Commentary: What Can We Do to Close the Revenue Gap?

Davis-Target

Yesterday’s article, that showed Davis lagging well behind both regional comparable cities as well as other college towns in per capita retail sales, generated a lot of comments, but most of it was finger-pointing rather than a search for a solution.

We need to start by identifying the core problem.  The problem is this: we do not have enough revenue in this city to pay for our existing city services and our existing infrastructure costs.  While it is tempting to look at the cost side of equation and blame it on spending too much on city employee compensation, the roughly $32 million gap in infrastructure suggests that this is primarily a revenue shortfall rather than a cost overrun.

This is a point that Steve Pinkerton, the former city manager, made in the spring of 2014 as he presented the fiscal situation to the community.

If the city is going to embark on a General Plan update we need to be able to accurately assess our community’s challenges.  From our perspective, a shortfall in student and rental housing is part of that equation – but the revenue shortfall may be even more challenging.

Part of what makes Davis, Davis, is the amenities that we offer.  We have our great network of bike lanes and bike paths that are threatened by lack of funding.  We have our great parks that are being massively underfunded.  We have roads which, while we have increased funding for them, still are underfunded.  We have our network of greenbelts that, again, we lack funding to maintain.

We can certainly point our fingers to the cost side of the equation, but the real problem and the bigger problem is revenue shortfall.

The first question is to assess why Davis’ per capita retail sales is so much lower than places like Woodland, Dixon and West Sacramento. Clearly, part of that equation is that Davis has less retail than its neighbors.

Clearly, as is in the case of Dixon, there are large companies that are fueling some of their retail sales that Davis is simply not going to duplicate.  In the case of a city like San Luis Obispo, you have the combined impact of available retail, tourism, and it being a regional hub.  In the case of a city like Palo Alto, you have the amazing driver of economic development, high-tech and Silicon Valley, converging on a major university.

Retail-SalesThat brings me back to a discussion I had back in the summer of 2013 with the Chamber CEO Kemble Pope and then-City of Davis CIO Rob White.  The city had just lost Bayer-AgraQuest and all its jobs and tax revenue to West Sacramento.

The key question, as Rob White put it at the time, is that every university town undergoes similar pressures on how to grow while maintaining their character.

“Universities attract investment and that investment is usually research dollars attached to global or national corporations,” Rob White said.

Rob White said that we know right now that the city of Davis does not want a regional mall.  That is a revenue source that many communities have gone to, but which Davis has opted not to do.

Kemble Pope noted that Davis has done a good job of identifying what it does not want to do, the regional mall being just one good example, and he said, “That’s fine. Davis continues to be the master of its own fate.”  But within that framework, Davis does have to decide what it is going to say yes to.

To me this is still the key question that we have not yet addressed.  We can look at these lists of cities on the retail sales per capita chart and all of them, in a way, have their own model – right now, Davis is at the bottom in retail sales per capita and is therefore struggling to find where its revenue is going to come from.

We have options, though.  We do not need to become West Sacramento, Walnut Creek, San Luis Obispo or Palo Alto.

Maybe what we need is to adapt a model closer to Isla Vista or Woodland – which have nearly twice the per capita retail sales.  What would that look like?  Would that be acceptable?

The model put forth by DSIDE, the Studio 30 Report, and later the Innovation Park Task Force is somewhat different.  The idea laid out in the Studio 30 report was to work on filling existing space, add a relatively small amount of R&D space at Nishi (Measure A defined about 300,000 square feet) and then add peripheral space somewhere between 2.5 million square feet and 4 million square feet.

That model would add revenue in two ways. First, with the hardcore capital infrastructure, we would add property tax.  Second, with point of sales exchanges, we would add sales tax.

The advantage of this model is that we would be working with our existing community strengths – our proximity to the expanding UC Davis, our agricultural heritage, and the strengths of UC Davis in the fields of agriculture, veterinary medicine, and medical technology.

By bringing in new high-tech employees, we would be able to cash in on a virtual tourism, where people coming here to work would buy food, retail items and services that would fuel additional tax revenue.

But that is not the only possibility here.  Last fall, Joe Minicozzi came to Davis to talk about his model which demonstrates that more dense and efficient uses of the land can generate far more revenue per acre than the types of economic uses many communities promote, in particular big box and malls.

The third model is to go more along the lines of Woodland and develop peripheral retail like they have with the area that has Costco, Target and Best Buy along I-5.  West Sacramento has developed a huge retail area along the freeway, I-80, as well, which includes Walmart and Ikea.

A fourth model would be to simply put about $1700 in parcel tax on the ballot, perhaps going up to $3000 in order to fund the schools as well, and have the taxpayers foot the bill to run the city.

Davis needs to figure out what it wants to be and how it wants to produce the revenue it needs to continue to provide high levels of city services while maintaining its infrastructure.

