On Monday, the consultant A. Plescia & Co. Economic and Planning Systems (EPS) made a presentation to the City of Davis Finance and Budget Commission on the fiscal and economic impact of the innovation parks on Davis. As we now know, the Davis Innovation Center has pulled out, which will naturally alter some of these findings.
However, the preliminary report, for which we have a PowerPoint presentation, suggests that the innovation parks may have a long-term positive financial impact on the city. Despite the improved economy and budget picture, the city faces major long-term fiscal challenges in the form of both employee compensation as well as infrastructure costs.
On the other hand this report makes it clear that much of the fiscal impacts on city revenue will not come immediately. The new parks will need to be constructed and built out over time and the ramp up could take 20 to 50 years. That suggests that, even in the best case scenario, the city needs to continue its fiscal constraint and to plan accordingly.
The study conducted by EPS made a number of assumptions, including a 20 to 50 year absorption rate. It modeled for 7.1 million square feet, 6.5 million of which would be office and tech space along with 18,400 new jobs. Both of those figures will need to be adjusted with the exit of the Davis Innovation Center.
However, we can view the impact of the loss of the Davis Innovation Center.
EPS analyzed the prospects for users and found that “Greater Sacramento data show every year one user seeks a Davis site to accommodate 100,000+ SF of space, but is deterred by a lack of space or shovel ready land.” They found, “Brokers estimate probability of campus scale user at 10 to 15 percent any given year.”
They write, “Campus development opportunities hotly contested and often involve economic incentives.” Therefore they conclude a more likely target: “established small and medium enterprises across tech industries.”
However, while true, John Meyer pointed out in an interview with the Vanguard that Davis was able to beat out Chicago for Mori Seiki and Davis has landed established companies like HM Clause due to the proximity of the university.
In their financial analysis, they looked at factors affecting development rate and mix. Davis has a lease rate challenge in that it needs “real growth to capitalize multi-tenant speculative construction of higher-end flex office/R&D space affordable to start-ups. Annual increase of 3.7% projected.” They write with pending improvements in the market, we are “more likely to see near-term build-to-suit activity among owner-users and fewer speculative multi-tenant projects.”
They warn, “If development is dominated by owner-users, absorption of innovation space is likely to be uneven on a year-to-year basis as major owner users move forward on projects.”
Davis must overcome cost disadvantage, as it has “higher fees and special taxes than Roseville, Folsom, and Vacaville (comparable to West Sacramento). In addition, competitive cities have modern and viable built space available for less than construction cost.”
And a point made by many, perhaps most recently by Mayor Pro Tem Robb Davis, is that Davis needs a “clear and straight-forward entitlement and permitting will reduce time and risk levels, resulting in improved absorption rates.”
Given the potential build out rates, it is possible that the loss of the Davis Innovation Center does not really affect these calculations. If Davis were to pass on the Mace Ranch Innovation Center and Nishi, the city would still be looking at over 3 million square feet of total place and nearly 2 million square feet of research and development space that could still generate plenty of revenue for the city in the short term.
That would give the city enough time to assess their current policies and the developers enough time to determine whether Davis represents a sound or risky investment.
The other factor, of course, is the impact of a potential 18,000 new jobs. There has been limited discussion of potential mixed-use housing. There is some belief that adding the jobs would fix what is already an imbalance in housing and jobs with a large cross-commute, with many people leaving Davis for Sacramento and even the Bay Area to work at jobs there, while others come into the city to work at the university.
Clearly, with Davis Innovation Center pulling out that would cut the projected jobs from 18,000 to perhaps 8,000. However, there has not been enough discussion about how this will impact the community in terms of housing needs and traffic impacts. This was a preliminary report to begin with, and more likely they will have to reduce the assumptions for the next version that comes out.
However, as some have pointed out, there is a clear need to have a more general discussion of how the innovation parks will impact land use policies.
—David M. Greenwald reporting