Analysis: City Needs to Educate Public on Revenue from Business Parks

Tech-ParkOnce again, we can learn a lot from reading letters to the editor about the failure of the city to educate the public on the revenue drivers behind the city’s push for a business park.

Today a resident writes, “So, the city gets most of its income from property taxes, sales tax and building permit fees, right? (Really, are there other sources?) The city always falls back to wanting a technology park to increase revenue. It’s been a ‘want’ for 15 years at least.

“How does that bring in any money? We get property taxes, yes, but then discounts are given to entice companies to come to Davis. Am I missing something, or would it make more sense to try to stop the flow of sales tax revenue from leaving Davis? With a little more retail, you get property tax and sales tax revenue and we don’t have to waste gas driving outside of Davis. Shouldn’t we look at doing both?”

It is good that the resident raises the questions, however, the fact that he has to do that indicates to us that the city has not adequately addressed this point to the public.

In his FAQ on the Vanguard last week, Rob White explained how this project will generate tax revenue.

He writes, “Any new construction will generate tax revenue through permits, fees, property tax, sales/use tax and jobs. The question is how much and is there a point in time where the services for that new construction (whether commercial, residential, or open space) cost more than the ongoing revenue it creates. In the case of commercial and research facilities, they are typically minor consumer of services like police, fire, and parks/recreation due to their inherent activities.

“And in the case of the proposed innovation centers in Davis, each of the proposals is estimated to include over $1 billion in construction and infrastructure over the build out of the center (likely to be 10 to 20 years), of which a notable component is permit and fee revenue generation to the city. “

Mr. White adds, “A thorough fiscal analysis will need to be done to identify the actual parameters for each proposal, but a very rough calculation based on some of our existing Davis-based high tech businesses indicates a net positive revenue over expenses for the City.”

“And there is some research that seems to indicate that typically businesses consume less services than residents and may provide as much as 80% of all tax revenue to a city,” he concludes. “The fiscal analysis will tell us what the actual amount is for Davis and we will also work with proponents to make sure that fiscal sustainability is a driver for any project.”

Back on June 8, Sue Greenwald, posting on the Davis Enterprise wrote, “It is time to lighten up on the propaganda. ‘Innovation Centers’ will NOT bring significant net revenue to Davis and staff and the City Council should be honest with citizens about this. There is value in helping the University with their tech transfer mission and there is value in helping to create jobs, but again, this will NOT bring significant net revenue to the city.”

She added, “These consulting firms have resorted to a number of tricks to make it appear that companies create huge net revenues for cities. Competition among cities and even other states and countries for companies has kept cities from ‘working out deals’ that would result in net revenue. A more careful reading of the study by the ECONorthwest consulting firm mentioned above actually illustrates my point. Note, they say the company AND ’employees’ paid and supported (whatever that means) $135 million in property tax. This means that employees bought houses and those houses have property taxes attached. But someone other than an Intel employee would have bought the houses in Davis if Intel didn’t come. Furthermore, we know that houses cost more to service than they bring in revenue anyway (after the tax split with the county, annexed land only returns about 6% of the property tax for the city, and the city has to provide services to the property). None of the state income tax comes back to the city. The comment on the report about Intel fails to make the case that Intel could have brought net new revenue to Davis. Again, it is highly unlikely that a business park will bring new net revenue to the city.”

She would later add, “I think it is wrong to tell citizens that a business park will help solve our fiscal problems when it won’t. The only way to address the fiscal problems is cut spending or to raise taxes. However, we are stretching the Davis ratepayers and tax payers pretty far now.”

Rob White the next day would step in and respond, “Sue – though I don’t really know you, I find your comments regarding an Innovation Park interesting. They do not seem to be based from direct knowledge or take into account the most recent studies by Association of University Research Parks, Battelle, or the Brookings Institute.”

He would add, “As a piece of missing data, the Mori Seiki plant generates annual property tax analogous to about 300 homes and annual sales tax analogous to several blocks in downtown. I cannot release actual figures (it’s against State law), but I will confidently tell you that any city with 10 or 15 Mori Seiki’s certainly would feel a 10 to 15% change in their revenue stream. And this was just a mere 18 months after opening their doors, not decades as has been suggested.”

He continues, “Also, we are in discussions with landowners on each of the potential periphery projects of doing a special assessment that will also generate income beyond sales and property taxes. I can’t explain more at this time because we must work through our legal channels, but let it be said that we learned from best practices in places like Mountain View and Sunnyvale on how to create sustainable and long-term revenue for the City.”

