With its ambitious effort to revitalize the Ventura neighborhood in danger of faltering, Palo Alto officials agreed on Monday to raise the budget and lower the expectations for the complex planning process.

The city is now in the midst of putting together the North Ventura Coordinated Area Plan, a document that will lay out a new vision for a roughly 50-acre section of the Ventura neighborhood bounded by El Camino Real, Page Mill Road, the Caltrain tracks and Park Boulevard. The Comprehensive Plan, which articulates Palo Alto's long-term land use vision, specifically calls for reimagining the area "as a walkable neighborhood with multi-family housing, ground floor retail, a public park, creek improvements and an interconnected street grid."

At the heart of the site is 340 Portage Ave., a large parcel that is anchored by Fry's Electronics and that city officials have identified as an ideal site for future housing.

Yet plans to redevelop what's known as the "Fry's site" — as well as the broader area — have run into some trouble of late. Despite a December 2020 deadline set by a state grant, the planning effort has slowed to a crawl over this spring, thanks in part to disagreements between the city and its consultant, Perkins + Will. The city has only recently resolved its dispute with the consultant over its responsibilities and compensation.

The Working Group, a 14-member stakeholder panel that is helping to put the plan together, hasn't met since April and some members have voiced frustrations with the process and are now calling for changes in how meetings are conducted.

Concurrently, the city's consultants had recently determined that the Fry's building, a former cannery, is "historically significant," potentially complicating any redevelopment plans.

And The Sobrato Organization, which owns the Portage Avenue property, has signaled to the city that it has no desire to demolish or renovate the building, adding another blow to the city's grand plans.

Despite these fresh setbacks, the City Council reluctantly agreed by a 4-3 vote to add $367,112 to its contract with Perkins + Will contract and to extend the planning process by another 11 months, with a goal of finishing it by fall 2021.

Mayor Eric Filseth and council members Alison Cormack and Greg Tanaka dissented and argued that the council should stay within its means, even if that means a less robust planning process and fewer planning alternatives on the final menu of options.

Even those who supported the expanded contract weren't particularly thrilled about where the project currently stands.

"We're 10 months into the project, we're about a year behind and we want to almost double the budget," Councilman Tom DuBois said.

Planning Director Jonathan Lait told the council that Sobrato's position on the Fry's site reflects today's economic climate. He cited the area's hot construction market, high labor costs and returns on rents as factors in Sobrato's position on the Fry's building.

Lait said he has met with a representative from Sobrato, who indicated that "the conditions at the moment are not ripe" for the type of development that the city was hoping to see at the Portage Avenue site. It indicated that housing at the Fry's site would not be economical at the heights and densities that Palo Alto has historically tolerated for residential projects, Lait said (Sobrato did not respond to the Weekly's inquiry on Monday).

"It doesn't make economic sense to redevelop it in a way that would yield the kind of units we're talking about," Lait told the council.

The Fry's site isn't just at the heart of the North Ventura plan; it is also a central component of Palo Alto's overall vision for housing. The city's Housing Element identifies the Fry's site as one that could accommodate up to 249 units.

It's now unclear how the city would be able to achieve that many new units while also preserving the Fry's building, Lait said.

Even so, some welcomed the idea of preserving the Fry's site. Councilwoman Lydia Kou argued that it's important to honor the legacy of Thomas Foon Chew, who bought the site in 1918 and built a cannery that became the region's largest employer.

Former Mayor Karen Holman, a longtime proponent of historic preservation, disputed the idea that historic preservation and housing production are necessarily incompatible. The building, she suggested, could be repurposed without being entirely redeveloped.

Other cities, Holman said, have turned their industrial buildings into modern hubs. Palo Alto can similarly create places that contain brew pubs, art galleries, wine tasting rooms and other amenities.

Vice Mayor Adrian Fine and Councilwoman Liz Kniss both supported investing more money in the Ventura planning process, even under the changing circumstances. DuBois and Kou were somewhat more reluctant but joined them in directing staff to bring back a new contract with Perkins + Will.

Filseth made the case for staying within the original budget. The planning process, he noted, was up until now funded largely with grant money and a contribution from Sobrato. Adding funding to the planning process would require the city to dip, for the first time, into the general fund. And it would be doing so at a time when the project's goals seem less likely to be achieved than in the past.

"There is such a thing as giving a startup too much money," Filseth said, in making the case not to add another contract.

The council was more united about the prospect of removing the concrete channel at Matadero Creek and restoring the creek to its natural state. It unanimously approved a $93,000 contract with the firm Water Resources Associates Environmental Consultants to explore the idea of converting the channel into an open space corridor.

Lait said the study will consider both the prospect of enhancing the existing channel by building recreational amenities around it and the more ambitious idea of removing the concrete and converting Matadero into a natural creek.

The council generally agreed that the plan is still worth doing, even if a change is unlikely to arrive any time soon. Cormack said she feels the city has lost "a big component of this that is driving urgency."

"I understand we committed to doing this in the Comprehensive Plan (and) we probably need to keep going," Cormack said. "But it's not clear to me it will achieve the things many people in the community have been hoping for in the medium-run."