Amazon Sparks Hiring Rift in Overlooked Silicon Valley City--Update

EAST PALO ALTO, Calif. -- This Silicon Valley city of 30,000 has largely been bypassed by the technology industry boom that surrounds it. East Palo Alto is now trying to catch up, but an uproar over a city hiring ordinance is among the hurdles it faces as it tries to woo tech companies.

Amazon.com Inc. is planning to open a new 1,300-person corporate office here this fall, marking the first major tech implantation in the city. The new development, which will increase the number of jobs in the city by at least a third, could help revive a community that has struggled with crime and poverty -- and is diverse in a way that has eluded its neighbors, such as Palo Alto and Menlo Park.

Locals see an opportunity for Amazon to broaden its workforce -- a constant struggle for tech companies -- by hiring from the city's largely Hispanic and black residents. The relationship, though, got off the wrong foot when Amazon proposed a workaround of a local ordinance that asks companies to hire at least 30% of its workforce from the pool of residents.

"They don't want to hire us. That's the message that everyone's getting, " said JT Faraji, a local artist and activist who has helped organize recent protests against Amazon's plan to bypass the local hiring policy.

"We're excited to be creating jobs in East Palo Alto and are committed to investing in the local community," said an Amazon spokesman.

Amazon has said there aren't enough people in East Palo Alto with the required skills, which range from administrative to coding. Rather than try to hire from the local population, Amazon and the developer of its new building in East Palo Alto proposed carving out a 1,500-square-foot space for a job development center -- located in the parking garage -- with a one-person staff to help residents train for and find employment.

The mounting tension in East Palo Alto illustrates the growing divide in Silicon Valley between companies and the neighborhoods where they set up shop. While tech companies have brought wealth and renown to their hometowns, their rapid growth has put pressure on local resources -- from sapping the housing supply to increasing traffic.

For years, East Palo Alto was overlooked in the tech building boom. Space to grow was plentiful in the major Silicon Valley neighborhoods such as Palo Alto and Menlo Park, but is now getting scarce.

East Palo Alto is eager to ready more commercial space but has faced infrastructure obstacles like an insufficient water allocation, which has stalled development. In June, the city struck a deal to receive an additional one million gallons a day from Mountain View's allocation for $5 million.

Neighboring communities' growing wealth from the presence of tech companies has helped make the contrast with East Palo Alto, where most of the 2,500 jobs are blue collar and in retail, especially pronounced. Just a few miles away, outside the city limits, are the headquarters of tech giants such as Google parent Alphabet Inc., Facebook Inc. and Tesla Inc. The median annual household income in East Palo Alto between 2011 and 2015 was $52,012, compared with $136,519 in Palo Alto, located on the other side of the 101 highway, according to U.S. census data.

"We represent the two sides of the American economy," said Ruben Abrica, an East Palo Alto city council member, describing the differences between East Palo Alto and Palo Alto.

Rising home values in nearby Palo Alto and Menlo Park have lifted rents in East Palo Alto, forcing some longtime residents to move far away. Big box retailers including IKEA and Nordstrom Rack arrived in East Palo Alto in the past 15 years, bringing work and millions of dollars of revenue to the city, but replacing apartment complexes and an abandoned high school.

East Palo Alto has had an ordinance since 2001 requiring companies put in a "good-faith effort" to hire locally, a so-called first-source hiring policy. Similar ordinances have been tried in other cities such as Los Angeles for specific projects, and Portland for companies that receive economic-development subsidies from the city.

The policy's effectiveness usually requires political leadership and strong intermediaries that can keep employers and the community informed about job prospects and hiring needs, said Greg Schrock, an associate professor of urban studies and planning at Portland State University and who has studied first-source hiring policies. Such policies tend to better cater to jobs in retail, manufacturing and construction.

In East Palo Alto, the policy has had uneven results. IKEA, Home Depot and McDonald's all have more than 30% of workers from East Palo Alto. But the Four Seasons hotel doesn't meet the minimum threshold because its "high-level of customer service" demands all staff from the top down to the cleaning staff to speak proficient English, according to a city report from February. Four Seasons didn't respond to requests for comment.

Amazon, based in Seattle, has had a small office in East Palo Alto since 2014, but the company wasn't subject to the local hiring policy because the building went up before it came into effect.

Amazon's new 214,000-square-foot location is expected to house its cloud-services unit, Amazon web services, and other teams when it opens in the fall. Before signing the lease in March, Amazon requested a modified version of the ordinance -- substituting the job center for the local hiring requirement -- according to city council documents. JobTrain, a nonprofit that provides educational and job training services, will run the center, which has a $1.2 million budget, according to the documents.

At a community meeting in May, some of the roughly 50 attendees shook their heads as renderings of Amazon's gleaming four-story office building, complete with glass walkways, appeared on screen. The job development center, in contrast, showed just enough room for a few tables and no windows. A recent photo of the construction site shows the planned space now has windows.

Community members said they would like Amazon to create a pipeline program that could help get locals on a technology career track. East Palo Alto doesn't penalize companies that don't follow the first-source ordinance, said Mr. Abrica, the city council member, hoping instead that a good standing with the city by complying with the ordinance would be enough of an incentive.

Ultimately, redevelopment and more companies coming in would be good for the city, Mr. Abrica said. But Mr. Abrica said he plans to pressure Amazon to reach out to the community.

" 'Good faith,' " said Mr. Abrica, referring to the wording of the ordinance, "means we are honestly going to try to work on this issue."

Write to Yoree Koh at yoree.koh@wsj.com

EAST PALO ALTO, Calif. -- This Silicon Valley city of 30,000 has largely been bypassed by the technology industry boom that surrounds it. East Palo Alto is now trying to catch up, but a rift over a city hiring ordinance is among the hurdles it faces as it tries to woo more jobs.