Mr. White concludes, “And don’t forget that our own tech business leaders (like Pam Marrone and Tyler Schilling) have been vocal about the need to have space to grow. That translates into permit fees, jobs, imputed income, and spending of dollars from outside sources and investment locally.”

The information is out there, but clearly the community needs to better understand how business park investment translates directly into revenue for the city.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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  1. SODA

    I am surprised to see Sue’s push back on innovation parks since she was sometimes the one voice for ‘business park’ use of properties such as the cannery…

    1. Mr. Toad

      A business park at cannery, infill and building on PGE are all the same kind of nonsense. Sue, up until now, has always had an alternative that wasn’t realistically possible in her back pocket to make her look like she wasn’t simply opposed to everything. The bad news about infill is that its actually possible to force it into neighborhoods that don’t want it (this includes most neighborhoods) as an alternative to peripheral development. Sue writing right after the measure P vote, likely reading the election results, saw the power of combining anti-growth policies with anti-tax sentiments and abandoned offering any alternative no matter how unrealistic as an alternative vision instead seizing upon a possible new center of Davis politics. Too bad for Sue though some anti-water activists are not anti-growth and since P passed with the slimmest majority in a low turnout election its unlikely that this new coalition is sustainable.

      1. Davis Progressive

        in the other thread you wrote that i simply attacked the messenger, it was an interesting response because you rarely do anything but attack the messenger yourself. here is a prime example. you personalize this about sue rather than responding with factual corrections about her point. pot meet kettle.

  2. Mr. Toad

    Sue Greenwald wants to balance the budget on the backs of employees denying as she always has that there are other options besides raising taxes something she indicates she opposes as a champion for those stretched taxpayers. Her “progressive politics” are worse than conservative. At least a conservative would argue that economic growth will help. Sue is the perfect example of the merger of anti-growth and anti-tax views that prevailed on measure P.

    1. Davis Progressive

      and what do you want to do? you want to blow up this community, destroy the character, and grow it out and to what end? what’s your ultimate driver here other than attacking everyone who doesn’t agree with you?

      1. Frankly

        Wow… unhinged hyperbole.

        blow up the community

        destroy the character

        So let’s say for the sake of argument that Davis grows 50% larger.

        Compared to when Davis was 50% smaller than it is today, have we destroyed our character and blown up the community?

  3. Mr. Toad

    I don’t think my vision destroys its character. I think it improves it. My driver here is to make Davis a healthy, affordable, vibrant place to live for young families with good schools and let Davis fulfill its dual land grant missions of education and research to help the masses.

  4. Mr. Toad

    I think it might be cool to live in Berkeley for a while. Like Davis its first and foremost a college town that values education and research. Genentech the company that commercialized recombinant insulin and breast cancer drugs perception was founded by Berkeley researchers.

    Anyway I think infill destroys the character of the community.

      1. Mr. Toad

        Get out your Davis love it or leave it bumper sticker DP. Just like the old John Birch Society sticker “America love it or leave it.” Too bad I’m going to be polluting the precious bodily politic fluids of Davis for some time to come. Besides in cyberspace I can poke fun at the dominant paradigm of Davis from anywhere, here or Berkeley or wherever.

      2. Anon

        Why should Mr. Toad leave Davis just because he has a different point of view about how Davis should grow than you, Davis Progressive? Must everyone who feels Davis should grow in a healthy way or in any manner be banned from living in Davis according to your world view? Who made progressives the arbiter of all things right and relevant? Many of us believe Davis needs to grow to be sustainable, else we become an unsustainable retirement community. Think about it. Sue Greenwald’s vision of higher taxes and cutting services with only infill will not sustain this community.

    1. DavisBurns

      At last! Something we agree on!! Damned autocorrect and how about that undo button that erases a half hour of thumb typing. Ok. That is an ipad woe.

    2. DavisBurns

      When we were in business we paid taxes on our gross sales. By which they mean income. They call it a license but it is a percent tax on the gross income. Which is crazy. No deduction for payroll or anything. The percentage depends on the category they put you in and that seems arbitrary. So if you have companies doing business here who don’t have off shore holdings and shell companies, we will collect a percentage of gross sales/income. Unless we have special sweetheart deals to lure them to davis. We always wondered why the city was never interested in keeping small business like ours in town. We were innovative. We shipped all over the world. Nobody else did the same thing. I hear the same from other small businesses. When does the city come courting the little guys. Guess our millions were spelled with an m not a b.

