East Palo Alto’s empty lots could solve its structural deficit — if we start building now. If we don’t encourage development today, we’ll pay for it down the road.

East Palo Alto faces a $2 million structural deficit, and it’s projected to worsen. Simply put, the revenues we rely on to fund essential city services — public safety, public works and maintenance, parks and recreation, and community development, among others — are not keeping pace with the rising costs of salaries, services, and materials needed to keep our city safe, maintained, and vibrant.

A major factor is our heavy reliance on property taxes. When the housing market is weak, as it is now, inflation can push City costs upward without a corresponding rise in property tax revenue. This year, East Palo Alto received virtually the same amount in property taxes as last year, while General Fund expenditures — which fund most salaries and many City services — rose by 9% from last year’s adopted budget.

Yet, the City has an untapped revenue source: the many empty, undeveloped lots scattered across East Palo Alto. New development increases the value of land, which boosts property tax revenues for the City year after year.

We also have a unique advantage. When East Palo Alto incorporated in 1983, agreements were put in place that allow us to recoup a higher share of the 1% property tax collected by San Mateo County compared to other cities. We receive roughly 33% of the property tax revenue generated within our boundaries, compared to about 10% for Menlo Park and Belmont. This makes development an especially powerful tool for increasing revenue and addressing the deficit.

To successfully develop, however, we must prioritize revenue-generating projects, such as market-rate housing and commercial developments. Regarding housing in particular, current City objectives — as outlined in this year’s strategic plan — focus almost exclusively on preventing displacement. While that is an important goal, without balancing this aim with the development of plentiful market-rate housing, the City’s ability to serve residents will suffer over time.

To Build, or Not to Build

On paper, the City has ambitious development goals. The Ravenswood Business District Plan envisions 1,600 new housing units as well as nearly 4 million square feet of office, industrial, and retail space. Yet, since an early version of the plan was released in 2013, only a small fraction of this development has moved forward.

One of the only successful projects we have seen since then is for affordable housing. The new Colibri Commons development is now accepting applications for low-income individuals and families.

And that’s only this year. Since 2015, according to state housing goals, East Palo Alto issued 234% of the permits needed for “very low income” housing and 107% for “low income” housing. In contrast, the City issued only 10% of the permits needed for “above moderate income” — most closely aligned with market-rate housing.

Here’s the problem: affordable housing developments generally do not generate property tax revenue, while market-rate housing, commercial, retail, and industrial projects do.

Why Market-Rate and Commercial Projects Stall

Several forces have slowed such projects. The rising cost of building in California — especially in the Bay Area — has made many developments financially unfeasible. A UC Berkeley report found that the cost of high-density, multi-family housing has risen 25% in the past decade. High interest rates further drive up financing costs, making projects even less viable.

East Palo Alto also imposes substantial fees on developers. While these fees fund infrastructure and affordable housing, they can deter investment when market conditions are already challenging.

One example is impact fees. This class of fee is charged to supplement the cost of building infrastructure like transportation, water, and parks needed to support new developments. In March 2025, the City Council approved an increase in these rates.

Other types of impact fees cover the cost of City planning services, while sewage link-up fees subsidize the cost of managing sewage infrastructure. The high cost of these sewage link-up fees, in particular, was a major factor that led to a proposed development in the Ravenswood Business District falling through.

A second type of fee is associated with East Palo Alto’s Inclusionary Housing Ordinance. This policy mandates that 20% of units in new developments be affordable or that developers pay steep “in lieu” fees — $268,000 per for-sale unit or $299,000 per rental unit.

These fees add up. A City-commissioned study found that impact and inclusionary fees together can amount to 11–18% of a project’s total cost. For a $20 million, medium-density apartment development, fees would exceed $3.5 million — with more than 70% coming from affordable housing fees alone.

These fees don’t just affect large projects. A federal suit brought forward by an East Palo Alto homeowner has highlighted that, on single-family parcels, the City levies an in-lieu housing fee of over $50,000 when a homeowner seeks to build an additional unit — a cost that applies to anyone wanting to convert a single-family house into a duplex.

Overall, these added costs can discourage both private property owners and larger developers from building.

Balancing Long-Term Benefits with Current Policy

Infrastructure is essential to development, and impact fees help fund it. However, we should carefully evaluate potential fee increases. Supporting development will generate sustainable revenue for the City, while fees can only be collected once.

Similarly, given our success in producing affordable housing, it’s worth reassessing whether current inclusionary housing fees strike the right balance. Encouraging market-rate development will strengthen the City’s long-term fiscal health — which, in turn, supports services for all residents.

Development should be treated as an urgent priority, not a task to be postponed without consequence. Without a stable revenue base, the services, staff, and infrastructure that benefit every resident — renters and homeowners, newcomers and longtime residents alike — will be at risk.