Divided Council Approves CFD For Cannery

Share:

Cannery-undercrossing

It was a divide along similar lines to the divide on the initial Cannery vote, with council narrowly approving a motion made by Councilmember Rochelle Swanson and seconded by Lucas Frerichs to direct staff and the city’s CFD consultant team to proceed with the next steps in forming a Community Facilities District for the Cannery Project.

According to estimates, the infrastructure and park development costs for the CFD come to $18.1 million, with an additional $750,000 for an improvement of community benefit to be determined by the city. Included in that would be the Cannery Farm, Farmhouse, Parks and Greenbelts, and $6.2 million in Community Enhancement Contributions.

Mayor Dan Wolk, in supporting the motion and providing the deciding vote, said, “There is no free lunch.” He said, “The homeowners are going to pay for infrastructure one way or another.”

However, Mayor Pro Tem Robb, while agreeing there is “no free lunch,” said he is “worried that people don’t pay for it more than once.” He argued that the reality is that, in this housing market, the demand is inelastic, and that “people won’t be able to bid down” the purchase price of their housing to accommodate the Mello-Roos.

There were several concerns expressed by Brett Lee and Robb Davis in opposition.

Brett Lee argued, “My concern here is that the residents here would be unwilling to support parcel tax measures in the future, the lion share typically going to support the schools.”

He added, “I also have a problem with the 40-year time horizon, it sets up a troublesome public policy dynamic to have a subset of the population paying essentially twice the number of taxes compared to the neighbors.” Councilmember Lee was concerned that such a tax could last up to 40 years.

Councilmember Lee noted that, in basic negotiations, there is a proposal and a counter-proposal. However, he said, “It seems like the dynamics with us is that there is a proposal and we either accept it or we don’t.” He wants to see more give and take and come to something that would be a more workable solution.

“I think it’s important that we wear our city of Davis hats while we are up here,” the councilmember argued. “This first pass proposal is a good first pass proposal, but I view it as a first pass proposal. I’m troubled by the 40-year time frame.”

He would add that there is an issue with the amount and the time frame. But, moreover, he argued there is “nothing new for Davis” as “all of these infrastructure items have already been agreed to.” “There is nothing really in addition for the residents of Davis,” he said.

We have a big list of needs, but the CFD doesn’t provide for any of these other than perhaps the $750,000.

Mayor Pro Tem Davis asked Ashley Feeney, the applicant from New Homes, “What happens if we don’t approve the CFD?”

Mr. Feeney never answered the question directly, but responded that the CFD “has always been carved out as a section in the development agreement.” He argued, “It’s critical that we have that financing in place,” as well as important that they accelerate certain infrastructure requirements.

“It’s very critical to us that it’s funded, it’s something that’s called out in the developer agreement,” he added. “We’ve always been clear that it’s something we’ve been relying upon.”

Mayor Pro Tem Robb Davis said that the proposal is about bringing certain infrastructure forward in time. This is all contained within the developer agreement that it must be done, he said.

He argued that, while the individuals who move in within the five years will benefit from the infrastructure being built early, he said, “I’m actually concerned about the people who come in later, by the time they move in ten years from now, they’re still paying the tax, but the amenities are already all in place.”

“We’re basically asking a whole slew of homeowners to pay for bringing forward amenities that would have already been brought forward before they ever moved in there,” he said.

“That gives me pause,” he said. “A strong message I’ve been getting since I ran for office, and since I’ve been in office, is, our taxes are too high.” He called the CFD an artifact of Prop 13, “the most bizarre thing that I’ve seen in my life, it’s like I’m on a different planet here.”

The mayor pro tem said that people are saying don’t raise my taxes, and “yet we’re building in potentially a 30-year commitment that we can’t actually define the benefit that we gain from that. That should give us all pause, I think.”

“It’s not that people are just saying don’t raise my taxes, they’re saying, what are we getting for this?” he continued.

Mayor Pro Tem Davis also put it to Ashley Feeney, the applicant from New Homes. He asked if the CFD was so critical to finishing this project, why it wasn’t assured that it was part of the developer agreement.

Mr. Feeney would respond, “Certainly we’ve always been very clear that we intended to do… and something that we’re relying on.” He then put it conversely, “If it wasn’t an option, then why was it there in the first place?”

He added, “The Developer Agreement foresaw that it would be asked for. It didn’t say ‘will,’ it did say ‘may.’” He acknowledged he would have preferred to have it say “will” but he didn’t think it would be a huge issue, and he said in most communities this is a five-minute discussion.

Mayor Pro Tem Davis would add that we have to look at this particular housing market when we analyze the impact of the CFD. “It is highly constrained and has been for a long time because of decisions we made as a community,” he stated. He called it “a monopolistic pricing opportunity.”

He questioned whether it would reduce the full price of the CFD. “It’s a highly inelastic demand curve,” he argued. “You can basically charge what you want, up to a limit.” He added, “It means you will not be required to reduce the cost by the full amount of the CFD.”

In the end, however, there were three votes to go forward with the CFD.

Councilmember Rochelle Swanson said that this was a long discussion that pushed the developers to put the amenities upfront and make them be real, not window dressing. “I think frankly for integrity from a public body, that when we ask for a really high level of services, and we ask for amenities, and we ask for accelerated time lines, then we have to do the other half of the equation,” she said.

“For me it’s about integrity and consistency,” she said.

Councilmember Lucas Frerichs said he is “not totally sold that this is the exact right direction to go in, but I’m going to give it the benefit of the doubt.” He went on to call the assertion that this was a bait and switch, at best, unfair as well as untrue.

He said that there has certainly been a notion in the community that the CFD was not part of the conversation at all. It was something that came after the fact.

“I take umbrage with that, it was something that was actually part and parcel to the entire process. It’s in the developer agreement,” Mr. Frerichs.

Mayor Wolk supported the motion and argued, “There is no free lunch, homeowners are going to pay for the infrastructure one way or another.” They either pay upfront through the housing prices or on the back end through the CFD.

“The CFD assists the community,” he said, allowing New Homes to build the infrastructure. While Davis has had its own issues with CFDs, this is part of the Prop 13 aftermath and the “fiscalization of land use in California, in light of Prop 13.”

“You need development to essentially pay for itself and that means that the homeowners are going to have to pay,” he said. “That’s the reality.”

Further, he argued that the city is getting $750,000 in additional funding that will come from the CFD to pay for whatever the council wants.

“Yes, the way it was worded in the development agreement was ambiguous. It wasn’t a requirement,” the mayor stated. “I’ve always felt that it was a part of the project.”

As noted before, a key dispute was the “free lunch” argument and Robb Davis countered that the realities of the housing market mean that people will not be able to bid down their housing price in such a competitive market and, therefore, they will pay for their amenities twice.

Lucas Frerichs argued that if the opposition was unhappy with aspects of the CFD, that rather than voting against it, they should amend it.

Councilmember Brett Lee attempted to amend it to ask the city staff to develop a list of projects that could be funded under the CFD, and use the bonds to apply the funding to real projects outside of the immediate Cannery area. However, neither Rochelle Swanson nor Lucas Frerichs were supportive of the friendly amendment.

The CFD passed by a 3-2 vote, with Robb Davis and Brett Lee in dissent.

—David M. Greenwald reporting

Share:

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.

Related posts

141 thoughts on “Divided Council Approves CFD For Cannery”

  1. Tia Will

    Council member Freirichs may well take umbrage at the notion of a “bait and switch”, however, I see this differently.

    “The Developer Agreement foresaw that it would be asked for. It didn’t say ‘will,’ it did say ‘may.’” He acknowledged he would have preferred to have it say “will” but he didn’t think it would be a huge issue, he said in most communities this is a five minute discussion.” 

    I cannot help but wonder how many of the groups that were convinced to support this project by being offered their particular favored amenity would have agreed that they also felt that the word “may” was synonymous with the word “will” and would therefore have agreed with him.

    From Mayor Wolk, “Yes, the way it was worded in the development agreement was ambiguous. It wasn’t a requirement,” the Mayor stated. “I’ve always felt that it was a part of the project.”

    I am not sure how Mayor Wolk got from the idea that something was an option, not a requirement, to it’s always being a part of the project.

    From Rochelle Swanson”

    “For me it’s about integrity and consistency,” she said.”

    I certainly agree that it should be. However, part of integrity is transparency. I believe that turning a “may” into a certainty after having managed to maneuver a hesitant and conflicted community into support of a project by offering sequentially more desired features to specific groups without forewarning the intent to proceed with what in the proposal is written as an option, is not what I would define as integrity. And while it may represent “integrity and consistency” with regard to the developer, this does not seem to me to apply to the city as a whole.