      I am happy this conversation is happening. I have heard so much about how special these companies will be. Now I want to know what tax rate we charge on “innovation” sales. Will they get special discounts? Will they not have to pay taxes for five years or some other incentive? And I would rather have some estimates from a source other than the Association of Innovation Parks.

      Let’s hear some estimates on the other taxes like property. Who pays for the infrastructure. What does it cost the city when they break ground. What our ongoing expenses on, say, a 200acre park? When do we project an income stream? I don’t know how you do it in small cities but in business, you have some ballpark figures if you’ve got something tangible.

  5. Ryan Kelly

    I believe that the idea of innovation parks is that they will house businesses that sell to other businesses – the best and most lucrative of sales tax, without the traffic burden of retail development. It will also bring good paying jobs and employees to the City – who will shop, eat and be entertained locally (hopefully).

    Sue is a downer. Every solution or idea is dismissed as unworkable or everybody is lying, or stupid. She has yet to suggest a solution.

    1. Anon

      Sure Sue has a solution – cut services and/or raise taxes, but no new growth unless it is infill – where there is not space enough for an innovation park. She was very much in favor of innovations parks at the Cannery and PG&E sites, until she now has conveniently decided the selfsame innovation parks do not generate any tax revenue if on the periphery! A silly argument! Sue speculates, at best, that no new tax revenue is generated from innovation parks, even though credible sources say they do indeed generate tax revenue. Sue hasn’t cited any credible source to back her contention that innovation parks do not generate tax revenue – we are just supposed to take her word for it. Why should we believe a flip-flopper, a no-growther on the periphery, with no credible or reasonable solution for our budgetary woes? Let’s try an innovation park, knowing that we expect millions of dollars in return at no costs to the city, written into any contract with developers of an innovation park.

  6. Michael Harrington

    When I was on the CC, elected 2000, one of the first orders of business was to complete the update to the General Plan.

    There were proposals for business parks in the NW Quadrant, and the PGE Tech Park south of I80 and between Mace and the wildlife preserve.

    I vaguely remember that the economics were terrible for the City to put those parks into the GP. The PGE Tech Park was voted down 4-1 (Boyd was the lone yes). The NW Quad was voted down 5-0 (I think, maybe 4-1).

    So, the question I have for the current hopeful crop of tulips on the world’s best farmland is what are the numbers, really?

    What’s different today from 14 years ago about these projects?

    Where’s their mitigation? Is it 3-1, or 2-1, and in fee simple to the City, or merely easements?

    I dont mean any disparagement, but when I hear or read the words “innovative business park” it just sounds like more Hollywood leval hype. One person’s innovation is another’s nightmare. It means nothing, and in fact is so obviously for PR hype that many feel like it is a gross overcoating of sugar to get someone to bite.

    Just some things to consider as we go further into the modern version of what was clearly Bad News for Davis 14 years ago. (Oh, wait, someone living on Stonegate Lake copyrighted that phrase, right?)

    1. Anon

      14 years ago we did not have Steve Pinkerton (now departed, but will be replaced with someone who hopefully understands the importance of innovation parks) and Rob White showing us the way. It is important to have the right expertise before attempting a huge technical undertaking of this magnitude. The reality is the city has a growing budget deficit problem that must be addressed. Thus far innovation park opponents’ only answer is to raise taxes or cut services – which is an unsustainable solution. An innovation park, if done correctly, has the potential to generate millions of dollars in tax revenue to the city. Why not explore such a lucrative option?

  7. Michael Harrington

    Anon: I am happy to review the data, and as a litigation attorney, I have forensic economists and related specialties who can be tapped to provide independent review of whatever data are submitted by the project proponents and staff.

    When I was on the CC, I always assumed, strongly, until proven otherwise, that what I received from staff was correct.

    Now, as a result of what I have witnessed from the water project, the working assumption is the data are incorrect, false, or otherwise defective. THis view is shared by nearly everyone I know who was interested in the water project.

    I used to say, like President Reagan said about the Soviets, “trust but verify.” Now, it’s more like “don’t trust, and verify the heck out of it.”

    1. Anon

      You have the right to feel any way you want to Mr. Harrington, but you do not speak for me or people that I know in regard to the water project. I have no problem with verifying data, but I do have difficulties with constant obstructionism.

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