing operations will require structural budget adjustments in future years.

The table below outlines the June 30, 2026 projected reserves by program type, across all governmental fund types.
c. City Council Strategic Priorities
The FY 2026–27 Proposed Budget continues to be developed in alignment with the City Council’s adopted FY 2025–2029 Strategic Priorities and the FY 2025–2027 Council Work Plan. As the City enters the second year of the two-year Work Plan cycle, the focus has shifted from planning and prioritization to implementation of Council-directed initiatives.

Given the City’s ongoing fiscal constraints and limited staffing capacity, the proposed budget prioritizes maintaining essential services while advancing a targeted set of Strategic Priority projects that are already underway or are critical to achieving Council goals. Core services— including public safety, maintenance, housing and anti-displacement programs, and administrative operations—remain fully funded to ensure continuity of service delivery.

The FY 2026–27 Proposed Budget includes funding for select Strategic Priority initiatives, estimated at approximately $4.0 million Citywide, reflecting projects that are feasible within current financial and organizational capacity. However, several additional priorities identified by the Council remain unfunded or partially funded due to resource limitations. As noted earlier, departments are managing these priorities alongside existing service demands, often General
Fund
CIP Funds Restricted
Funds
Infrastracture Programs $ - $ - $ 17,113,000
Housing Programs $ - $ - $ 17,852,000
Community Programs $ - $ - $ 2,867,000
Information Technology Reserve $ 3,853,000 $ - $ -
Vehicles Equipment Reserve $ 687,000 $ - $ -
Self Insurance Reserve $ 2,273,000 $ - $ -
Capital Projects - 15,789,000 -
Contigency reserve $ 12,025,328 $ -
Unassigned $ 17,881,000 $ - $ -

FUND TYPE
PROJECTED RESERVE AS OF JUNE 30, 2026
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by deferring other needs or absorbing additional workload.

Staff will continue to monitor progress on Strategic Priority initiatives and provide updates to the City Council through regular reporting and future budget discussions. As implementation progresses, additional resources—both one-time and ongoing—may be required to fully achieve the Council’s long-term priorities.
d. Personnel Changes
Given the ongoing structural deficit in the General Fund, the City is taking a cautious approach to staffing in FY 2026–27. While workload demands and service backlogs demonstrate a true need for additional staff, management has limited new position requests to confine ongoing personnel costs.

Staff recommends continuing four currently filled limited-term positions in FY 2026-27. These roles support critical services and help advance key Council priorities, without committing to long-term financial obligations. The combined cost of these four positions is $539,000, which is included in the proposed budget.

In addition, Community Services Division has requested to convert Recreation Coordinator’s position to Community Services Supervisor. The proposed reclassification reflects the expanded scope and complexity of community services, including increased programming, facility oversight, and coordination demands of providing services for youth, families, and seniors. The position has evolved beyond a coordinator-level role and now requires supervisory responsibility, program management, and strategic oversight to effectively support growing community needs and service delivery.

All personnel change requests will be discussed during the relevant department budget presentations. This will provide the City Council and the public an opportunity to ask questions and deliberate.

The table below outlines the City Manager’s staffing recommendations:
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e. Two-Year Capital Improvement Plan Update and Proposed Capital Budget As part of this action, the City Council is being asked to adopt the Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP) update, included as an attachment to this staff report, and approve the related FY 2026-27 Capital Budget. The two-year CIP provides a comprehensive summary of the City's planned capital projects, including both funded and unfunded projects, anticipated schedules, estimated costs, and potential funding sources.

While the CIP identifies projects planned for implementation over the next two fiscal years, not all projects included in the CIP are currently funded or appropriated. Some projects remain in the planning stage and will require future identification of funding sources, grant awards, or additional City Council action before they can proceed.

The FY 2026-27 Capital Budget represents the subset of CIP projects for which funding has been identified and appropriation authority is requested through this proposed budget. Approval of the Capital Budget authorizes expenditures for these projects during FY 2026-27 and going forward. Projects included in the adopted CIP that are not appropriated through this action remain part of the City's long-term capital planning program and may be considered for future funding as resources become available.

In addition, the City has numerous ongoing capital projects that were previously approved and appropriated by the City Council. These projects are not included in the table below because their remaining budgets will be carried forward through the FY 2026-27 mid-year budget process. Accordingly, the table below identifies only those projects for which new FY 2026-27 appropriations are requested as part of the proposed Capital Budget.

Title Division Note
Net
FTE
Funding
Source
Estimated
Annual Cost
Limited terms:

Management Analyst II Police Admin Continuation from the current deployment.