    I see this as just one more example of our current council majority’s willingness to “help” the most affluent amongst us, while having “tied hands” or “no options” to help businesses which might survive, not just make bigger profits, if we were to extend a helping hand to them.

    1. Barack Palin

      Tia Will, didn’t you just say yesterday that “From my point of view, if we benefit from an action or a policy or a piece of infrastructure, we should just plain grow up and be willing to pay for our share of it ourselves”?  Well, the new Cannery home buyers are going to benefit from the the infrastructure amenities in the project so shouldn’t they too be willing to pay for it?

      1. Tia Will

        BP

        My point was not that the home owners should not have to pay for amenities that they receive. My point was that the terms of a deal should be clear to all at the beginning, not couched as options which then somehow magically have become certainties or “always been a part of the deal” in the minds of council members. I will stand my ground that “may” does not equal “will” and this should have been clear to all prior to approval.

        1. Barack Palin

          I can agree with you on that.  I also have said that this should’ve been baked into the deal from the beginning.  To come to this point, where the horse is already out of the barn, is not very good stewardship by those that should know.

        2. Frankly

          There is a lack of business sophistication in how the city deals with developers.  I want to get some of Steve Pinkerton’s time and one other experienced city manager that I know to learn how stronger city-developer agreements can be executed.  I think there is a need for a statement of work and with cost estimates, and some money put in escrow that the developer forfeits if he fails to deliver per the statement of work.  There should also be some positive incentive for good performance from the developer.

          I would have supported the CFD from the beginning, but my guess is that it would have risked the Cannery being defeated in the Measure R vote.   Hence, those complaining that it wasn’t disclosed should look in the mirror if they are also a fan of Measure R.

        3. Davis Progressive

          cannery didn’t have a measure r vote so i’m confused by that part of your comment.

          to me, i’ve been disappointed from the start, i view cannery as a lost opportunity.  we didn’t get net zero, we didn’t get an innovative housing, we didn’t really even get workforce housing, so everything has gone wrong with this in my view.

        4. DurantFan

          “… the terms of a deal should be clear to all at the beginning, …”

          Right on Tia!  I use the term “Gotcha Politics” to describe situations or events where the terms (details) are not clear to all from the beginning and are backed in later. A recent example is the failed effort to “back in”  fluoridation  to our water supply AFTER we had voted to support the water project.  Other examples exist.

        5. wdf1

          Frankly: I would have supported the CFD from the beginning, but my guess is that it would have risked the Cannery being defeated in the Measure R vote.

          I guess DP already pointed this out, but I’m not sure the Cannery requires a Measure R vote.  If I’m wrong, please explain.  Thanks.

        6. Frankly

          Oops.  You are correct.  We only needed three city council members to vote on it since it was already within city limits.

          My point is still valid though as the CC responds to the voters.  And if the voters don’t get their amenities, they will raise hell about the project and demand that it is rejected.

        7. Michelle Millet

          My point is still valid though as the CC responds to the voters.  And if the voters don’t get their amenities, they will raise hell about the project and demand that it is rejected.

          I recall a lot of voters not being happy with the development deal, and the project was still approved, albeit by a 3-2 vote.

        8. Frankly

          you recall a bunch of vocal voters not being happy with the development deal, and the project was still approved, albeit by a 3-2 vote because a majority of voters supported the project.

  2. SODA

    I watched the entire meeting and have some observations:

    1. Again, the most important and controversial (in my mind) item on the agenda was next to last; smart?  Or maybe smart if you wanted less discussion. At 11:30 there was a push to ‘have the vote’ . I wold argue this item deserved an earlier time in the evening.

    2. I still am confused. Sorry hpierce, I still am. Did the CC vote to have the future Cannery homebuyers locked into a Mello Roos or is the entire city going to pay for bonds?
    Matt, I am not sure I totally understood your comment last night and why the consultant seemed to disregard it….can you elaborate?
    3. The whole ‘will’ VS ‘may’ discussion as to the CFD appeared weak to me. If it was always going to be and we discussed it as it was going to be, then WHY was it put in as may and why did they have to approve it last last?  To me, having heard many of the Cannery discussions, but certainly not all and not an expert in this area, there was never a long discussion about yes, for sure there will be a CFD. Is there regulation that a future CFD cannot be initially in the development agreement?

    4. The developer and several of the councilpersons exhibited a somewhat embarrassing entitlement attitude about the whole thing: it just has to be and anything short of that is ……well, you just can’t not do it.  Pretty clear to me when Robb asked the developer what will happen if we vote no?

    5. Dan’s last word on it was that this is a ‘fantastic development’; we’ll see. With buildings already going up we’ll see sooner rather than later!

    1. Tia Will

      SODA

      Thanks for the additional information.

      Dan’s last word on it was that this is a ‘fantastic development”

      To me it doesn’t matter how “fantastic” a development is if all of the negotiations and approvals are not open, transparent, and clear to all prior to the adoption of the proposal.

      If the entire process is not handled with “integrity” to borrow Rochelle Swanson’s word, then it casts a cloud of doubt over our ability to trust future actions and decisions by the council. This distortion of the difference between an option and a certainty does anything but build trust in my mind. As you all know, I am already skeptical about the “certain” benefits of the proposed innovation parks. This kind of manipulation of language in order to support development does nothing in my opinion to move David’s 3s on the development scale closer to the 2 position.

      1. sisterhood

        Okay one more DACHA analogy & I’ll let it rest for a while. DACHA was not openly and honestly explained to the citizens of Davis OR the residents. When trouble arose, even the city’s attorney stated she was not an expert on this field of law. Several attorneys in Sacramento refused to take my case because, when they read the DACHA manual I was given at the time I became a DACHA resident, it was too cumbersome, confusing, and open to various interpretations.

        Any cannery project should be simply explained to the citizens of Davis in language they can understand. Any potential homebuyer should be 100% sure of what they are getting themselves in for, if the project is a go. I agree with Tia’s comment, “may” does not equal “will”.

    2. Tia Will

      SODA

      Thanks for the additional information.

      Dan’s last word on it was that this is a ‘fantastic development” To me it doesn’t matter how “fantastic” a development is if all of the negotiations and approvals are not open, transparent, and clear to all prior to the adoption of the proposal. If the entire process is not handled with “integrity” to borrow Rochelle Swanson’s word, then it casts a cloud of doubt over our ability to trust future actions and decisions by the council. This distortion of the difference between an option and a certainty does anything but build trust in my mind. As you all know, I am already skeptical about the “certain” benefits of the proposed innovation parks. This kind of manipulation of language in order to support development does nothing in my opinion to move David’s 3s on the development scale closer to the 2 position.

    3. Matt Williams

      Matt, I am not sure I totally understood your comment last night and why the consultant seemed to disregard it….can you elaborate?

      SODA, I have copied and pasted the text of my public comment below. The the portion of my comment that the consultant tried to disregard was with respect to Table 1 of the Staff Report (see image below), where Staff and the Consultant had shown a sample home selling for the exact same price of $637,000 with a CFD and without a CFD. Numerically, that example supported the Monopoly Pricing argument that both I and Robb Davis were making. The consultant tried to say that that was not their intention, but later when questioned by Robb Davis, the consultant Susan did acknowledge that the monopoly supply and the inelastic demand would mean that individual buyers would actually be playing twice for some portion of the amenities.

      .
      TEXT of my Public Comment last night

      Mayor Wolk and Council,

      Let me start by saying that I am not opposed to the CFD concept, but as proposed here it is fatally flawed.

      The decision on your face tonight is very similar to the Mace 391 decision the Council faced in late 2013 and early 2014. Then, as now, the question is how best to dispose of an asset of the City.

      What is that asset? Specifically tonight, the asset is the effect of the new housing monopoly that Davis citizens and the Davis City Council have created through the combined provisions of Measure J, Measure R, and the 1% Growth Cap.

      Why is New Home Company asking for the creation of the CFD? Approval of the CFD will provide New Home Company with three benefits:

      (1) It will add to the new home company’s profitability,
      (2) It will remove approximately $12-$20 million of liabilities from their near-term balance sheet, and as a result,
      (3) It will increase the per share price of a New Home Company’s publicly traded stock.

      Why will New Home Company add profitability? In a monopoly market, like the new housing market in Davis, there are severely reduced controls on the per-unit sale price of the monopolist’s product. That means New Home Company will be in a position to collect $12-$20 million of value twice. Once at the time the CFD bond is issued and distributed to New Home Company by the City. A second time when the buyers of the newly built units fail to reduce the amount they offer for the unit, pay up front sty the time of settlement the approximately $40,000-$50,000 of present value that they will pay in the 40-year duration of the $2,244 annual CFT payments (as escalated).

