My View: Is $2.2 Million Enough Revenue For Voters to Pass Innovation Park?

Mace Ranch Innovation Center

MRIC-1

The city and the developers were quick to tout the economic analysis showing that the Mace Ranch Innovation Project (MRIC) would generate a net $2.2 million a year in city revenue at buildout.

“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.

However, once we unpack the expected benefit, the impact of the innovation parks seems rather modest.

First, of all, $2.2 million at buildout, which we would project in 20 to 40 years, is nice but hardly a game changer. By way of comparison, the city could generate a comparable amount of revenue with a $50 a year parcel tax – at year one, without developing 200 acres.

Second, as the EPS (Economic and Planning Systems, Inc.) report indicates, $732,000 of that projected revenue would come from a Hotel Conference Center – with one projected to be built at Richards Boulevard, and a similar one in the works along the frontage road by I-80 in South Davis. Does the city need a Hotel Conference Center there?

The bottom line is that the innovation parks have been projected to produce the kind of tax revenue that the city needs to become fiscally sustainable, but $2.2 million, while again a nice amount of money, isn’t even likely to reduce the need for a sales tax in the immediate future.

The voters of Davis, with the implementation of Measure J in 2000 by a narrow margin and its renewal ten years later by a very wide margin, are reluctant to expand the borders of Davis and pave over farmland as it is.

While we can certainly point to positive benefits to the business community and the economy from having space for research and development, technology transfer from the university and space for local companies like Schilling Robotics to expand, a large number of residents, myself included, saw the innovation park as a way to ensure the fiscal health of the city.

With the release of this report, many are now second-guessing the need for this project, and many more are now skeptical that a 200-acre project could pass a Measure R vote.

However, before we scrap the project, we should at least consider other possibilities for revenue.

For one thing, the EPS report’s analysis “excludes the ongoing operations and maintenance of Project facilities that are proposed to be funded through private sources (e.g., lighting and landscape district; Mello-Ross community facilities district [CFD] for services).”

The city has looked into a CFD of $.50 per square foot on top of the rest of the fees and taxes. That would generate over a million in revenue. The advantage of taxing built-out space is that they do not have to pay the tax until something gets put up.

Right now they are projecting 2.7 million in non-residential square feet. That includes office, flex, manufacturing, and industrial commercial, as well as a hotel and public space. Factoring out the hotel and public space, we are looking at about 2.5 million in taxable square footage.

There are mixed views on the viability of the CFD, but, as one person told the Vanguard, given the increase in the value of the land once it gets entitled and annexed, the city should have the right to share in that windfall.

There is also the matter of the 25 acres that the city owns and is considering separately. One belief is that the city should maintain that land. However, another view is that by putting the 25 acres into the innovation center, the city would have about one million square feet which over time would be worth about $10 million, once it is fully entitled. Based on that, the city could get another million a year in return for that land at buildout.

Finally, we ought to consider, instead of a 2.5 million square foot development, what happens to revenue at 4 million square feet. From the city’s perspective, the majority of the costs – roads, infrastructure, etc., are not all that different at 2.5 million square feet versus 4 million square feet.

But the added jobs, additional property taxes due to increased property values, and additional square footage along with construction costs and other fees would be a tremendous improvement.

Naturally, a more dense project will produce more concerns about traffic congestion and the like, but if the city could crank up the projected revenue from $2.2 million at buildout up to $5 million or more, it is a game changer in terms of revenue.

Traffic impacts can be dealt with over a 20- to 40-year buildout, through the investment in a regional transportation system.

The bottom line here is that if we are truly projecting a $2.2 million revenue in 20 years, then I think the voters are going to be reluctant to support this project. The city needs to think about ways to generate the additional revenue and model it so we can see the likelihood of success.

—David M. Greenwald reporting

About The Author

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

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42 Comments

  1. Barack Palin

    Do these projections include the added sales tax revenue the city would incur do to more people having good jobs spending money at local businesses?  How about the factoring in of future business start ups all over town due to the addition of more jobs and services needed by the influx of the innovation park?  There are many other factors that create revenue because of the business park to consider.