The one thing it cannot do – and continue to thrive– is the status quo.  We will not be able to fund our infrastructure and city services without new revenue.  How we get that new revenue is subject to discussion.

—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.

Related posts

41 thoughts on “Commentary: What Can We Do to Close the Revenue Gap?”

  1. Tia Will

    I see the soundest strategy as a hybrid of your models. I do believe that we should accommodate more small businesses and should make optimal use of small spaces ( densify) with appropriate placement respecting zoning and guidelines ( with changes as needed over time). I also believe that we will need to increase our parcel taxes. I think this is completely appropriate since I am a strong believer in being willing to pay for what we want as we go ( with appropriate exemptions  or allowances for those who truly cannot afford the increases). 

    What I am adamantly against is any further promotion of dependency on our already far too consumption based economy. The amount of needless consumption of resources and waste generated by our conversion from a society in which full utilization of material goods has been replaced by a “disposable” mind set is unconscionable. And yes, I am a completely unapologetic minimalist.

    1. Frankly

      You are a statist stuck in stasis scarcity mindset.  Typically your type needs to be the minimalist in a community to prevent this.  However there are more of you in Davis, and you are supported by others with a stasis agenda only to keep their rents and property values high.  I think you also a landlord, so maybe you are on both teams.

      No problem being a minimalist, the problem is you and others forcing it on others that are harmed by it.

        1. Mark West

          It is easy to end up ‘going over the top’ when holding a continuing conversation with one who calls for ‘solutions’ that require major changes to human nature or society in order to be implemented. The proposed long-term changes may be appropriate and desirable, but they are rarely valid solutions to the immediate needs. We have seen major shifts in our society recently, but they tend to occur over a time span of decades, which won’t help with issues that need to be addressed today. If you are unwilling to accept interim steps along your pathway to nirvana you end up blocking efforts to solve problems rather than helping to find solutions. Our goal should be finding solutions.

      1. Frankly

        Well I am more than irritated here because the very people that are responsible for the problem this article is addressing are here making like they have anything to contribute other than adding to the problems.

        It is like some spousal abuser making suggestions for how to treat bruises.

  2. Adam Smith

    So how do we become financially sustainable?   Some argue that growth is either unpalatable or non sustainable financially.    Implicit in that proposition is that no growth is sustainable.    While the no growth group jumps at the opportunity to state that residential growth is a net cost over time, they offer no evidence that no growth is sustainable.    If we can’t grow our population, can’t add retail sales or  business/industrial growth in any meaningful way,  it’s very unclear as to how we grow the economic base, and in turn, municipal revenues.   I am unaware of any city, state, county or country that is sustainable if there is no fundamental growth in the economic activities that generate revenue growth for the  entity.

  3. Jim Gray

    Clearly we need to focus on the revenue side.  It is not going to be easy though and recommendations and considerations of ideas like a “regional mall” is both DOA in our town and yesterday’s solution not today’s or tomorrows.  Mall’s are being abandoned and converted to mixed use districts all over the country.  Aren’t we glad that we don’t have the “County Fair Mall/Ghost Town” in Davis.  The Downtown Plaza, Horton Plaza Mall in Sacramento is being demolished and repositioned as a mixed use entertainment district.

    The Nut Tree Power Center in Vacaville and the Ikea Power Center in West Sacramento have totally out-positioned our community’s ability to put together and take advantage of those Retailer’s draw of consumers.  When I visit the Costco center in “north-north Davis” up Pole Line Boulevard I see many of my Davis friends and neighbors. There is already a WalMart in Dixon, Davis, Woodland & West Sacramento.  Do we really think that WalMart would want to cannibalize their current sales by locating in Davis.

    The other impact that we should evaluate and consider is the amount of per-capita sales and sales tax that is spent at the UCD Student Store… Those $ are huge but the benefit goes to Yolo County not to the City of Davis..

    Here are a few  thoughts… 1)Why don’t we make portions of our community more dense and more vital and more mixed use.  Let’s create a authentic, real district that Davis shoppers — both families and students will want to visit and get their goods and services?  A Cool and Authentic and Hip Downtown that will attract visitors and take advantage of all of the visitors to UCD ? 2)Why don’t we consider where retail is heading?  To the internet and the web — and figure out how to attract an Amazon Fulfillment Center… innovative, data driven, good paying jobs, sales tax, and site a few of those type companies near I-80 or Highway 113?  3) What do we need to do to attract additional auto dealers?  Tesla, BMW, Audi?

    Let’s focus on where Retail is heading. Let’s update our General Plan with a vision for our future that considers realistically what our strengths and weaknesses are and sets forth a vision on how we can become more environmentally responsible and economically sustainable.   We don’t need a Mall we need a good plan!

