EAST PALO ALTO - After three years of community meetings, prayer vigils and stalled proposals, the city of 31,000 is closer than ever to getting a supermarket.

Stockton-based chain Rancho San Miguel has offered to run a 50,000-square-foot store at the 6-acre lot at University and Bay roads. On Monday night, the Redevelopment Agency directed city staff and developer Blake Hunt Ventures to draft a proposal for the supermarket and 23,500 square feet of retail space beneath 120 "for sale" housing units.

But large obstacles remain, city officials said. Site owner Washingtonia Development won't budge from its $8 million asking price, which would require a $3.8 million city subsidy. In addition, the owner wants a 60-day escrow, although an environmental review and entitlement process takes 18 to 24 months.

"It's not reasonable. (The owner) is not a naive guy, but his attitude is, 'I don't care,'" said Brad Blake, BHV developer.

Redevelopment Agency Chairman A. Peter Evans also expressed several objections to the proposal, ranging from the city's lack of written commitments from the developers to the store's "ethnic" name.

"When I go to Mexican stores, they're very offensive to African people. They speak Spanish, which I don't understand," he said. "I believe personally this is a very serious problem."

Agency Vice Chairman Ruben Abrica called Evans' remarks "offensive" and agency members Donna Rutherford and Pat Foster each said they had seen a variety of merchandise and shoppers inside the Spanish-named supermarkets they had visited.

>From the audience, Richard Tatum, a member of the city's 2002 supermarket task force, also said he would support a proposal from any company interested in the project.

"The name doesn't make any difference. Safeway and Albertson's are ethnic names, too," he said.

The city had a letter of intent from Grupo Gigante, a Mexican grocery chain with stores in Southern California, but company representatives could only pay half the owner's asking price. Other chains already have stores in neighboring cities, or aren't interested in expanding, city staff said.

In contrast, Rancho San Miguel is eager to open a store in the East Palo Alto, said Richard Sarris, company real estate director.

"It's a hugely underserved community, and we hope to fill that need for you," he said, adding that the supermarket would have 150 employees, with at least 30 percent hired locally, in keeping with the city's First Source Hiring policy.

The company has also employed people with criminal records on a case-by-case basis, he said, in response to several audience questions.

The soonest a supermarket could open in the city is 2008, city officials said.