      New Home Company would not be in a position to increase both its per-share stock price and the market value of its company if it were not for the new housing monopoly market that the Davis citizens and leaders have created. If the CFD is approved and the development agreement is amended, then the $12 million additional value created should be shared equally by New Home Company and the City 50/50 … $6 million each.

      The $750,000 offered by New Home Company barely covers the City’a annual billing and accounting costs over the 40-year period of the CFD. Further, the $750,000 does not cover the approximately 2% to 3% bond placement costs which on a $12 million bond would be $240,000-$360,000.

      NOTE: my three minutes expired at this point, so the following text of my comment was not read into the record

      Just like Mace 391, there are non-quantifiable policy considerations. In the case of Mace 391, farmland preservation, the relationship with Yolo Land Trust, and other considerations were key. In the Cannery CFD some of the issues are housing affordability and tax burden.

      Sharing the $12 million bond proceeds 50/50 would provide $6 million to the City that could be used to address some of the deferred maintenance challenges the City currently faces.

      Bottom line, the community asset that we have created is a terrible thing to waste. A 50/50 sharing is fair. New Home Company has put the issue of the CFD on the table. The decision of whether to except a 50/50 split is a business decision that New Home Company can decide to accept or reject.

      1. DavisBurns

        Matt, as the only speaker you should have been allowed extra time.  I watched the meeting on TV.  I wanted to attend but figured there would be others there to speak against the based on on the conversations on this blog.  I was there when the cannery was approved.  New Home reps said they didn’t anticipate the need for a CDF at that time but they wanted it left open as an option.  In my opinion, it was shoe horned in by being intentionally downplayed. CC asked about it and at least one person expressed concern based on past experience with Mace Ranch.  I say New Home lied either when the project was approved or last night. We should know that any developer who includes an option will expect that option to be approved.  We were fooled.

    4. hpierce

      “Did the CC vote to have the future Cannery homebuyers locked into a Mello Roos or is the entire city going to pay for bonds?”… I needed to take a “time out” after the vote, but can respond now. Sorry for the delay.  This CFD is project specific.  It will not be assessed outside the boundaries of the project.  However, if the CFD expends more money than the project can cover in assessments, the City’s “full faith & credit” are on the line.  The chances of that are pretty damn slim.  Never even came close to that on the Mace Ranch “developers'” CFD.  In Mace Ranch, there was a protection in that there was a “raw land” assessment that would keep the City whole if, for some reason, new development, whether residential or non-residential failed, or was delayed in coming “on-line”.  In both the MR and proposed CFD, affordable housing and public/quasi-public properties were exempted from assessments.  

      Some non-residential properties eventually “bought-out” of the CFD, to eliminate ambiguity on the raw-land assessments, but by the time that happened, the CFD was on a firm ground as to payment of assessments.  There still was no risk to the City, as a whole, and almost no risk to the residential owners.  In fact, I’m under the impression that the risks to the residential owners decreased.  There are at least two former City employees, with more intimate knowledge, who can confirm what I just wrote.

      I hope that answers the simple question you asked.

      [not to complicate your question, but guess I am, there may be a separate CFD that Cannery property owners may be subject to, for City-Wide, non-project improvements. If not, they will pay higher “impact fees” at the time of Certificates of Occupancy, and that is expected to be a “zero-sum” game.]

  3. zaqzaq

    I am philosophically opposed to the CFD and believe that the costs should be included in the purchase price of the new homes.  When my spouse and I were looking for our first home in the mid to late 90’s we were very aware of the additional costs of the Mello Roos in east Davis and factored that into our purchase decision.  We opted not to purchase there.  We also noticed that there were slightly different tax rates depending on the location of the home.  Older homes were generally lower.  I agree with those that think paying the Mello Roos tax may negatively impact voters on future property taxes.  It becomes a fairness issue in the mind of those voters.  One of the key aspects of this town has been the willingness to tax ourselves to support/improve our community.  I am more inclined to support increased taxes that go back into my city as opposed to going to the state or the feds to be spent who knows where.

  4. Davis Progressive

    i agree with robb and brett.  i think the problem here is that the residents are going to pay this twice.  first, they won’t have the leverage to drive down the price because of scarcity of housing in davis and second they’ll pay on the back end through the yearly tax.  so what we’ve done is made a project that wasn’t affordable even less affordable.  we made a project that wasn’t sustainable no more sustainable.  we made a project that wasn’t innovative, no more innovative.  so we got nothing out of doing this – except $750,000 which is table scraps even at a municipal level.

    1. Mark West

      Who’s fault is it that housing is scare and not affordable in Davis?

      The problem with Cannery is not that it didn’t supply all of your laundry list of wants, but that it is the only project we are doing.  You cannot address the sustainability and affordability of housing issues in town by stifling development.

       

       

      1. Davis Progressive

        i wonder, when you wrote that did you believe your comment was going to change my thinking?

        to address your points:

        “Who’s fault is it that housing is scare and not affordable in Davis?”

        does it matter?  i would suggest it’s a combination of factors, but regardless, the point is that creating a cfd made an already marginal project more marginal.

        “The problem with Cannery is not that it didn’t supply all of your laundry list of wants, but that it is the only project we are doing.  You cannot address the sustainability and affordability of housing issues in town by stifling development.”

        that’s fine, i’ll take a zero growth stance unless projects meet my laundry list of wants.  does that make you feel better?  thanks for convincing me to go that route.

        1. Mark West

          Not trying to change your mind at all. My concern are the people who read your comments and think you make sense.  Those are the ones I am writing for, not you.

          Your laundry list is fine, I don’t have an issue with any of it, I am just pointing out that you cannot have any of it unless you are willing to build. Want affordable housing? Build more housing.  Want workforce housing?  Build more housing.  Want innovative housing, give developers the opportunity to innovate without your preconceived notions of what is good.

          The simple fact is that the owners of Cannery knew that they were the only option on the block, and that put them in a much stronger position to negotiate their development agreement with the City.  We created the situation and gave them the stronger negotiating position because we were unwilling to build elsewhere.

           

      2. Mark West

        It is all one in the same DP.  We will never get the best deal when there is only one option on the table, so when our approach is to inhibit any and all development, we guarantee that we will never be happy with the results of the negotiations.

        We as a community (with your strong support) have chosen a course of action that has made housing in Davis unaffordable and unsustainable.  Blaming the Developer of the Cannery, or the City Council for that matter, for a project that in your view is also unaffordable and unsustainable is therefore just a tad bit disingenuous.

          1. Don Shor

            They can decline to issue permits. We went through four final inspections before we got our occupancy permit.

        1. Davis Progressive

          last major parcel in davis that didn’t require a measure r vote. that was huge.  how much did they want it?  even when lewis backed away, con agra put money into getting it entitled.  they were even able to give $2 million to dave morris to make it happen.  so con agra was willing to give $2 million to morris but davis only got $750,000 for the cfd?  wow.

        2. Frankly

          They can decline to issue permits. We went through four final inspections before we got our occupancy permit.

          I’m not so sure you are correct here.  That would be a question for the city attorney.  And even if the city did that, they would be opening us up to law suits.  And I suspect that the developer would prevail in a claim of financial harm from the withholding of permits assuming it wasn’t for any code violations and it was only the fact that developer was unwilling to give more candy to the people.

          1. Don Shor

            The council approves development agreements. Staff interprets them. If they want guidance about something that is unclear, it goes back to council. That causes delays. Lawsuits take time. Staff has leverage.

    2. hpierce

      Damn, I hate admitting when you’re on the right track, DP.

      In an ideal world, the lifetime costs of a home would be, on a ‘capital cost’ basis the same.  The variables are, it takes a active new housing market, for those who REALLY want to live in Davis, to provide a level field for projects that have, or don’t have a CFD component.  For me, that existed in Mace Ranch, when we bought.  Not convinced it applies today.  Particularly for Davis folk who are currently here and want to “move up” from what they own now (or ‘small-size’).  Neither of those groups are particularly interested in cheaper homes in Elk Grove, Woodland, etc. [A form of inelasticity, frankly]

      The home buyer who buys with all their capital costs figured in, without the CFD, if they use a fixed rate mortgage (still close to historically low rates), has no uncertainty on affordability for them when they choose to buy.

