Seeking to quash recent rumors that coders are incompatible with downtown's zoning rules, the Palo Alto City Council voted on Monday night to revise the city's land-use "constitution" so that it officially recognizes software developers as an integral -- and legal -- part of the business ecosystem.

But even as council members lauded the central role that tech startups have played in the city's history, they stopped short of approving a controversial proposal by two council members that would have made it legal for residents to launch startups from their own homes. While doing so is a long-standing practice, launching a business out of a single-family home will remain a code violation.

Mayor Greg Scharff called permitting startups in homes a "radical, radical departure from what we do in Palo Alto, which is protect our (single-family residential) neighborhoods."

"I don't believe in (making) major changes to what we currently do and what we've been doing for a long time," Scharff said. "I don't know any city that allows businesses in their R-1 neighborhoods, beyond what we allow."

The proposal to change both the downtown and R-1 restrictions came from Councilmen Greg Tanaka, himself a tech entrepreneur, and Adrian Fine, one of the council's leading advocates for more permissive city-growth policies.

But while the in-home startups proposal fell by a 3-6 vote, with only Councilman Cory Wolbach joining the motion, the council supported including language specifying that software firms are a legal land use in downtown Palo Alto in the city's guiding Comprehensive Plan.

While the idea that software companies are illegal in Palo Alto may sound absurd on the surface, the zoning code isn't exactly clear on the matter. It does not include research-and-development among permitted downtown uses -- an omission that has been made largely irrelevant by the city's long history of sanctioning and celebrating tech startups.

In lobbying for the change, Tanaka and Fine both cited news reports last year that referenced former Mayor Pat Burt's argument that the city's zoning code does not adequately accommodate downtown's software companies. While Burt was suggesting that the city revise the zoning code to make these companies compliant, his comments were interpreted by many as a sign that the city plans to clamp down on startups (one headline from The New York Times headline read, "Message to Tech Firms from Palo Alto Mayor: Go Away. Please."; in response, Techcrunch ran a story clarifying Burt's comments).

"I think it's important that we clarify that, given that people actually seem to think that software development may not be allowed," Tanaka said.

Tanaka also noted that software development is happening all over downtown and saying it's illegal is "really odd."

"I'm surprised people would even debate it," Tanaka said.

But debate it they did, with some council members favoring slow city growth arguing that Palo Alto shouldn't make any blanket policies about downtown startups as part of its Comprehensive Plan, which the city is in the midst of updating. Councilman Eric Filseth urged the council to go through its regular process and have a committee consider the topic before the change is made.

And Councilwoman Karen Holman suggested that the council consider the "scale" of development before making any broad changes to the Comprehensive Plan.

Many in the community have noted that big-data analytics firm Palantir leases about a dozen buildings downtown, totaling a quarter-million square feet.

"I don't think anyone is not supportive of having startup tech companies, but when it comes to downtown and commercial areas, having them unscaled is really detrimental for the community, detrimental to our housing stock, detrimental to our housing demand, and detrimental to the number of jobs we're creating," said Holman, alluding to the city's gaping jobs-to-housing imbalance.

But Fine said specifying that software use is allowed downtown is "an affirmative vision."

"Software development and technology is the lifeblood of this community," Fine said.

Tanaka, Fine and Scharff argued that reports suggesting that the city is clamping down on downtown startups have stained the city's reputation. Fine said the city has gotten a "black eye" in the national media over the topic while Scharff said people are "laughing" at the city over this issue.

"We should be proud of who we are in Palo Alto," Scharff said. "And we're the center of Silicon Valley and the center of tech."

Wolbach agreed and argued that the majority of Palo Alto "does not support the idea that software developers in downtown Palo Alto is outside the allowable business practices."

The proposal to specify in the Comprehensive Plan that software companies are allowed downtown passed by a 6-3 vote, with Holman, Filseth and Councilwoman Lydia Kou dissenting. But even some of the members on the winning side balked at easing rules for startups in single-family neighborhoods, as Tanaka and Fine had suggested.

Tanaka argued that most startups don't have the resources to rent office spaces. Letting company founders run companies out of their homes is one solution. Today, the practice is illegal. Planning Director Hillary Gitelman told the council Monday that running a business from a home is a violation that the city pursues and takes seriously.

But Tanaka noted that it's nearly impossible for the city's code enforcers to catch a few people coding in their homes. He also noted that if the city had strictly followed the law, it may have shut down Facebook before the social media company took off and became a global giant.

"I think it's important for the lifeblood of Palo Alto that nascent startups are able to start," Tanaka said.

Fine acknowledged early in the discussion that opening up residential neighborhoods to startups is a controversial idea that probably wouldn't pass. Even so, he said that it's important to "send a signal" that startups are an important part of the city, the community and the local economy.

But Vice Mayor Liz Kniss, who normally votes along with Fine and Tanaka, took the opposing view. She cited "The Social Network," a 2010 movie that depicts the loud and boozy atmosphere that characterized Facebook's earliest days.

"Having seen the Facebook movie, if I was one of the neighbors, I would've complained about it," Kniss said.

Like Kniss, few on the council sided with Tanaka or Fine -- or Erlich Bachman, the hirsute "hype man" whose Palo Alto home serves as an incubator for the fictional data-compressing startup, Pied Piper, in HBO's "Silicon Valley." In one episode, which Tanaka cited Monday night, Bachman lectures a perturbed neighbor about the reason why his substandard house is worth a fortune ("Because of people like us moving in and starting illegal businesses in our garages!" Bachman says).

Like Bachman, Fine and Tanaka pointed to HP as an example of a legendary company growing out of a garage.

But Councilman Tom DuBois was among those not swayed, noting that the city is working hard to encourage more housing. Allowing people to rent out their homes or have them be used as offices would send "the wrong message," he said.

Filseth also opposed the change and said he would be "astonished if a majority of Palo Alto residents supported legalizing hacker houses in R-1 neighborhoods."

Tanaka's proposal also surprised Burt, who termed out last year after two council terms. In an email, Burt emphasized that the HBO show is "a farcical parody."

"Some of the council seems to think it's a docudrama and we need to change zoning to keep up with the scripts," Burt wrote.