Model Heavily Dependent on Water and Personnel Costs Being Properly Addressed – On Monday the city’s Finance and Budget Commission will receive the preliminary analysis of the Cannery Fiscal Model. Staff writes, “The Cannery development is the first project to have its fiscal impacts modeled with the City’s updated Fiscal Impact model. The fiscal model attempts to create a reasonable representation of the General Fund impacts of new development.”
While acknowledging that “there is no way for a model to completely predict the future,” city staff concludes “on balance, this project would be expected to generate a positive net general fund balance at buildout.”
That forecast comes with considerable caveat: “Sensitivity analysis shows that this condition holds true under each of the alternative assumptions used in that analysis, however the cumulative impact over the 15 years of the model can vary considerably, from a positive $796,000 to a negative $849,000.”
Staff writes, “Identified one-time revenues from this project total nearly $15 million, $3.8 million of which is discretionary monies (construction tax). Other mitigations or one time revenues that may be included as part of a development agreement are not known at this time.”
The Cannery project proposes a mix of different land uses that consist of low, medium, and high density residential uses; a mixed-use business park component; drainage detention areas; open spaces including greenbelts, agricultural buffers, an urban farm; parks; and a homeowner association neighborhood center on approximately 100 acres of land located at 1111 East Covell Boulevard, within the incorporated boundary of the City of Davis.
The project site is the former location of the Hunt-Wesson tomato cannery. The residential component of the Project consists of 547 residential dwelling units plus an additional 40 accessory dwelling units. A 15.1-acre neighborhood mixed-use site is planned along The Cannery’s frontage with East Covell Boulevard.
The initial development assumptions are included in the graphic below.
Staff writes, “The initial assessed values of the homes ranged from $388,917 to $799,800. Non-residential properties were valued at $150 per square foot for retail development and $250 per square foot for Office/Service Commercial. The assumed valuation for Multi-Family housing is $248,000 per unit. This does not include the affordable housing element of 60 multi-family units which is assumed to be tax exempt.
“The model was also run with two distinct absorption schedules. The first was the schedule provided by the developer which had complete absorption of the project over three years. The summary sheet can be seen in Attachment 1. A second absorption schedule, covering a period of six years was provided by staff in the Community Development and Sustainability Department. The complete run of this scenario is found in Attachment 2 and is the basis of the data in this staff report. While the numbers vary widely in the years leading up to full buildout, the post buildout years are relatively similar.”
“The Cannery development is in an area of the City where the property tax share is 21.115%. This is significantly higher than the citywide average of just under 17%,” city staff writes. “The baseline model run shows a positive General Fund balance at buildout (year 6) of approximately $68,000.”
“Inherent in the model is the escalating costs that increase at a rate roughly twice that of revenues,” staff cautions. “The result of this disparity is that the positive general fund balance shown at buildout diminishes over time and goes negative in year ten (10) of the model. The condition where costs are rising more rapidly than revenues is a dilemma throughout the State in cities and counties and is representative of a problem that is not inherent to any particular development or project. Most jurisdictions have been making and will continue to make adjustments that either reduce cost inflation or enhance revenues to deal with this fiscal challenge.”
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The model is extremely sensitive to certain changes in the assumptions. While all variations show a positive General Fund balance at buildout, staff notes, “the assumption driving the most pronounced change to the output is an adjustment to personnel cost inflation.”
Just a one percent increase in the personnel cost inflator changes the cumulative impact over 15 years to go from a positive $77,000 to a negative $849,000.
In addition, “The adjustment that resulted in the most positive increase to the balance is the removal of the City maintenance of the greenbelt ($796,000). A one percent increase in annual assessed value appreciations showed a positive cumulative balance of $545,000.”
In short, the entire fiscal impact model is dependent on two critical variables – the city keeping personnel costs as projected over the next fifteen years and the city removing maintenance of the greenbelt (which is probably a water factor as much as anything else).
“When looking at the overall balances from the model run most scenarios show positive fifteen- year cumulative impacts,” the city writes. “Those showing negative results are those that either exacerbate the variance between cost and revenue inflation (increasing personnel inflation) or reduce overall revenues (lower property tax appreciation).”
They add, “The cost to revenue imbalance that is currently present in the City drives the increasing negative net General Fund balance shown in the model and is emblematic of current economic conditions that the City is actively working to address.”
Staff also notes that there are a number of one-time revenues generated by the project, the largest are at the outset are construction tax revenue and development impact fees.
There are other revenues included as part of the development agreement, but unknown at the present time.
Staff writes, “Construction tax is calculated on a per square foot basis. The actual total square feet of residential is not known at this time and was estimated. The assumed construction tax revenue is approximately $3.8 million. Impact fees across all categories total $10.4 million and park in-lieu fees are roughly $700,000.”
In the end, the fiscal model shows a precarious situation. Yes, the fiscal plan pans out right now if the city holds the line on personnel costs and deals with the water costs – but those are heavily influential assumptions that threaten to dwarf any other revenue projections.
However, looking at both short-term city-wide budget forecasts as well as projected water costs, one quickly recognizes that if the city fails to hold the line on personnel costs and fails to deal with water costs for the greenbelt, Cannery is the least of the city’s concerns.
—David M. Greenwald reporting