      A buyer, under the CFD, proposed, is subject to a higher interest rate for their “second mortgage” (the CFD) [source Mark Norcross’ testimony Tuesday], and faces unknowns as to what the interest rate may be, in the future, if the City doesn’t sell all the bonds TODAY (and for cash-flow reasons, that shouldn’t be a happening thing), and the future bond issues are more likely to be higher than today, and today’s bond rates are already expected to be higher than a SF mortgage.

      Also, in addition to the capital costs, under the CFD, an owner would be paying for City expenses in bond underwriting, setting up the CFD (expect the developer to attempt to recover any processing costs/fees to date -that was tried to an extent in Mace Ranch, but failed due to the diligent efforts of those “unsophisticated” public employees some refer to), normal city fees for inspection, plan checking, etc. of the covered improvements, and administration of the CFD.

      I suspect some of the no-growthers should really now support the CFD, as a future buyer will  have to pay more, over the life of their ownership, with a CFD.

      Another point that Norcross made, ignored by most if not all of the CC, was that technically, only the INTEREST on the CFD bonds is deductible.  The rest isn’t, but the IRS hasn’t been rigorous in pursuing this, TO DATE.  That may very well change, and if it does, arguably, the IRS could go back at least several years to recoup the taxes that should have been paid, in theory.  Looking over my own shoulder, on that one.

      I was surprised to learn that the City was seriously considering a developer CFD, and was very upset as they are now greasing the skids to make it happen.  Someone cited Pinkerton as someone who they would like to hear from.  According to David’s piece, Pinkerton took the CFD as a “given”.  Maybe we should get the opinion/thoughts of the CM who “lived” thru the Mace Ranch experience.  Believe he was quote to the effect, ‘on my watch, NEVER AGAIN’. [Actually I understand his exact words were a bit pithier]

      This is wrong.  Lucas should ask for “reconsideration” (as he voted in the majorirty), and in my opinion, I strongly recommend the proceedings on the CFD be ended.

      1. hpierce

        Forgot… unlike a conventional 30 mortgage, the CFD is, in effect, a 40 year second mortgage… means over time, more money is spent on interest rather than principal.  I guess I don’t care, at least for myself, but am concerned that the CC is setting up people and the City for future problems.

        Unless Lucas asks for reconsideration, it appears the die is cast.

        At least one CC member listened to my concerns… quite possibly, two, given the questions they asked.

  5. Michelle Millet

    I appreciated both Robb and Brett “wearing their city hats” and looking out for the financial interest of the future Cannery homeowners and the city at large and I am sorry their attempts to negotiate with the developer failed.

      1. hpierce

        If they have, or will, exact more, that will not be borne by the developer.  It will be borne by the future property owners.  I expect that the residential folks will go into transactions with rose-colored glasses.  They’ll be the losers.  The non-res potential buyers will do the math.  Suspect it will be a long time before there are any “takers” on the non-res property.  Yes DP, add more burden on the res (non-affordable) folk.  Nice.

  6. Frankly

    It is entirely possible that the financial feasibility of the project would not support the developer paying for all of the amenities demanded by the various people and groups that the city was responding to.  And with this it is conceivable that a necessary strategy was developed to push through for a Measure R vote first, and then work out some of the details for how to fund the amenities later.

    But anyone throwing a fit over this needs to think back to their position on Mace 391.  If you remember some of my rantings and the same from others advocating that the city not piss it away… one of the key points was that WE WOULD OWN IT AND CONTROL IT!

    The challenge with any development is that the developer owns the land and has a certain leverage after the project is approved.  The city is limited in power to force the developer to bend to its will… to basically accept a lower return on investment for the good only of the city.  There can be agreement when there are shared goals.  For example, some amenities will increase the value of the units that the developer will sell, and hence the developer will be motivated to add those amenities.

    The basic problem with Davis is it lacks the negotiating tools and leverage to secure its demands.  And its demands are quite extreme.  It wants limited development.  And when it allows any development, it wants it to be world-class and for cheap.

    Basically the city needs some expectation management.   And some education on math, business and negotiations.

    And next time we have a 400 acre parcel that we can develop, don’t allow the city to piss it away.

    1. Davis Progressive

      “The basic problem with Davis is it lacks the negotiating tools and leverage to secure its demands”

      what i see is the failure of councilmember to make those demands rather than the lack of leverage to secure them.

        1. Matt Williams

          Frankly, the October 2013 Development Agreement was very specifically structured by the City Staff to avoid the amenities timing problem that had occurred at Mace Ranch.  New Home Company agreed to the amenities build out schedule contained in the Development Agreement.  Once New Home Company signed that DA, they were accepting things that they clearly believed were in their best interest.  It is only now, one year after the DA signing, that they are asking to reopen the negotiations, using the “May” language in the October 2013 DA.  The question that Robb Davis asked Ashley Feeney of New Home last night was, “Why did you agree to and sign the Development Agreement if it wasn’t in your best interests?”  Ashley never answered that question.

          So bottom-line, the leverage that the City had was that both parties signed the agreement in good faith, and that agreement had the early build-out go the amenities as one of its key provisions.

    2. Michelle Millet

      It is entirely possible that the financial feasibility of the project would not support the developer paying for all of the amenities demanded by the various people and groups that the city was responding to.

      Since we don’t have access to the developer”s finical information we don’t know what is financially feasible for them. To be clear, I have no problem with the developer looking out for their own financial interest. What I have a problem with is our city council not doing the same for the residents of this community. Brett and Robb made an attempt to negotiate a better deal for future Cannery residents, but lacked the support of the rest of the council.

    3. Tia Will

      Frankly

      “It is entirely possible that the financial feasibility of the project would not support the developer paying for all of the amenities demanded by the various people and groups that the city was responding to.  And with this it is conceivable that a necessary strategy was developed to push through for a Measure R vote first, and then work out some of the details for how to fund the amenities later.”

      Maybe it is this is the case, or maybe it is not, and the developer is anticipating and holding out for “windfall” profits. We don’t have anyway of knowing at all because we do not see the developer’s calculations and projections of expenses and profits. You have defended this process as “the way business works”. However, when it means concessions from the city made while blinded to the developers actual needs, I do not think that it is inevitable and I believe the city and community have  right to actual information before they sign what is essentially a “blank check” to a developer while simply taking the developers word for what will and won’t work.

       

    4. hpierce

      Frankly, I think some folks are missing the point.  There are only two theories that I can think of that explain what is going on.

      Theory one:  the Developer thought the CFD was a “done deal” when the DA was inked.  That would be dis-ingenious deception by the City by putting the word “may” in the agreement.  That (done deal) appears to be the developer’s take on it, and now if the CFD isn’t approved, their “pencilling” was based on false premises, from their point of view.  If this theory is correct, the then CM, and that CC should bear the blame, but neither will suffer financially.  No remedy.

      This is not my theory, because, unlike a typical home buyer, the developer and their attorneys fully would understand the significance of the word “may”.  I believe they not only thought they had a “lock” on the CFD, but also had a ‘plan B’.  Which might result in a violation of the DA, depending how “honest” they were when making the commitments in the DA.

      Theory two:  The developer had already “pencilled out” their costs to fulfill the terms of the DA, and are now looking to grab the platinum ring instead of the gold/silver ring.  A good business-person would do that.  Guess I wouldn’t make a good business-person.  Would be hard for me to feel clean, even with two showers a day.  But I’ve heard it said, “nothing beats a try, except a failure”.  Just don’t see why we, as a City, should “enable” that approach.  If this theory is true, I hold the developer “innocent” [it’s just business], but if it goes sideways, or if future property owners finally realize what they got into, I hold 3 people responsible.  By the time that happens, if it does, those 3 people will have moved on, either ending their political career, or moving up to a level that this will not matter to the majority of the voters.  This is the theory I currently ascribe to.

      I readily acknowledge there may be other valid theories, but cannot currently come up with them.

      1. Jim Frame

         By the time that happens, if it does, those 3 people will have moved on

        I subscribe to Theory Two, and my goal is to ensure that they — two of them, anyway — move on, willingly or not, when they next stand for election.

  7. Nancy Price

    How can we trust the city council majority will be able and willing and has the knowledge and skill to negotiate with any  one of the Innovation Park developers on a development agreement that is not just sold to us because it is “fantastic,” and quibble over may or will or shall or whatever.

    This is a wake-up call to the entire community who care that the Innovation Parks are truly innovative to meet the highest standards for energy, water, and waste-water, landscape and transportation. We need measurable standards set to a “high bar. And, if  the City Council is saying that these Innovation Parks are to help with the city budget, then let’s see the analysis before these come to a vote.  We need complete transparency and not last minute manipulation, justification, and quibbles over wording.

      1. Tia Will

        Anon

        Whose idea of “innovative” prevails?”

