Filseth argued that the number of housing units in the Vallco development is insufficient to meet the job growth, worsening the area's housing shortage by between 2,000 and 3,000 units. It's hard to make an argument, he said, that such a project is good for Cupertino.

Filseth lauded the plan, which was forged out of negotiations between the City Council and Google, as a rare example of a project that produces jobs without making the housing shortage any worse. He contrasted that with Cupertino's development at the Vallco Mall site, which includes 1.5 million square feet of office space, 485,000 square feet of retail and 2,923 units of housing. That development, he noted, was approved despite the council's initial opposition thanks to Senate Bill 35, a Wiener-authored bill that creates a streamlining process for multifamily housing developments.

In an hourlong speech that was partly a recap of the council's recent accomplishments, partly a preview of its 2019 plans and partly an economics seminar, Filseth used charts, graphs, statistics and renderings of hypothetical multistory developments to build a case against Senate Bill 50, a proposal by state Sen. Scott Wiener to encourage more housing by restricting the abilities of cities to reject residential developments near jobs and transit. He contrasted Sacramento's legislative approach, which curbs local zoning powers, with his own vision, which leans on companies like Google, Apple and Facebook to build housing (or contribute housing-impact fees) in conjunction with new office developments.

"It's still conceivable to do a citywide tunnel, but the problem is it's very expensive and it's not clear where the money would come from," Filseth said.

He cited the city's efforts to reduce traffic congestion, including the progress of the Palo Alto Transportation Management Association (a nonprofit charged with reducing traffic); mentioned recent efforts to encourage electric vehicle use; and, in talking about grade separation, acknowledged that a citywide tunnel along the Caltrain tracks is probably not going to happen.

As per custom, Filseth recapped the council's 2018 accomplishments — including new contracts for the animal shelter and Rinconada Pool , progress on a new public-safety building and approval of Palo Alto's first affordable-housing development in seven years — and briefly touched on the council's four priorities for 2019: transportation, grade separation, climate change and long-term financial sustainability.

The speech, which Filseth delivered to a packed house of more than 100 residents and city employees at the Mitchell Park Community Center, was a remarkable departure from typical "State of the City" addresses, which tend to be high on ceremony, platitudes and anecdotes and low on pie charts, bar graphs and economic theories.

"If you are a person who believes that the right way to solve the region's housing crisis is to turn control over to Sacramento, then this case provides a counterexample," Filseth said.

Sacramento efforts like SB50, which curb local zoning powers, don't address the economics of building affordable housing and "don't really fix the process," which encourages commercial development (and its more lucrative rents) over residential, Filseth said. Though he highlighted the council's recent approval of the 59-unit Wilton Court development on El Camino Real, which consists entirely of below-market-rate housing, he noted that the project required a $10 million contribution from the city and effectively depleted the city's pool of affordable-housing funds.

The bulk of his speech, however, was devoted to housing, which is no longer an official council priority but which remains a topic of widespread community concern (the most recent National Citizen Survey showed only 23 percent of the residents giving the city a high grade when it comes to "housing"; only "traffic" scored higher on the list of problem areas). He framed the state's housing crisis in terms of economics: building housing is expensive, he said. Building affordable housing even more so.

"What this means is that you as an employee, if you come to work for us in Palo Alto ... your pension will be fully funded. Your pension will be fully secure. You go to any other city in the state? I don't know," Filseth said, shrugging.

As the council's leading proponent of pension reform, Filseth also delved into the council's recent decision to change its assumptions about CalPERS investment returns. The shift from an anticipated rate of return of 7 percent to 6.2 percent, which is embedded in the city's new budget, is requiring the city to budget more for pensions in the short term. But Filseth noted that it is also making the city's pension system more stable. Palo Alto, he said, is the only city in the state that is using the lower rate, which is based on an estimate from CalPERS consultants.

"This year, we're going to focus on good government, focus on high-quality and efficient services to the residents and being a good neighbor to the region," Filseth said. "There are some times (when) you've got to be a rock star. Other times you've got to be rock solid. This is the year for the government in Palo Alto to be rock solid."

Filseth, a retired tech executive who is one of the council's most moderate and pragmatic members, didn't propose any flashy new initiatives in his speech. Rather, he said 2019 will be a "nuts-and-bolts year."

This was the second year in a row in which housing was the central issue in a "State of the City" speech (last year, then-Mayor Liz Kniss focused her speech on the importance of affordable housing in preserving community diversity). Since Kniss made her speech, the council has made some progress on the housing front. This includes approving the Wilton Court development, creating a new affordable-housing overlay district; and revising the zoning code to, among other things, eliminate the "maximum units" requirements in multifamily residential zones and the creation of "housing incentive programs" with significant density concessions for residential projects in downtown, around California Avenue or along El Camino Real.

"Until cities can prove that they are willing to invest, whether monetarily or with policies, into the housing side, the state will keep on coming at us," Fine told the Weekly after the speech.

Not everyone agreed with Filseth's critique of SB50 and other Sacramento efforts to curb local zoning powers. Vice Chair Adrian Fine, who supports the Wiener bill, said it's perfectly possible to believe in both hypotheses: that companies can contribute more and that cities can do more to support housing.

Even as he bashed SB50, Filseth lauded Gov. Gavin Newsom's proposed "Marshall Plan" for affordable housing, which calls for investment in housing by both the state and by large corporations. Newsom also supports penalties (in the form of withheld transportation funding) for cities that fail to meet their housing obligations.

"It's very hard to find examples of industry in the West, where titans were brought down by city councils in suburbs," Filseth said. "However, it is replete with titans who are brought down by the distraction on short-term results on slowness to invest in the core infrastructure that supports the foundation of their business."

Filseth noted that in the past year, the top 150 companies in Silicon Valley have reaped $934 billion in sales and suggested that they can do far more to assist to the communities that they depend on to house their workers. He framed the difference between his view and that espoused by proponents of SB50 as a clash of two hypotheses: one that sees "local zoning in the suburbs" as the biggest problem and another one that places blame in the region's "underinvestment in core infrastructure." He said he leans toward the latter.

A better approach, he argued, is to require tech companies like Google and Apple to build housing in conjunction with office growth. This could mean requiring companies to build a unit of housing for every job (or two jobs) and to build a school for every 1,000 jobs. Filseth also advocated raising the affordable-housing impact fee from the current level of $30 for every square foot of commercial development — a proposal that has in the past divided the council.

Palo Alto mayor challenges Sacramento on housing

Mayor Eric Filseth uses 'State of the City' speech to criticize Senate Bill 50, explain pension problem