      1. Barack Palin

        One thing we can be certain of is there will be second level revenue.  The park will bring the city and the whole region up.  I’d be willing to guess that the 2nd level revenue impact might surpass the first level when all things are considered.

          1. David Greenwald

            I am concerned about the analysis finding a net return of $2.2 million, but I proposed several ways we might consider improving on that. I am reluctant to project revenue from a multiplier impact mainly because it’s difficult to project and I think we need more certainty there.

    1. David Greenwald

      My point was simply to demonstrate the relative low revenue figure of $2.2 million. In addition, I acknowledged that this commentary was focused on tax revenue and there were other benefits of the innovation park.

      1. Mark West

        The report estimates 3400 new jobs coming from the development (without any assessment of a multiplier effect). With 66,000 residents of Davis, roughly 80% of whom are adults, this is roughly equivalent to a new job for 5-6% of the adult population of the town.

        “My point was simply to demonstrate the relative low revenue figure of $2.2 million.”

        My point is that your comparison to a new parcel tax is much too simplistic to be of any value. The $2.2 million number is clearly a low ball estimate of the true impact on the City’s fiscal health. That should have been the point of your analysis in my opinion.

        1. Davis Progressive

          i think you’re missing a key problem here – the electorate leans towards slow growth, you have to be able to show a large benefit for growth and $2 million isn’t enough, especially when a third of it is a duplicative hotel.  so yes, you can argue that there are mutiplier effects here, but you can’t ignore that a huge component of the $2 mil is the hotel.

        2. Robb Davis

          Mark – One correction.  the 3400 jobs are “one time” jobs related to construction only.  Here are the three different job generation estimates from the report:

          Together, the two projects are expected to generate approximately 3.1 million square feet of commercial development at buildout, capable of accommodating about 6,500 jobs.

          The estimated one- time 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)

          The cumulative ongoing economic impact associated with the proposed MRIC and Nishi projects is estimated at approximately 11,000 jobs

          The latter are the “multiplier/ripple effect” jobs.

        3. Barack Palin

          The cumulative ongoing economic impact associated with the proposed MRIC and Nishi projects is estimated at approximately 11,000 jobs

          11,000 jobs in a community of 65,000 = awesome

          Yes DP, before you jump through your computer, I know not all the jobs will go to Davis residents, but a huge percentage will.

          What a boom for the city and an endless revenue stream.

        4. Robb Davis

          DP – I am spending today just making sure I understand the report and the various assumptions.  I have many questions–some of which I hope will be answered at the Finance and Budget Commission meeting on Monday evening or during the City Council meeting on Tuesday.  This report will be discussed at both.  I am most intrigued by the sensitivity analyses and would encourage you to look at them.  The tax sharing and increased taxable sales scenarios, along with ongoing operations and maintenance scenarios are interesting and I want to understand what might be realistic.

          So, I am not going to answer your question because I am still in my own learning mode on this.  What I am learning in the DEIR and Economic Analysis processes is that certain “conservative” assumptions are being made in each case.  I think this is prudent and having worked with projections my entire career feel like the sensitivity analyses are critical to examine potential.  In addition, I have some other questions for which I will need answers–such as Jim Frame’s question about secured vs unsecured property taxes.

  2. Jim Frame

    I’m not familiar with property tax analysis tables, so I may be misinterpreting Appendix D, but when I look at Table D-2 as an example, I see very little variation between the various commercial use assessed valuations — they range from $225 per s.f. to $250 per s.f.  These look to me like land and improvement valuations.  But what about the personal property valuations?  If there are going to be high-tech manufacturing operations, won’t there be some high-dollar equipment in those buildings that are subject to taxes?  Is that built into the analysis somewhere?

      1. Davis Progressive

        there aren’t endless streams of revenue generated by the park.  there are certainly streams of revenue and hopefully we can get more creative than eps in generating them.

    1. Frankly

      Yes, but it is clear that this analysis structured on the most conservative model.  I find it fascinating that the conclusions give the perspective of cheer-leading while also delivering what can only be described as and incomplete cost-benefit that shorts the benefits.   If I was a conspiracy kinda’ guy, I would suspect that this was exactly the type of report that I would ask for if I wanted to appear supportive but with a hidden agenda of opposition.

