If the centerpiece of an innovation park campaign will be the ability for the parks to generate sorely-needed tax revenue, the push back will be the attempt to question the revenue potential. Just last week, former Mayor Sue Greenwald questioned this in a comment on the Davis Enterprise site: “Business parks rarely bring net new revenue to cities. We should be honest and clear about the benefits of a business park.”
While the Vanguard has already spent a good deal of time on this issue, it becomes clear that this will be a clear line of demarcation. The normal arguments against development go by the wayside in the face of the city establishing that (a) we have a fiscal crisis and (b) the innovation park is the long-term solution to that crisis.
This weekend, Rob White, the city’s chief innovation officer, took another shot at it. As he writes in his Davis Enterprise column, “One major reason that innovation parks are being discussion is the recognition that there is a significant need to increase the amount of revenues coming in to the city to pay for maintenance and upgrades of existing amenities — things like parks, bike paths, streets, swimming pools and public facilities.”
He notes, as we often have, “Our sales tax collection is about half of that in a comparable community. Davis also has a lower comparable citywide property tax total because the community has not experienced significant resetting of values over the past few decades and has not built new housing stock.”
As he acknowledges, this is far more complex than just those factors. However, the current revenue situation means “that Davis has not experienced the kind of economic recovery that other comparable cities have. Therefore, major decisions on the future of public service delivery are more pressing and urgent.”
Skipping to the key point, he notes, “City staff previously invited representatives from the Association of University Research Parks to speak at a public meeting in Davis in late May.” You can view the PowerPoint and video of that presentation here.
He continues, “There are also several recent reports done by national research organizations that I highly encourage you to look at, as I think you will find it relevant to our community dialogue. One was done by the association mentioned above and Battelle in 2013.”
The study, titled “Driving Regional Innovation and Growth,” has the following synopsis on their website: “As national and regional economies recover from the most severe global recession since the Great Depression of the 1930s, there is a growing emphasis on the importance of innovation for sustained economic growth and competitiveness in today’s global, fast-paced, knowledge-based economy.
“Not only is innovation critical for industry development, it directly impacts the standard of living found in a nation and its regions. University research parks are a successful way to advance innovation and create economic growth in regions across North America.”
Another study that Mr. White cites was recently completed by the Brookings Institute and is titled “The Rise of the Innovation Districts: A New Geography of Innovation in America.” A quote highlighted on the Brookings website says, “Innovation districts ‘supercharge the innovation economy,’ said Bruce Katz during an event today on the rise of a new geography of innovation in America. Katz, vice president and director of the Metropolitan Policy Program at Brookings, and Julie Wagner, a nonresident senior fellow in Metro, are co-authors of report, ‘The Rise of Innovation Districts: A New Geography of Innovation in America.’ ”
But Rob White never gets to the nitty-gritty here – in part because of space limitations in a newspaper. Since we have no such limitations, we can get down to the minute details.
Go back to July, in his FAQ on the Vanguard, 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.”
Clearly, this is going to become a line of attack. To refute it, the city is going to need to have a clear study of the fiscal impacts. We understand that the city is looking into an independent fiscal analysis, but the sooner the better.
—David M. Greenwald reporting