Staff seek for one more year extension

1.0 General $ 226,000
Management Analyst I Human
Resources
Continuation from the current deployment.

Staff seek for one more year extension

1.0 General 174,000
Human Resource Technician
I/II
Human
Resources
Continuation from the current deployment.

Staff Seek for one more year extension

1.0 General 139,000
Housing Specialist Housing/RSP Continuation from the current deployment.

Staff Seek for one more year extension 1.0
General (5%),
Housing (45%),
RSP (50%)
121,000
Sub-total limited term 4.0 $ 539,000
Promotion:

Recreation Coordinator to
Community Services Supervisor
Community
Services
Reflects expanded program scope,
increased operational demands, and need
for supervisory oversight to support growing
recreation services
N/A General 20,000
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.

Staff will return to the City Council for consideration of contractual approvals for these projects. It's worth noting that the costs associated to Local CIP fund are funded by the transfers from the General Fund previously authorized by the City Council.

Fiscal Impact
Establish the City’s revenue budget at $68,474,967 and appropriation budget at $82,871,517 including Capital Improvement Program budget, and the permanent staffing at 125.95 full time equivalents (FTEs). The City has a total citywide budget deficit of $14,396,554. As such, the PROJECT # DESCRIPTION TOTAL
Streets and Transportation Projects:

ST-07 Annual Street Resurfacing Project $2,300,000
ST-09 Bicycle & Pedestrian Improvements $500,000
ST-15 Signage and Striping Improvements $50,000
ST-33 Woodland Ave Street Improvements $700,000
ST-39 Fordham Street Roundabout $75,000
Sub-total Streets & Transportation $3,625,000
Storm Drain Project:

SD-04 Street Sweeping Signage $80,000
Sub-total Storm Drain $80,000
Community Facilities Projects:

FA-03 City Wide - EV Charging Station $580,000
Sub-total Storm Drain $580,000
Water Supply Project:

WS-01B Emergency Water Connects – Palo Alto Park Mutual $150,000 Sub-total Water Supply $150,000
Water Distribution Project:

WD-06 Fire Hydrant Replacement $230,000
Sub-total Water Distribution $230,000
Special Project:

N/A San Francisquito Creek Sediment Removal $800,000
Sub-total Special $800,000
Sewer Projects:

N/A EPASD 1.1 $1,000,000
N/A EPASD 1.2 $1,695,000
Sub-total Sewer $2,695,000
IT Projects:

N/A IT Strategic Plan Projects $1,158,000
Sub-total IT fund $1,158,000
TOTAL FY 2026-27 PROPOSED CIP FUNDING $9,318,000
Local CIP
General Fund IT Reserve

FUNDING SOURCE
Gas tax, Measure A, Measure W, Measure M
TDA grant
Gas tax
Measure A
TDA grant with local match
Local CIP
State grant
Sewer
Sewer
Water capital
Water capital 404
PUBLIC HEARING ITEM 14.4
City recognizes deficits in certain funds (Exhibit B of Resolution), which requires the use of available reserve balances totaling $26,183,040.

Public Notice
The public was provided notice by making the agenda and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto. In addition, a notice of public hearing was published on a local newspaper on June 9, 2026.

Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guidelines section 15378 (b)(4) and (b)(5), in that it is a fiscal, governmental, or administrative activity that will not result in direct or indirect changes in the environment.

Adoption of the Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP) and approval of the related Fiscal Year 2026-27 Capital Budget likewise do not constitute a project under CEQA Guidelines section 15378(b)(4), because they are fiscal and planning activities that do not commit the City to any specific project that may cause a significant physical effect on the environment. On May 11, 2026, the Planning Commission separately found the CIP exempt from CEQA. The CIP and Capital Budget do not approve, authorize commencement of, or otherwise commit the City to construction of any individual capital project; appropriation of funds is for planning and budgeting purposes only. Each individual capital project will undergo project-specific environmental review under CEQA, and any required determination, exemption, or document will be completed, before the City Council or staff takes any discretionary action approving or committing the City to that project.

Government Code § 84308
Applicability of Levine Act: No, as the proposed action does not involve an entitlement.

Analysis of Levine Act Compliance: Not applicable.

Attachments

1. Resolution

2. City Manager’s Budget Message

3. Fiscal Year 2026-27 Proposed Budget Booklet

4. Detail Budget Information by Division

5. Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP) Update 405
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RESOLUTION NO. XX – 2026

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO ADOPTING THE FISCAL YEAR 2026-27 BUDGET, FISCAL YEARS 2026-27 AND 2027-28 CAPITAL IMPROVEMENT PROGRAM (CIP), AND FISCAL YEAR 2026-27