      I have read quite a few research park cost-benefit studies and they all delve into the secondary and tertiary tangible benefits.  Those studies also do a much better job modeling the property tax revenue from both real property and fixed assets (equipment).

      Earlier work I did and Rob White did using these other models pegged the full 200 acre annual built-out monetary benefit to the city in the $5-6MM range.  I am going to work on putting together some more detail to back this original estimate using the report.

      1. hpierce

        “Damned if you do, …” Frankly, Frankly (because you are), I kinda’ like the ‘low-balling’ of the revenue estimates.  Makes the analysis more ‘bullet-proof’ against those who are going to oppose the project in any event, and will throw any fecal matter they can to see what sticks.

        Won’t say I’m a “proponent” of the project, but as it stands (with no housing component), think I’m about 98% likely to vote in favor of it.  For many ‘geeky’ reasons, including available infrastructure, proximity to the freeway, proximity of arterial streets, etc. [Infrastructure, and drainage/flooding concerns turned me off on the 113 vicinity site]

        If housing is included, that 98% would drop to 92-85% likely, depending on the magnitude/proportion of housing.  If it went to 50% housing, I’d not vote in favor.

      2. Davis Progressive

        if you look at the end of david’s analysis, it appears you could get into the $5-$6 million range by imposing a cfd, adding in the 25 acres, and densifying the business park components.

        but i think a conservative model is appropriate here as we consider the most likely rather than the best case scenario.  just as we need a conservative fiscal model for revenue from the city.

        oversell the revenue and you may end up costing yourself in the election anyway.

  3. Topcat

    Traffic impacts can be dealt with over a 20- to 40-year buildout, through the investment in a regional transportation system.

    What are we talking about here?  Expanding Yolobus service?  Expanding Unitrans? Expanding Capital Corridor train service? Building more highways?

    And how are we going to get people out of their cars and using public transit?  I know lots of people in Davis who do not use public transit and have a very negative view of using public transit.

    1. Davis Progressive

      i have seen mentioned the idea of expanding train service, a platform stop by the innovation center.  it’s easy to change behavior and get people to use the train or other means to get to work – limit parking, charge for parking, etc.  it has to be part of the plan that people will not be able to drive to work unless necessary – there are ways to incentivize and enforce that.  we just have to be willing to do it.

      1. Topcat

        …. it has to be part of the plan that people will not be able to drive to work unless necessary – there are ways to incentivize and enforce that.  we just have to be willing to do it.

        Heck, we can’t even get parents to stop driving their kids to school in Davis.  I think it will be extremely difficult to get people to give up the convenience and flexibility of driving to work.

        I don’t see any interest in the general population towards encouraging use of public transit.

        1. Topcat

          DP said: the public may not want to get out of their cars, but they certainly want to reduce traffic congestion.

          Yes, that is the situation we find ourselves in.  Everyone wants to continue to have the convenience, comfort, and privacy of their own cars but they want other people to use public transit to ease traffic congestion.  If you think it’s easy to incentivize people to get out of their cars, perhaps you should start by trying to get the parents of Davis to stop driving their kids to school.  Certainly the kids can walk or ride their bikes to school.  That’s what I did when I was a Little Topcat 🙂

      2. hpierce

        DP… the only way a train platform could be added (for ‘heavy’ rail) is for the downtown depot to close.  I’m not “on board” with such a silly idea.

        The only viable “stop” would be if light rail is extended to Davis, perhaps with a stop @ Nishi/UCD, & maybe one at Mace.  I believe we will have the high speed rail between SF & LA a decade before the light rail extension comes to Davis.

        1. hpierce

          Alan Miller… you should weigh in on the rail aspects.  DP, I suspect your ‘second-hand source’ knows not of which they speak.  CalTrain, on the SF peninsula, is the only service I know of that has stops that close together.  It’s a CalTrans line, on an old SP route.  The population density on that corridor is at least 2 magnitudes higher than Davis.

          You can see it here:  http://www.caltrain.com/schedules/weekdaytimetable.html

          On Amtrak/Capitol corridor, don’t think there are any stops as close as 3 miles, except in the very heavily used Berkeley/Emeryville, Oakland or San Jose areas (if even there).  Such an additional stop in Davis would have to be far more subsidized than we can deal with.