        At last, a question I can answer. In the case where no measure R vote is needed, whomever can gain the support of three council members.

  8. Anon

    The above back and forth comments are so-o-o-o-o-o frustrating!

    1.  Prospective homeowners are told right up front, BY LAW, about infrastructure costs, and can either PREPAY that cost or agree to finance it through a YEARLY TAX.  So homeowners are fully aware they will be paying for infrastructure costs as soon as they walk in the door of the model home.  The disclosure has to be immediate, not at settlement.  A CFD allows prospective homeowners to either pay that infrastructure cost up front, or finance it over a period of years.

    2. This hybrid system of a prepay option or yearly tax for new homeowners to pay for development infrastructure is a direct result of Prop 13.  If you don’t like it, then push for Prop 13 reform.

    3. If a CFD is not permitted, the developer will then just pass the cost of the infrastructure along to prospective homeowners by raising the price of the houses the requisite amount.

    4. “Council member Lee: “This first pass proposal is a good first pass proposal, but I view it as a first pass proposal.”  I find this statement extremely troubling.  Essentially what is being said here is that negotiations on the Cannery should be reopened, and the city should try and obtain more concessions.  This is exactly why businesses are reluctant to come to Davis – there is never an end to negotiations.   As Council member Swanson pointed out: “Councilmember Rochelle Swanson said that this was a long discussion that pushed the developers to put the amenities upfront and make them be real, not window dressing. “I think frankly for integrity from a public body, that when we ask for a really high level of services, and we ask for amenities, and we ask for accelerated time lines, then we have to do the other half of the equation,” she said.”  

    5.  Who is putting up money and taking the risk here?  It certainly isn’t the city!  If for some reason the homes did not sell, the developer would take the hit.

    Originally I was not in favor of the Cannery, hoping it would be an all-business park.  However, it took a while for me to realize if an all-business park were viable, businesses would have come, and they didn’t.  Those against growth were using the all-business park concept at the Cannery to kill any future development.  At that point, I favored some sort of housing, rather than leave that property eternally vacant.  I was lukewarm to the Cannery concept as it moved forward.  However, when I saw how cooperative the developer was in bending over backwards to accommodate all the requests from various special interests groups in this town, and all the verbal abuse it took with grace from various Davisites, including some on the City Council, my view began to change.  I became extremely frustrated with the city development process itself.  When the word came down that this development would be a fiscal net neutral or positive to the city, when I learned of all the amenities and innovations the developer had agreed to, I then became a convert and strongly supported the project in light of all those facts.

    In regard to the CFD, I wasn’t sure how it worked and was initially skeptical of the idea from a consumer standpoint.  Once I learned that the taxes to pay for the infrastructure had to be disclosed by law to the prospective homeowner, and could either be prepaid or financed over a period of years, I could see no good reason to oppose it.  When I listened to both Council member Davis and Lee give various reasons why they were opposed, I found none of it compelling.  In fact, the impression I got is that both wanted to use the opportunity to possibly refuse to grant a CFD as leverage to reopen negotiations for more concessions, which hardly seems fair at this point in time.  Remember, the Cannery has already broken ground and started framing at least one building.  Now why would we not grant the developer a CFD so long as homeowners know upfront what they are getting into?

    In my opinion, Council members Wolk, Swanson and Freirichs got this one exactly right, and I hope they continue to stand their ground and approve the CFD.

    1. Anon

      What is amazing to me is that the Cannery has made more concessions than any other developer in this city, yet is virtually being punished for their cooperation.  The more they give, the more the city wants in addition.  At what point is enough enough?

      The Mace Ranch developer added amenities over years, and apparently skipped some. The Cannery is going to put all the amenities in before selling any homes, and is giving the city 3/4 of a million dollars to spend any way the city sees fit. Sheeeesh!

      1. Frankly

        The more they give, the more the city wants in addition.  At what point is enough enough?

        Bingo.

        I see it as a bit of Davis greed backed by our superiority complex.  We want it, and damn it and we deserve it.  And any developer is so lucky to be given the opportunity to build here needs to give us everything we demand.

          1. Don Shor

            Do houses turn over faster or slower in Davis?
            Does anyone anticipate that the Cannery houses will sell slowly, compared to nearby communities where the developer might build?

        1. Frankly

          Do Davis developers suffer from a lower profit margin than developers elsewhere?

          Do you see the disconnect here?

          Your question leads to the obvious mindset that since the developer benefits from inflated property values due to our self-imposed no/slow-growth policies, that we have the right to demand some of that profit to pay for all of the amenities we desire.

          And I think that makes sense up to the point where the developer loses the profit advantage of building here.

          Don’t forget the expense of the effort just to get a development approved in or around Davis.  That is certainly more costly than most other communities.

          But none of this really matters if there is not enough negotiating leverage.  What is your suggested remedy to force the developer to perform as you want him to?

          Too bad you were so adamant that we needed to give away Mace 391.

          1. Don Shor

            Actually, Frankly, it was a question. Not a mindset. But I doubt there is a shortage of developers willing to build in Davis, hassle or not.
            Too bad you can’t give up on your constant assertions about Mace 391. It is irrelevant to this housing discussion. It’s like a rhetorical hiccup that you can’t control.

        2. Michelle Millet

          Watch out Frankly you are kind of making the developers seem like victims in this scenario and you  know how self-destructive having a victim mentality can be.

        3. Frankly

          Watch out Frankly you are kind of making the developers seem like victims in this scenario and you  know how self-destructive having a victim mentality can be.

          Michelle – LOL… do I note your tongue in your cheek!?

          Yes, developers are often abused and misunderstood people.  They deserve our empathy!

      2. Davis Progressive

        “What is amazing to me is that the Cannery has made more concessions than any other developer in this city, yet is virtually being punished for their cooperation.”

        can you quantify it, because i don’t think that’s actually true.  cannery couldn’t even get to net zero, there has already been one project that has.

         

    2. Michelle Millet

      I expect the city council to look out for the best interest of the community, NOT the developer, just as I expect the developer to look after their own best interests.  A 40 year  $2,000/year CFD fee added on to homeowners tax bill financially benefits the developer and brings with it negative consequences for the city and the homeowner, who would finically better off, as stated last night, rolling any increased home cost  into a mortgage.  I think it would be remiss of council members not to question this and attempt to negotiate with the developer.

    3. Matt Williams

      Anon:  “1.  Prospective homeowners are told right up front, BY LAW, about infrastructure costs, and can either PREPAY that cost or agree to finance it through a YEARLY TAX.  So homeowners are fully aware they will be paying for infrastructure costs as soon as they walk in the door of the model home.  The disclosure has to be immediate, not at settlement.  A CFD allows prospective homeowners to either pay that infrastructure cost up front, or finance it over a period of years.”

      Anon, if the above statement is true, then why did Staff and the Consultant construct Table 1 with the buyers paying the exact same $637,000 price for their Cannery home both with and without the CFD?  Table 1 appears to confirm the fact that the Monopoly power of the seller will allow them to set the price at the level they choose in spite of any calculations by the prospective buyer.

      1. DavisBurns

        I’d sure like to see that chart.  If I attend the CC meeting, it is too blurry to read on the screen. If I watch from home it is even harder to read and the vanguard format doesn’t let us expand the text so all options are unreadable exceot maybe going to the city and getting a hard copy.

    4. Matt Williams

      Anon:  “4. “Council member Lee: “This first pass proposal is a good first pass proposal, but I view it as a first pass proposal.”  I find this statement extremely troubling.  Essentially what is being said here is that negotiations on the Cannery should be reopened, and the city should try and obtain more concessions.”

      Councilmember Lee is not saying that the negotiations on the Cannery should her reopened.  The New Home Company has requested <u>in writing<u> that the negotiations be reopened.

      You have the shoe on the wrong foot.

  9. dlemongello

    The problem with the CFD is not that whoever is living in the house will be paying for the amenities at the time they are using them, that is actually a nice way to spread it out, as long as the amenities are built right away so the early people get what they pay for.  Meanwhile, if the price of the house can be inflated because that is what the market will bear, such that the first buyer in each case has paid in full or for the lion’s share of the amenities, additionally having the CFD allows the developer to make a much larger profit and the buyer to also pay more in regular property taxes.  But depending on what the housing market does in the future, when the original buyer sells the property, he/ she may recoup that up-front cost from a subsequent buyer. So it looks like the CFD mainly benefits the developer unless there is something I do not understand.

