Both the city and the Mace Ranch Innovation Center Developers were touting the findings of the long-awaited Economic and Fiscal Analysis Report of the proposed innovation centers that was released on Wednesday.
The report analyzes and estimates the direct economic contributions of the proposed Mace Ranch Innovation Center (MRIC) and the Nishi Gateway Innovation District (Nishi), as well as the associated “ripple effect” that could be generated for the Davis and Yolo County economies.
“The report estimates significant positive economic impacts resulting from the projects — approximately 3,400 jobs, $605 million in income from goods and services generated, and $271 million in labor income. That’s impressive,” said City Manager Dirk Brazil. “The projects will likely generate positive regional economic impacts as well, but the most significant benefits will be experienced here in Davis and in Yolo County.”
The report also evaluates the long-term economic effect of the two projects after buildout. “The innovation center projects have the potential to add 11,000 jobs, $2.9 billion from goods and services generated, and $706 million of labor income on an annual basis,” said Brazil. “The innovation centers will not only create high-wage jobs for Davis residents, but will also provide the financial resources that will allow the City to address maintenance needs and provide high-level services for our residents.”
In a release from the Mace Ranch Innovation Center developers, they note from the report that “Davis indicates that the Mace Ranch Innovation Center (MRIC) project at build out would generate a projected net $2.2 million annually to fund city services like parks, libraries and public safety.”
The developers note that the MRIC is estimated to create several thousand high-wage jobs and generate over $2 billion in economic impact for the city. Moreover, they note that its construction is anticipated to create more than 2,000 jobs and generate hundreds of millions of dollars in economic impact.
In addition, they say that “the report acknowledges that the inclusion of housing into the MRIC project provides economic and environmental benefits, and that similar projects with housing have proven successful in attracting professionals of all age groups and providing financing for needed infrastructure.”
“The study makes it clear that keeping more tech companies and their high-wage jobs in Davis is good for the local economy. Our project in particular would be the catalyst for a new sustainable economic base in Davis and throughout Yolo County that will provide opportunities for quality, high wage jobs for many decades into the future,” said Dan Ramos, project manager for the MRIC. “We’re excited to be moving ahead and are confident that Davis residents will recognize and appreciate the significant economic boost that our project provides for the city.”
Vanguard Analysis: Drilling Down
The 198-page report by Economic & Planning Systems, Inc. (EPS) looks at the revenue impact of both MRIC and the smaller Nishi project. It also analyzes three alternative scenarios identified in the environmental review process to evaluate the differences in economic outcomes. The three alternative scenarios include adding 850 housing units to the MRIC project, removing the 160,000 square foot hotel from the MRIC project, and adding a 70,000 square foot hotel to the Nishi project.
Their findings are here:
They show that MRIC contributes about $3.8 million in gross annual revenues, but $1.6 million in costs, for a net $2.2 million contribution to the city revenue at buildout. However, the net impact of Nishi is a negative $78,000.
As the city notes, “The MRIC and Nishi projects result in different economic contributions due to scale and proposed land uses. The MRIC project is nearly 5 times larger than the Nishi project and could support larger building types. The Nishi project includes a residential component and smaller building types. Nonresidential space is the predominant contributor to potential economic benefits.”
EPS finds that there will be a tremendous boost from the construction process alone. They write, “The construction activities associated with the backbone infrastructure, nonresidential, and residential development for the proposed MRIC and Nishi projects will generate a one-time, temporary economic impact.”
While this is a one-time stimulus to the local economy, it is a substantial one. “The estimated onetime economic impact resulting from construction activities through buildout of the MRIC and Nishi projects equates to a cumulative total of about 3,400 jobs (full- and part-time), $605 million of output (market value of goods and services), and $271 million of labor income (earnings and benefits) in the Davis economy. Expanding the analysis to the Yolo County economy increases the estimated total economic impact of the construction activities to approximately 5,900 jobs, $1.1 billion of output, and $462 million of labor income.”
EPS finds, “Establishments using the 3.1 million square feet of commercial space to produce goods or provide services and the residents occupying the 650 housing units and spending money in the local economy will support a considerable amount of economic activity on an ongoing basis.”
They also found that the majority of the Draft EIR alternatives will decrease both the one-time and ongoing economic impacts. More on that shortly.
EPS writes that the ripple effect will generate new offsite market demand for nonresidential real estate. They find, “At buildout, the proposed MRIC and Nishi projects could directly support about 7,000 jobs on an ongoing basis. As a result of the multiplier effect, which accounts for estimated economic activity resulting from demand on suppliers and household spending, these projects could generate an additional 5,000 jobs in the local economy. These additional jobs will create incremental off-site demand for commercial real estate, which could translate to roughly 1.5 million square feet.”
That would be enough to sustain another potential innovation center.
As mentioned, “The DEIR alternatives could have negative effects on absorption rates and, in some cases, bring higher costs that jeopardize feasibility.” While they find that two alternatives, including the MRIC Mixed-Use alternative, could increase one-time and ongoing economic impacts, it would increase costs as well.
They write, “Increasing the density in MRIC, as reflected in the Reduced Site Size Alternative and the Mixed-Use Alternative, brings needs for structured parking as well as additional-story R&D space that may require local market conditions to improve before it can be phased in.”
Overall, both projects are expected to generate an annual net fiscal surplus of $2.1 million for the city’s general fund at buildout.
However, broken down, “Development of the MRIC project is estimated to generate an annual net fiscal surplus of about $2.2 million for the City’s General Fund. However, the Nishi project is estimated to produce an annual net General Fund deficit of approximately $78,000 at buildout. These results assume a 50%/50% property tax sharing allocation between the City and County of the applicable property tax rate for the portion of the Innovation Centers in the unincorporated County, among other key assumptions described in the fiscal impact analysis memorandum.”
EPS notes that, while the Nishi project is “estimated to result in an annual net fiscal deficit at buildout, the project is envisioned to contain land uses that contribute to a successful innovation ecosystem.”
EPS notes, “The estimated annual net fiscal deficit for the Nishi project is attributable to two key factors: 1) the inclusion of 650 residential units; and 2) an assumption of approximately 80,000 square feet of public/nonprofit space (20% of total nonresidential space). Residential development – in particular higher-density, moderately-valued residential development – is often a net fiscal burden on a city’s operating budget.”
But this is a trade off as “cities desire residential land uses to accommodate a balance of land uses, provide workforce housing, and fulfill other policy objectives. For the Nishi project in particular, the presence of housing is a positive attribute that will enhance the mixed-use character valued in innovation centers and will likely improve the internal economics of the project.”
They add “this type of space – in particular for the Nishi project – has the potential to attract UC Davis-related users, capitalizing on the university’s research strengths and strengthening the local innovation ecosystem and local project economics.”
Moreover, “The annual net fiscal deficit of the Nishi project may be lessened by actual conditions that are more favorable than those modeled in the analysis.”
Meanwhile, the Finance & Budget Commission appointed by the city council will be the first to hear the report presentation and take public comment. The city writes, “The public is encouraged to attend the Finance and Budget Commission on September 14 at 7 p.m. in Community Chambers at City Hall, 23 Russell Blvd., to ask questions and provide feedback. All comments will be transmitted to the City Council for their consideration at City Council meeting on September 15th.”
—David M. Greenwald reporting