The Palo Alto City Council narrowly turned down on Monday night an opportunity to buy the home of former City Manager James Keene, despite arguments from three council members that the Downtown North home is both a good investment and a potential lure for future top managers.

After a robust debate, the City Council voted 4-2, with Councilwoman Liz Kniss absent, to sell the city's 66.2% share in the two-bedroom home at 335 Webster St. (Keene owns the other 33.8%). That vote followed an unusual stalemate with the council taking three separate 3-3 votes before finally getting to a majority.

Councilman Tom DuBois joined Filseth and Fine in arguing that if the city buys the two-bedroom home, it could use it for "short-term housing" available to newly hired top-level managers. He noted that the city has vacancies in numerous high-level positions, including fire chief, city auditor, utility director and chief transportation officer.

It's usually hard for the city to acquire land, DuBois said. In this case, it already owns roughly two-thirds of the asset, which makes a potential purchase more attractive, he said.

"We talk a lot about recruiting and retention." DuBois said. "That's what makes me lean toward purchasing it."

Filseth concurred and argued that the home would also constitute a good long-term investment. Even by selling the home, the city is certain to make a tidy profit. In March 2010, the city paid $1.4 million for the house, with Keene contributing $468,750 through a loan paid to him by the city. Now, staff estimates that the home can sell for $3.2 million to $4.4 million.

But Filseth suggested that the property can become even more valuable and that by selling it, the city would be losing a public asset.

"I continue to believe that in the long-run, in the Midpeninsula, even now we underestimate the value of land. ... What we're doing is selling off city land, because we own two-thirds of it," Filseth said. "We're selling an asset."

Others saw nothing wrong with that. Councilwoman Alison Cormack noted that this asset had served its intended purpose and that selling it would be perfectly appropriate.

"If I think about what the objective of this is — the objective was to provide a home for the city manager," Cormack said. "That objective has been met."

She also noted that Palo Alto has a variety of neighborhood and housing types and there's no reason to think that a future city executive would want to live in the same house as the prior one. Councilwoman Lydia Kou, a realtor, agreed and also suggested that city money could be better used to develop other properties, including two lots that the city owns on Middlefield Road.

"I'd really like to see that the funds that we have be stretched to go as far as possible," Kou said, "I've always advocated for keeping our real estate assets, however I think there are more opportunities if we did sell it and use the funds to develop land that Palo Alto has."

Cormack and Kou were joined in their dissent by Councilman Greg Tanaka, the council's chief fiscal hawk. Tanaka suggested that designating the house for future employees would constitute a "massive giveaway" to those employees, given how much the house costs.

"We should do our best to sell it and get best price," Tanaka said.

The 3-3 split was effectively a victory for Tanaka's side. The city's agreement with Keene gives him the right to sell the home, an option that he had just indicated he plans to exercise. While the agreement affords the city a chance to buy Keene's 33.2% share, the council's failure to get a majority for such a decision effectively means that the city will have to sell.

The council went back and forth, deadlocking first on Tanaka's motion to sell the property and then on DuBois' motion to buy it. It then split 3-3 on a motion to continue the discussion to April 22, which would have given Kniss the opportunity to serve as the tiebreaker. Cormack, Kou and Tanaka all voted against continuing the discussion to a future meeting.

Vice Mayor Adrian Fine initially suggested that this seems to be a good time to sell the property but later joined DuBois and Filseth in their proposal to buy it. He argued against making a decision on the property through a 3-3 vote. But Kou strongly rejected the idea of continuing the meeting to give Kniss a chance to weigh in and accused those on the other side of the debate of "playing a game."

That outcome was averted when DuBois conceded and voted with Cormack, Kou and Tanaka on the original motion to sell the city's share. But even though the council agreed to move ahead with the sale, some members are still holding out hope that some of the proceeds could help house future employees. The final motion directed staff to discuss with the council's Finance Committee the prospect of using revenues from the sale for employee housing.