    1. DavisBurns

      That’s how it looks to me as well.  I understand the city gets some money upfront as well but they are saddled with administering the CDF.  They aledge the city staffs time is paid for by the fund but, with all the bitching about how much the benefits and retirement costs, I wonder if they are truly covering the full cost of staff time or if this is just another assignment they will be expected to do without additional hours paid for.  Plus we have the possibility of backlash and renegotiation like we had with Mace Ranch.  Granted, we made sure the amenities were built upfront but it could still happen.

  10. Anon

    Meanwhile, if the price of the house can be inflated because that is what the market will bear, such that the first buyer in each case has paid in full or for the lion’s share of the amenities…

    The cost for the amenities is not fully paid off under a CFD until the end of the debt service period, which is being requested as 40 years.  So if the first buyer who does not prepay the cost of infrastructure but elects to pay a yearly tax sells the home after 5 years, that buyer has only paid 5/40 = 1/8 of the debt owed to pay for the amenities. The new buyer will then be expected to pay the other 7/8 of the debt still owing. If the second buyer stays for 5 years and sells, then 6/8 (3/4) of the debt is still owing, and would have to be paid by the third purchaser, and so forth.

    If the first buyer prepays the cost of infrastructure, the first buyer needs to factor that into the asking price of the house.

    If there is no CFD, then the developer raises the price of houses to cover the cost of infrastructure, which removes the financing option for the homeowner of paying for infrastructure costs over time.

    1. Davis Progressive

      you’re missing some key points.

      “If there is no CFD, then the developer raises the price of houses to cover the cost of infrastructure, which removes the financing option for the homeowner of paying for infrastructure costs over time.”

      i’m not sure that the debate here is between cfd/ no cfd.   rather the bigger problem is the structure of this cfd.  robb’s point is a good one the developer is getting their cake and eating it too – they get to pass the cost onto the residents through the purchase price as well as the cfd.  the city’s take away is virtually nothing – $750,000 – that’s it?  the developer is benefiting to the tune of more than ten million on this.

      1. Frankly

        You are leaving out the cost to the developer for building the amenities.

        The developer can only sell the units for the price that a buyer is willing to pay.

        1. Matt Williams

          Frankly, in a Monopoly market with inelastic demand the seller can set the price at its own desired level.  The prospect of too many dollars chasing too few goods will support the monopolist’s chosen price.  That is why Staff’s Table 1 is so illustrative.

        2. Frankly

          Matt – there is no inelastic supply nor demand when it comes to housing here since there are other homes on the market and in surrounding cities.  There certainly is a scarcity of supply compared to the demand.  But if the seller raises the price for profit, and/or the city raises the price through taxation, beyond the calculated or perceived value that a buyer is willing to pay, that buyer will look elsewhere for a home.

  11. Anon

    DP: i’m not sure that the debate here is between cfd/ no cfd.   rather the bigger problem is the structure of this cfd.  robb’s point is a good one the developer is getting their cake and eating it too – they get to pass the cost onto the residents through the purchase price as well as the cfd.  the city’s take away is virtually nothing – $750,000 – that’s it?  the developer is benefiting to the tune of more than ten million on this.

    1.  You are correct – this is not about CFD/no CFD.  This is about some City Council members who want to renegotiate a better deal for the city, essentially after the fact, to squeeze more out of the developer.  When do the negotiations ever end?

    2. The city is getting far more than $750,000.  The Cannery has agreed to build out all amenities before any homes are built; has agreed to provide enhanced amenities; and has agreed to many, many citizen demands for innovative ideas.

    3.  If there is no CFD, the developer will pass the infrastructure costs onto the customer by raising the price of the houses the requisite amount of the infrastructure costs.

    So I am not following your argument that the CFD needs to be “structured differently”.  How does it need to be structured differently?  And why does it need to be structured differently?

    1. Davis Progressive

      ” When do the negotiations ever end?”

      negotiations would have ended in november 2013 butfor the fact that the cannery folks asked for a cfd.  they want something, they will benefit from that, i believe based on that the council could have and should have gotten more than they did.  you believe otherwise.

      1. Anon

        Whoa, wait a minute.  The CFD was in the developer agreement, contemplated by the developer agreement and by the developer and the city – so negotiations about terms other than creating a CFA or no CFA of the DA should be over.  You just got finished telling me this is not about CFD or no CFD (so it would seem you have no philosophical problems with a CFD), but the structure of the CFD.  Okay, so I pose my question again.  What is wrong with the CFD structure, and why?

        1. Davis Progressive

          the cfd was permissible under the development agreement but a separate decision.  i disagree with you – negotiations for creating a cfd or no cfd would focus of course over the benefits to the city.

          “You just got finished telling me this is not about CFD or no CFD (so it would seem you have no philosophical problems with a CFD), but the structure of the CFD.”

          to be clear, i said that the debate was not about cfd or no cfd – and i meant that in reference to the council discussion last night.  my problem with the structure of the cfd again are the points articulated by robb and brett – lack of clear benefits to the city and the potential for double-hitting the residents.

        2. Matt Williams

          Anon, the CFD was not in the 2013 Development Agreement.  That Agreement only allowed for the <u>possibility</u> of a CFD.

          Further, all the amenities that were discussed last night are also in the 2013 Development Agreement as a responsibility of the developer, with early delivery explicitly spelled out in order to avoid a repeat of the problems at Mace Ranch.

  12. Jim Frame

    lack of clear benefits to the city and the potential for double-hitting the residents

    Don’t forget what bit us last time with the Mello-Roos at Mace Ranch:  Mace Ranch residents angry enough about their Mello-Roos taxes that they kept after the CC to reduce their Mello-Roos expenses.  My recollection is that the city “adjusted” things to transfer some of the Mello-Roos burden over to the larger taxpayer base (i.e. all of us).  I have no reason to believe that won’t happen again.

    1. Anon

      Can you give some evidence, a link perhaps, to back up your contention that Mello-Roos expenses were transferred to the city in regard to Mace Ranch.  That would be an interesting thing to know.

      1. Jim Frame

        The only specific thing I remember is Susie Boyd saying from the City Council dais, “We will *never* do another Mello-Roos in Davis again,” and she was pretty developer-friendly.  (With the exception of Paul Petrovich, whom, I think, she considered a crook.)

        1. SODA

          WIth all due respect, and I do, why wasn’t that brought up the other night?  There were only 2 non-developer commenters I believe…..I did not feel I had enough expertise to comment, yet was hoping some of the DV questions would be transferred to the podium OR the CC who read the DV would pick up on them.  Robb did when he asked, what would happen if CFD not approved.

          I still don’t understand why it was ‘may’ if it was expected by everyone (?) that is was ‘is’

  13. Anon

    Here is where I am having problem with the arguments claiming double taxation, so please explain better where you are coming from if you are a proponent of this theory of double taxation:

    1.  Are the prospective homeowners expected to pay for the infrastructure of the Cannery?  Yes or no.

    2. If you agree that homeowners should pay for the Cannery infrastructure, how should the prospective homeowners pay?  CFD or no CFD?

    3.  If in principle you agree with a CFD; and if you believe the city staff’s report that the Cannery is a net fiscal neutral or positive, then what difference does it make how much the homeowner is charged for the home?  It is whatever the market will bear.  That is business – to make as much profit as possible.  The city’s job is not to make a “profit”, but provide services and be able to pay for those services without going into debt.  Big difference.

    4.  If in principle you agree with a CFD, but are looking for more goodies to the city from the developer, then this isn’t about the CFD, this is a renegotiation of the original deal.  Now why should the Cannery have to cough up more amenities or money after the development agreement has already been signed; and in essence give a share of their profit to the city, which isn’t supposed to be making a profit?

    I cannot get past the notion that this is not about whether there should be a CFD, but more about seizing an opportunity to extort more concessions from the Cannery because they have already started building.

    And if the argument is “Well, the Cannery developer should have negotiated the CFD one way or the other in the developer agreement and not left the issue in any way open-ended”, that sounds like “Neener, neener, neener, we gotcha, so we are going to take advantage of the situation and demand more because we’ve got you in a bind!”  To ask for all sorts of special amenities and shortened time lines for construction of the amenities, then to pull the rug out from under the developer at the eleventh hour and demand more amenities because the developer “slipped up” seems to me not operating in good faith.

    Is this the message we want to send to prospective developers: nail down every cotton pickin’ detail in the development agreement, because if you don’t, the city of Davis will exploit any and every opportunity to ask for more and more and more if there are any ambiguities whatsoever?

    If you could give me me some angle that had to do with protecting consumers, that would be one thing.  But this doesn’t seem to be about protecting consumers, but about extracting as much pounds of flesh as is humanly possible.  It just doesn’t feel right from a gut level.