          Oh, and I love and often use the Capitol corridor. Will be doing so twice next week.

          Thinking a bit more, a shuttle bus between Mace and Downtown (or using Unitrans) would be a good thing. Just not a separate rail stop.

        2. Topcat

          The only viable “stop” would be if light rail is extended to Davis, perhaps with a stop @ Nishi/UCD, & maybe one at Mace.

          I don’t see any possibility of extension of light rail to Davis.  It’s much too expensive and there would not be political support for the funding needed.

          I believe we will have the high speed rail between SF & LA a decade before the light rail extension comes to Davis.

          It is my belief that HSR between SF & LA is unlikely before 25 to 30 years, if ever.

  4. Robb Davis

    People interested in discussing what could change the Nishi net general fund impact from negative to positive may want to examine the Fiscal Impact Sensitivity Scenarios.  These are summarized in a table on page 134 of the document (page numbering is difficult because each section has its own.  So this is also page 7 of Exhibit 2: Fiscal Impact Analysis).  A more detailed description of each sensitivity scenario is found starting on Page 146 (p 19 of the Exhibit 2).

    I would also note the following assumption that is not changed in any sensitivity scenario but one that greatly impacts the Nishi result: the Nishi commercial area is assumed to have “80,000 square feet of public/nonprofit space (20% of total nonresidential space).”

    In other words, 20% of the space is assumed to fall off the tax rolls.  Or as the report says this space is “assumed to be exempt from paying property tax revenue and real property transfer tax revenue, and are not estimated to generate any onsite taxable sales tax revenue.”

     

  5. Anon

    I am generally in favor of a well planned innovation park that generates substantial tax revenue for the city.  MRIC could generate more tax revenue by:

    1. Creating an assessment district that generates substantial tax revenue without charging so much that businesses will choose to locate elsewhere.

    2. The split in the tax revenue sharing arrangement between the city and county should be more like 75%-25% city/county, since it is the city that will be providing services to the innovation parks, not the county.

    3. Nix the idea of workforce housing at MRIC  – it would be a money loser, which is what has happened to Nishi (a net fiscal negative to the city).

    4. Encourage a hotel at MRIC site as a city tax revenue generator.

    Former CIO Rob White, if I remember rightly, indicated a 200 acre innovation park should be able to conservatively generate a steady stream of tax revenue to the city of $3 million/year.  And I do not believe that figure included the secondary effects of an innovation park.

    1. Robb Davis

      Anon you wrote:

      Former CIO Rob White, if I remember rightly, indicated a 200 acre innovation park should be able to conservatively generate a steady stream of tax revenue to the city of $3 million/year.  And I do not believe that figure included the secondary effects of an innovation park.

      According to the EPS report the MRIC project will generate $3.8 million per year.  Nishi will generate $1.3 million per year for a total of $5.1 million. That is general (4.5 million) plus non-general fund (0.6 million).

      I am not being obtuse.  I realize these are gross numbers–not net of costs.  But it is not clear from what you wrote whether Rob was talking gross or net of costs imputed to the project.

  6. Robb Davis

    Anon – Concerning your first point I would direct your attention to a comment in EPS’ Phase I report (presented to the FBC in July).  On page 89 in a section entitled “Key Issues for Ongoing Consideration.”  The report states:

    Consider implications of imposing fiscal impact analysis mitigations. Given financial feasibility concerns, additional burdens on development, including annual special taxes, assessments, or other financing mechanism to cover potential net fiscal deficits or ongoing maintenance and operations requirements, may affect project feasibility.

    This merits further analysis.

    1. Anon

      Robb, thanks for pointing this out to me.  I have not had the opportunity to wade through the entire economic impact analysis – only got through the beginning, but plan to peruse entire document.  And I am in total agreement that “additional burdens on development including annual special taxes, assessments, or other financing mechanisms” does indeed merit further analysis.  I would argue that if something like this is not done, MRIC has much less chance of passing a Measure R vote.

  7. davisite4

    David, what makes you think that the City is considering the 25 acres that it owns at Mace separately?  It looks to me as though that property is included in the proposal described in the DEIR.

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