CAPITAL BUDGET FOR THE CITY OF EAST PALO ALTO
WHEREAS, the City Council desires a spending plan for the City of East Palo Alto General, Special Revenue, Capital, Fiduciary, and Enterprise Funds in order to account for Fiscal Year 2026-27 anticipated revenues and to appropriate projected expenditures; and WHEREAS, City of East Palo Alto Municipal Code section 3.08.110 requires the adoption of an annual budget no later than June 30th prior to the beginning of the fiscal year; and WHEREAS, on May 11, 2026, the Planning Commission considered the Fiscal Years 2026- 27 and 2027-28 Capital Improvement Program (CIP), including twenty-seven (27) new projects, found the CIP to be in conformance with the City of East Palo Alto 2035 General Plan, found that the action was exempt from review under the California Environmental Quality Act (CEQA), and directed staff to forward its report and recommendation regarding General Plan consistency to the City Council; and
WHEREAS, the City Council held budget hearing sessions on May 12, 2026, and May 19, 2026, at which the Fiscal Year 2026-27 Budget and the Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP) were presented and discussed, and a final Budget Hearing on this date to discuss the City’s anticipated revenues and expenditure programs and to obtain public comment regarding the Fiscal Year 2026-27 Budget and the Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP); and
WHEREAS, such public hearings were duly noticed not less than seven days nor more than 21 days prior to the first hearing held on May 12, 2026, in accordance with East Palo Alto Municipal Code section 3.08.070;

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO HEREBY:

1. Finds the foregoing recitals are true and correct and are incorporated by reference into this action;

2. Adopts the Fiscal Year 2026-27 Budget (Exhibit A);

3. Authorizes the use of available Reserve Balances totaling $26,183,040 and the Finance Director asserts such funds are available, in order to fund certain General Fund operations, capital project funds, enterprise funds and other restricted fund deficits (Exhibit B);

4. Adopts the Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP), and Fiscal Year 2026-27 Capital Budget; and;

5. Finds that the proposed action does not constitute a “project” with the meaning of the California 406
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Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment. Furthermore, adoption of the Fiscal Years 2026-27 and 2027-28 Capital Improvement Program (CIP) and approval of the related Fiscal Year 2026-27 Capital Budget likewise do not constitute a project under CEQA Guidelines section 15378(b)(4), because they are fiscal and planning activities that do not commit the City to any specific project that may cause a significant physical effect on the environment. On May 11, 2026, the Planning Commission separately found the CIP exempt from CEQA. The CIP and Capital Budget do not approve, authorize commencement of, or otherwise commit the City to construction of any individual capital project; appropriation of funds is for planning and budgeting purposes only. Each individual capital project will undergo project-specific environmental review under CEQA, and any required determination, exemption, or document will be completed, before the City Council or staff takes any discretionary action approving or committing the City to that project.

PASSED AND ADOPTED this 16th day of June 2026 by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

Webster Lincoln
Mayor
ATTEST:

James Colin
City Clerk
APPROVED AS TO FORM:

John D. Lê
City Attorney
407
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Exhibit A
408
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Exhibit B
409

CITY OF EAST PALO ALTO
Office of the City Manager
2415 University Avenue
East Palo Alto, CA 94303
Phone: (650) 853- 3118
Fax: (650) 853-3136
www.cityofepa.org
[email protected]
Honorable Mayor and Members of the City Council,
I am pleased to present the Proposed Fiscal Year 2026–27 Budget for your review and consideration. This budget reflects the City's commitment to maintaining essential public services, investing in critical infrastructure, and advancing community priorities while navigating a challenging and uncertain fiscal environment.

Fiscal Environment
East Palo Alto has made significant progress in strengthening its financial position over the past several years. Through prudent fiscal management, strategic investments, and careful stewardship of public resources, the City has improved its financial stability while continuing to expand services and address long-standing community needs.

At the same time, significant fiscal challenges remain. Rising personnel, maintenance, insurance, and contractual service costs continue to outpace growth in traditional revenue sources. Demand for public safety, infrastructure improvements, housing initiatives, recreation programs, and other community services remains strong, placing continued pressure on limited discretionary resources.

One of the most significant challenges facing East Palo Alto and other jurisdictions throughout San Mateo County is the ongoing Property Tax in Lieu of Vehicle License Fee (VLF) funding shortfall. For decades, the State has provided replacement revenues to local governments in lieu of Vehicle License Fee revenues. However, San Mateo County jurisdictions have not received the full amount to which they are entitled under the State's funding formula. In Fiscal Year 2024–25 alone, the countywide shortfall totaled approximately $119 million, and the State continues to withhold more than $100 million annually from San Mateo County cities and the County itself.

For East Palo Alto, the impact is particularly significant. The City faces an estimated $2.6 million reduction in the VLF-related revenues in Fiscal Year 2026–27. This amount represents roughly seven percent of General Fund revenues and significantly affects the City's ability to fund essential services, community programs, and neighborhood investments.

The Proposed Budget reflects these realities. Citywide revenues are projected at approximately $68.5 million, while expenditures are projected at approximately $82.9 million. The difference is CM-1
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