    1. Frankly

      I see it the same way with the exception that there are some stuck on the “fairness” issue and the “affordable housing issue” and emoting rather than rationalizing the situation. The “what the market will bear” point does not seem to resonate too well with these people in light of the fairness and affordability filters.   Many are the same that cling tightly to no and slow-growth demands which are the primary reason that the houses will cost so much.  It is frustratingly ironic.

      Looking at this from a bigger picture, what we are seeing is the passing of costs that used to be covered by government spending of our tax money.   But the government has instead used it to fund the early-age-to-end-of-life-highly-compensated-fully-paid vacation of an expanded number of government workers.  But damn it to hell we still want all those amenities and all those special services that make us all warm and fuzzy inside.   So guess what?… the end-user is going to have pay directly for them.

      The same type of thing is going on throughout the state and country… paying more for use of national and state parks… paying extra for kid’s education and extra curricular activities.  And this is on top of all the extra supplemental taxes we are paying to keep special programs going.

      You dislike a CFD as a solution?   Want to solve the root cause of the problem?   Then get behind demanding a ban to unionization of public sector employees.  Because CFDs are only the tip of the iceberg for a growing list of direct costs we will have to absorb because there isn’t any discretionary money left after paying for all those public sector employee fat early-retirement pensions.

  14. Tia Will

    Anon

    What doesn’t seem right from a “gut level” to me is to pretend that the word “may” is equivalent to the word “will”. You are a lawyer. Would you really counsel a client not to have “every cotton picking detail” nailed down in a contract before they signed it ? Very curious. In every contract in which I have participated, I have been advised to pay attention to the details. It seems to me that not to pay attention to details and then pretend that it really didn’t matter would be a most unusual bit of legal advice.

     

    1. Anon

      You clearly don’t understand contract law.  It is rife with what to do in contract cases where language is inexact, as is so often true in any contract.  Contract law recognizes that language smithing is not an exact science.  Secondly, if the CFD was contemplated in the development agreement, and is common practice in this town, what puts the developer on notice to expect renegotiation of the terms of the contract?  The words “the city may allow a CFD”?  All that says is the city may or may not allow a CFD, period.  It does not put a developer – and a developer by the way, who has bent over backward, and given a huge number of amenities and shortened time line for construction of those amenities – on notice that more amenities will have to be coughed up in exchange for CFD approval.  As DP so aptly put it, this is not about a CFD or no CFD.  This is about granting a CFD if and only if the city can extort more amenities from the developer.  There is something in contract law called “good faith and fair dealing”, and I don’t see it here if the city reneges on the CFD deal just because it wants more goodies.

       

       

      1. Matt Williams

        Your argument would be spot on in a “normal” housing market where the sellers would have to discount their sale price by the present value of the stream of CFD payments.  However, Davis isn’t a “normal” housing market, and as Susan the bonding consultant acknowledged in response to Robb Davis’ question, the home sellers are going to be able to resist the home buyers’ efforts to reduce the price by wielding their monopolistic powers in a market with inelastic demand.

        Bottom-line the buyers will pay the tax only once, but the developers will be paid by the buyers for the tax equivalent at the time of the sale. The developer will be paid twice.

        1. Anon

          So I gather your position is the city should be able to take some of the profit the Cannery will make on these homes? Or is it your position that the city should be able to control what the developer can set prices at?

          1. Matt Williams

            My position is neither of those. The profit, the revenue and the costs from the homes should flow to New Home Company. The November 2013 Development Agreement supports precisely that business relationship. The request for the CFD by New Home Company does not change the costs or the revenue that New Home Company will receive from the sale of the residential units. However, it does change the profit New Home will realize, because it provides for an incremental $12 million in Revenue from the Bond proceeds. The reason that revenue will be incremental is because of the monopoly supply market for new homes in Davis and the highly inelastic demand for new homes in Davis. Neither of those two market conditions are of New Home Company’s creation. Those market conditions were created by vote of the Davis citizens (Measure J sand Measure R) and the actions of the Davis electeds (1% Growth Cap). As a result, when New Home Company wants to keep both the sales revenue that is supported by the Davis market conditions and the $12 million CFD bond proceeds that is double dipping.

      2. Tia Will

        Anon

        You are correct that I know nothing about contract law. This is precisely why, prior to signing any substantial contract, I have had a lawyer review it with me. I have yet to be told that the precise meaning of the words doesn’t matter.

        I also agree that this is not about CFD or no CFD. For me it is about clarity in what is being agreed to prior to a vote, or decision on the part of a City Council vote. It is anything but clear to me that all voting City Council members shared the same understanding about whether or not the CFD was a given in the contract or whether it was an option.  I think that you are ascribing nefarious intent to two council members ( extraction of more goodies) when that may not be their intent at all. I see no reason to believe that all council members were not acting in what they perceive to be in the best interests of the city, just differing on what those best interests are.

        1. Anon

          If this is not about CFD or no CFD, then it is about extracting more from the developer by renegotiating the contract.  Meaning of words does matter.  It would seem two Council members want to extract more for the city from the developer.

          1. Matt Williams

            Anon, New Home Company is the party that initiated the request to reopen the negotiations in order to incrementally add the CFD to the Development Agreement, and in the process (1) be paid an additional $12 million by the City from the bond proceeds, over and above (2) the currently anticipated payment in full of the facilities by each individual home buyer when they purchased their home from New Home Company. There are no additional facilities being delivered by New Home Company in exchange for the incremental $12 million. Further, because of the lessons learned by the City in the Mace Ranch build out, the November 2013 Development Agreement signed by New Home Company clearly obligates New Home Company to a build-out of the listed facilities early in the project. So, other than the $750,000, what additional costs is New Home company incurring in exchange for the additional $12 million they are receiving?

            What Robb and Brett are asking for is a simple explanation of what a fair split of the Davis community’s $12 million should be.

        2. hpierce

          Tia: given your opposition to growth, I understand why you opine that this isn’t about CFD or no CFD.  With all due respect I ardently (passionately) assert that IS the issue.  We’re talking about how future buyers will be (pick your metaphor for ‘violation’, in a sexual/emotional/economic sense) by having the CFD.  And the city will be seen as an enabler, or if we, say, double the amount that “we get out of this”, since the payor will be the property owners, we go from enabler to “co-conspirator”.  Be that on heads other than mine.

          Matt:  don’t think they’re talking what the “split” should be.  Think they’re talking about how much more can we (ostensibly) be getting from the developer, and which will actually be paid by Cannery property owners.  Again, I guess I don’t care, as I won’t be one of those property owners.

          1. Don Shor

            I seem to recall that 20% of the Cannery housing will be in various affordable categories. My old notes from a 2012 discussion said:

            Total Affordable Units
            (20% of all units)
            121 units
            Very Low Income 30 units (25%)
            Low Income 31 units (25%)
            Moderate Income 60 units (50%)

            Would these costs be separated out from the purchase price of those units, making them ‘appear’ more affordable? Excluded? If excluded, would they be added disproportionately to the higher-cost units?
            Is this a way of making the purchase price appear lower than the actual cost?

          2. Matt Williams

            Pierce, if you listen to Robb’s friendly amendment proposal it is explicitly about the split of the bond proceeds.

        3. hpierce

          Don:  your post re: affordable units.  If the CFD is approved, ALL the “backbone infrastructure” is financed by the CFD, along with the parks and other amenities, which serve the affordable housing, will be assessed ONLY to the market rate res and the non-res properties.  For the market-rate res portion, it will be a good example of “charity begins at [the assessments on] your home”.  A good, progressive, concept.

      3. hpierce

        Anon (9:41 post)… out of all the projects done in Davis, in the last 50 years’ Mace Ranch is the ONE AND ONLY one with a developer CFD.  Hard to call that common practice in Davis.  If you’re going by what the developer’s rep said, saying it’s SOP in California, fine.  That doesn’t make it good, nor “right”.

        1. Anon

          From Wikipedia:


          New communities[edit]
          Many communities requiring new schools and infrastructures such as public parks and roads impose Mello-Roos. While property tax is assessed as a percentage of the value of the home, Mello-Roos is independent, could rise or fall, and is not subject to Proposition 13.[6]

          Older communities[edit]
          Many older communities have imposed Mello-Roos on areas that include older homes, not previously subject to Mello-Roos. This is done when property taxes begin to fall short of what is necessary. Many areas also renew expiring Mello-Roos and increase existing Mello-Roos. Current laws requires a 2/3 vote of the community for this to pass.”
          From http://realtytimes.com/agentnews/agentconcerns1/item/3527-20090610_melloroos
          “Many prospective homebuyers in California are becoming increasingly aware of the term Mello-Roos when looking to purchase new and used homes.”
          And then if you do further research, all sorts of cities throughout CA have CFDs in residential neighborhoods.

