If one believes regional projections, Palo Alto will have to build 12,500 new homes by 2035 to accommodate job growth and meet California's ambitious green goals.

Count the City Council among the skeptics.

Over the past two years, city officials have been pushing back against the planning scenarios put forth by the Metropolitan Transportation Commission (MTC) and the Association of Bay Area Governments (ABAG), the agencies charged with implementing in the Bay Area the state's landmark greenhouse-gas-reduction law, Senate Bill 375. The agencies' aim is to comply with SB 375's lofty goal of achieving a 15 percent reduction in greenhouse-gas emissions between 2005 and 2035. A key part of the plan is encouraging cities to build housing near jobs and transit corridors, thereby reducing traffic.

But what if the state's population projections are way off? And what about cities that don't have the land or resources to plan for the required housing? Palo Alto officials have been asking these questions for months and have yet to receive answers that satisfy them. They have challenged ABAG and MTC's growth estimates and, last month, requested that growth projections by the state Department of Finance undergo a peer review.

The regional agencies are relying on state projections showing that the Bay Area will need to accommodate an additional 903,000 housing units and 1.2 million jobs between 2010 and 2035. The agencies have released three alternative scenarios, two of which would require Palo Alto to plan for more than 12,000 housing units, while the third one, known as the "outward growth scenario," transfers more burden to smaller cities and pegs the Palo Alto number at about 6,100.

The projections have irked council members, however. Councilman Greg Schmid, an economist with a penchant for strategic planning, has emerged as the council's staunchest skeptic. In November, Schmid surveyed a variety of growth projections made before 2005, including ones from UC Berkeley academics and from UCLA's Anderson School of Accounting, and found many of them (including the Department of Finance's) to be far too optimistic about growth rates. He cited a report from the Public Policy Institute of California that included population projections of all key demographic forecasters. The consensus forecast from this group, he noted, was 40 percent higher than the actual outcome.

Schmid also noted in his report that the Department of Finance used projections that are far higher than those used by the U.S. Census Bureau.

"Even as late as the end of 2009, on the eve of the decennial census, estimates by the California Dept. of Finance (the organization responsible for the numbers that are used for all state allocation formulas) remained strikingly high at 14.1 percent, which was 1.5 million or 44.7 percent above the contemporaneous and more accurate Census Bureau's Current Population Estimates," Schmid wrote.

The dispute is more than an academic debate over statistics. Though ABAG and MTC can't force cities to accept their projections, they can withhold transportation grants from those agencies that don't comply. Palo Alto officials have been cooperating with the agencies by identifying areas of the city that could accommodate growth. Much of the new housing would cluster around California Avenue, Palo Alto's designated "priority development area." Other transit-friendly parts of the city, including portions of downtown and around El Camino Real, are also seen as ripe for growth and the council is scheduled to consider in the coming weeks whether to designate them priority development areas as well.

Under the regional proposal, development of these areas would be bolstered by state grants. The agencies plan to allocate about $66 million in grants to Santa Clara County, with 70 percent going to "priority development areas." Palo Alto, which seeks to upgrade its biking network and renovate the streetscape at California Avenue, is banking on grants to make its vision a reality. At the Dec. 5 council meeting, Councilwoman Nancy Shepherd said she doesn't want to "walk away from transportation dollars because we desperately need them."

But while the council has been working on identifying growth-friendly areas, members have consistently argued that Palo Alto has nowhere near the capacity for new housing that the agencies require to meet the goals outlined in their Initial Vision Scenario.

The council's dilemma may sound familiar to those who followed the city's three-year battle against high-speed rail -- another project that members supported in principle but then turned against because of concerns about how it's being implemented. Much like with high-speed rail, the council formed a new committee last month to focus on regional housing allocations. The committee is scheduled to hold its first meeting Thursday, at which point it will consider whether to designate El Camino Real and downtown "priority development areas," making them eligible for transportation-grant funds.

In a recent interview with the Weekly, City Manager James Keene predicted that Palo Alto would take the lead in the regional conversation over housing allocation, much as it had in taking a skeptical stance toward the increasingly controversial rail system.

Shepherd also compared her frustration with ABAG's statistics to her experiences with the California High-Speed Rail Authority.

"I'm worn down with high-speed rail already with trying to come up with reasonable questions, with trying to put together clear data and trying to get people to respond ... to a lack of credibility with the numbers we're using," Shepherd said at the Dec. 5 meeting. "And it sounds like we're walking right back into this again with these ABAG numbers."

At the same meeting, Councilman Larry Klein was one of several members who said the city should demand a better explanation of how the Department of Finance had come up with its numbers. The projections, he argued, need to be subject to more public scrutiny.

"I think we have to really not accept it (the state projection on future jobs) and say, 'Let's have some public discussion of where the numbers come from," Klein said.

Shepherd joined Klein in praising Schmid's report and said the numbers used by the regional agencies give her "great concern" because the city is asked to do a lot of work to accommodate the housing projections.

Curtis Williams, the city's planning director, highlighted a number of concerns in a report last month. Economic projections, he wrote, "appear to be substantially overstated" and the regional housing projections are too high and are "driven by unrealistic employment projections."

"The basic goal of reducing greenhouse gas emissions is not well-served by overstating projections, which then require even more extensive resources and more dramatic land use and transportation changes than would be required with more realistic estimates," Williams wrote.

The city's challenge to ABAG is expected to intensify in the coming months as the regional agencies proceed with choosing a preferred "Sustainable Community Strategy" alternative for the Bay Area. The regional agencies plan to perform an environmental analysis on the strategic document over the coming year and adopt it by April 2013.

Williams noted that under regional projections, all three scenarios would achieve roughly the same greenhouse gas reductions (about 8 percent for the first two, slightly below 8 percent for the "outward growth scenario"). But the implications of which scenario is chosen would be very significant for cities like Palo Alto.

"We're probably going to make the point that doing all this heavy concentration is a burden to cities like Palo Alto and it's unrealistic," Williams said. "At the same time, the increment of improvement in greenhouse-gas emissions isn't that significant and that perhaps it would be better to leave some flexibility for the cities to do something else to reduce greenhouse gases."