      4. DavisBurns

        If the city may allow it does that mean they may not allow it?  If the developer wants the city to allow it with no changes to their agreement, then he should include it in the original agreement.  If the city MAY allow it then the city MAY want further concessions.  The developer did not include it in the original agreement because they knew it might tip the scales resulting in a 3-2 vote against the project.

  15. hpierce

    Let’s try this another way.  If the CFD passes, under the “best of circumstances”, where a property owner is paying less for purchase (questionable), then coming out “whole”, at the end of the day (highly questionable!), the City will have $12 million less in assessed valuation.  Property taxes “lost” will be at least $120,000 less, per year.  The City/county/schools portion of that, I don’t know.  Not a huge amount, but it will be a loss in potential revenue.

      1. Matt Williams

        The Staff Report recommendation was to “direct Staff and the City’s CFD consultant to proceed with the next steps in forming a CFD for The Cannery project.”

        Rochelle’s motion “moved the Staff Recommendation.”

        1. hpierce

          Again, the Tuesday action indicated the intent.  If I was the developer, and truly felt that “may” = “will”, and given Tuesday’s action, and if the CC doesn’t approve it, in substantial conformance with how it was presented, I might well feel like the jerk who finds an attractive co-ed, ‘talks her up’, gets her to say “maybe” I’ll date you, goes on the date, gets all the words and body-english that she’s ok with going to the “next-level”, and when they’re in an intimate place, she says “I’ve decided not to” (say NO).  Think we have a law now that gives her the right to say so.  I hope the CC says “I’ve decided not to”, as opposed to crying rape after they’ve consummated what the guy (developer) may well have thought was a “done deal”.  Despite that hope, I’ll now predict that the CC will pass the CFD, essentially as currently proposed, on a 3-2, 4-1 vote.  It will be left to the future property owners @ Cannery to cry “rape”, and there will be no practical recourse.

          But as I am not that jerk, nor that co-ed, I guess I shouldn’t care.

          The practical thing is unless Lucas, who seems to be the only possible “swing vote”, requests a reconsideration, a bunch of staff time will be spent to prepare the documents to “seal the deal”, and I just don’t see him as changing the vote of Tuesday because that might be seen as a “bait and switch”. Only time will tell.

        1. hpierce

          Only if Dan, Rochelle, or Lucas bring the Tuesday vote up for reconsideration.  Only one of the “yes” votes can do that.

          At this point, I’m thinking that is about as likely as the Tampa Bay Buccaneers being the victors in next year’s Super Bowl. Theoretically possible, but unlikely.

      1. hpierce

        The next vote will be to formally adopt the terms of the CFD, and put it to a subsequent “vote of the people”… in that case, “the people” = developer.  Guess how THAT vote will go.

  16. Anon

    Okay, let’s come at this a different way.  If the Cannery developer is not granted a CFD, what do you think the developer will do to the price of homes in the Cannery?

    1. hpierce

      Exactly would they would do with the prices of the homes in the project, if the CFD is approved.  They have to sell their product for more than what they have to pay.  We have to assume, as sophisticated investors/business people, with a bunch of attorneys, that they wouldn’t have inked the DA with the word “may” in it, unless they had a “back-up plan”.  But they can also sell it for much more than they pay, if unsophisticated buyers of single family residential units are lured into paying the CFD assessments as well (how closely did YOU look at all the math when you bought your house, if you have bought a house).  I did, but after dealing with development/real estate for many years, I suspect that I was in “the 1%” who read everything, asked questions about everything, and understood 99% of what I read and what I was told.

      Since we don’t know what they would sell them for, with or without a CFD, I can’t prove it.  But why wouldn’t they maximize their profits?  They are not in business to run a charity.  They are in business to make money.  There’s nothing evil in that.  Why would the City approve a mechanism to further increase their profits, at the expense of future buyers?

      Ball is back on your side of the net.

        1. hpierce

          Absolutely!  As long as the parents and children, combined, make ~ $212 k/year in stable jobs (based on the rule of thumb I remember that the purchase price shouldn’t exceed 3 X family income).

          1. Don Shor

            Well, I’m glad that demographic is being taken care of. This juxtaposes starkly with that 0.3% apartment vacancy rate.

      1. Matt Williams

        One thing to add … New Home Company will have absolutely no reason/incentive to proactively lower the price even one cent. They will instead reactively respond to a prospective buyer’s assertion that the price needs to be lowered due to the stream of CFD payments.

  17. Anon

    Matt Williams: “Anon, if the Staff Report Table 1 can be believed, the price asked by (set by) New Home will be the same. $637,000 in the example.”

    You were in the City Council chambers when one of the experts explained that the $637,000 home price example showing the same for either a CFC or no CFD was a MISTAKE AND WAS USED ONLY FOR THE LIMITED PURPOSES OF EXPLANATION ON HOW A CFD TAX WAS CALCULATED; that the two numbers in reality would not be the same, but with the CFD the house price of $637,000 would be reduced.  And yes, I am shouting in all caps!  I hate it when people make misleading statements. Argggghhhhhhh! Sorry, but this one really got my dander up!

    1. Don Shor

      but with the CFD the house price of $637,000 would be reduced

      But in reality, what would be the total cost to the buyer? Isn’t it ‘misleading’ to tell the buyer that the cost is $xxx, but we have to add on $xxx for the CFD?

    2. Matt Williams

      Anon, Robb asked Susan (the bonding consultant whether in the supply/demand microeconomic climate of new housing in Davis (severely limited local supply and inelastic regional demand) whether the price would be reduced, and Susan agreed that in many cases it would not.

      In a Monopoly market with inelastic demand the seller can set the price at its own desired level. The prospect of too many dollars chasing too few goods will support the monopolist’s chosen price. That is why Staff’s Table 1 with the $637,000 unchanged is so illustrative. New Home Company will have absolutely no reason/incentive to proactively lower the price even one cent. They will instead reactively respond to a prospective buyer’s assertion that the price needs to be lowered due to the stream of CFD payments. Further, if they believe that there is another prospective buyer waiting in the wings (because of the regional demand for the local supply) who is likely to pay the asking price, then New Home Company will tell the hard-bargaining prospective buyer that “We will have to agree to disagree” and have the dismissed prospective buyer pass in the doorway the incoming next example of the regional demand.

      Here’s a very practical challenge for you Anon. Reach out to Ashley Feeney and/or Bonnie Chiu at New Home Company and ask them whether they will transparently include on their individual housing unit description materials that the “market price” for a 2,130 square foot home in the Cannery is $xxx,000 ($637,000 in the hypothetical example in Table 1), and that the first $50,000 of that amount is paid by the buyer through the CFD, and that therefore the net sales price of the unit is $xxx,000 minus $50,000 ($587,000 in the hypothetical example in Table 1). My strong suspicion is that neither of them will commit to that kind of transparent disclosure. Let us know what you find out.

  18. Anon

    That is why Staff’s Table 1 with the $637,000 unchanged is so illustrative.

    Not illustrative of anything, if it was conceded to be a mistake, for the purposes of illustrating another point altogether!  Sheeeeeeeeeeeesh!

    Secondly, are you advocating that the city control the prices a developer can charge for housing?

    Thirdly, are you advocating for no CFD, or just a piece of the action for the city not contemplated in the Development Agreement?

    Fourthly, the disclosure you are asking for from the Cannery is artificial and misleading to the consumer.

    1. Matt Williams

      Anon, the Ohio National Guard acknowledged that firing on the students at Kent State was a mistake. Did their admission of the mistake make the firing any less illustrative?

      No, regarding your “secondly” I believe the developer can set the prices of the homes at any level that they want to. The question is not the sale price of the homes, but the economic value of the developer’s request for the renegotiation of the Development Agreement.

      Regarding your “thirdly,” like you I am on the fence about the CFD. If it improves the City’s fiscal situation and reduces the backlog of deferred maintenance on our roads, buildings, structures, and other assets, then I am open to considering it. If it simply is a way to create $12 million of “hidden revenue” for the developer, then I am against it.

      Regarding your “fourthly,” how is the disclosure either artificial or misleading. It is simply a Present Value calculation of a 40-year stream of payments. Are you against transparent disclosure?

Leave a Reply

X Close

Newsletter Sign-Up

X Close

Monthly Subscriber Sign-Up

Enter the maximum amount you want to pay each month
$ USD
Sign up for