    1. DavidSmith

      The other impact that we should evaluate and consider is the amount of per-capita sales and sales tax that is spent at the UCD Student Store… Those $ are huge but the benefit goes to Yolo County not to the City of Davis..

      Without numbers, we can’t evaluate how much is considered “huge”.

      But let’s say it is indeed huge and we want to capture it in the city. The problem is that some people here are very much against the idea of housing the student in the city and prefer the university to build more dorms on campus. When the University builds new housing, they will also build retails spaces to accommodate the need of the students living in the dorms. See West Village for example. So When students live on campus, you certainly can’t count on them spending big dollars in the city.

      1. ryankelly

        There are students who live on campus that never leave the campus, except to go to the movies or visit a bar.  They can buy everything they need on campus, online or when they go home on breaks.  Amazon has opened up a large point of delivery location inside the UCD Bookstore.  I wonder if this means that the campus is the point of sale, not the City.  Students, especially students living on campus, are not a great source of potential retail sales tax revenue in the City.

        We need to seriously look at attracting manufacturing companies to Davis and have a serious search for land to place companies and to keep the ones we have.  No more non-profit businesses nibbling away at available industrial locations.  The zoning needs to be firm and the design needs to be innovative to be attractive and flexible.

        To increase retail sales tax, we need to be willing to demolish and rebuild underutilized locations, allowing existing locations to expand and go higher so that non-retail commercial businesses are not filling sidewalk locations.   We need to address the practice of automatic opposition, political & legal, to every step we take as a community.

    2. DavidSmith

      Why don’t we consider where retail is heading?  To the internet and the web — and figure out how to attract an Amazon Fulfillment Center… innovative, data driven, good paying jobs, sales tax, and site a few of those type companies near I-80 or Highway 113? 

      I like the idea of attracting more tech-oriented business. Not only start-ups but also big names. I don’t know what it takes to attract the big names, but it may be something worthwhile looking into.

  4. Grok

    Yesterday’s article, that showed  Davis lagging well behind both regional comparable cities as well as other college towns in per capita retail sales, generated a lot of comments, but most of it was finger-pointing rather than a search for a solution.

    Interesting that you completely ignore my parking garage proposal for Olive Drive. It is admittedly a modest proposal but it is clearly a “search for a solution” that attempts to play to the strengths of Davis rather than finger pointing.

    1. David Greenwald Post author

      There’s a reason for that… The people who have the land aren’t going to put a parking lot there, so I don’t see it as a starter. The area that I have liked for a parking garage is behind the Design House, going over the tracks and landing on F and 1st at the small lot there. That makes a lot more sense. I see parking as viable that far down on Olive Drive. An added advantage is that the city owns all of that land.

      1. Grok

        Seems like a pretty closed position. It is far from certain that Lincoln 40 will be built as proposed, and there are many things the city could do to encourage a shift to parking at the Olive Drive site if they decided it was important. There is no doubt it is the largest undeveloped parcel adjacent to downtown and has the best freeway access.

        The space you suggest is another possibility, but it has significant challenges. It is tiny in comparison. to the other site on Olive. It has a businesses in front of it and accessibility from Olive would be a huge issue without removing the existing businesses. Building a parking lot that spans over the train tracks would be much more expensive and would have a much more difficult time getting approved by Union Pacific.

        On the bright side, I will take your response above to mean you do see an economic value to increased parking, particularly freeway accessible parking. maybe next week you should spend the week grinding out blog posts about parking. There is plenty of folder in the July 12 City Council meeting where the received the Downtown Parking Management Plan: Phase 1 Status Update. 

         

        1. David Greenwald Post author

          I agree on your last paragraph, although I’ll be spending next week meeting with people in San Luis Obispo. I just see that spot as too far, besides, Highbridge builds and maintains apartments, not parking garages.

        2. Grok

          I look forward to your research on how Cal Polly can house “37% of the students… in college-owned, -operated, or -affiliated housing” with only  “63 percent of students liv[ing] off campus” while UCD only houses 25%. http://colleges.usnews.rankingsandreviews.com/best-colleges/cal-poly-1143

          If I could post a picture, I would post a satellite image to demonstrate how close the proposed parking is. It is less than 600 feet from the end of Hikory lane where the proposed garage would be to the front door of Tres Harmanas.

           

    1. Don Shor

      I looked at the article you linked and think it is a very interesting idea. I’d imagine there is a critical mass in terms of numbers of likely businesses, and you’d need buy-in from landlords. But it’s good to see a creative way that one city is seeking to conserve their independent long-time businesses. I don’t know how many Davis businesses have actually been here that long (30+ years), and the ones I can think of own our own properties.
      What I do like about it is that there’s an acknowledgment that those long-term businesses have value to the community.

        1. Matt Williams

          I think yours is a great idea Roberta, and I strongly believe the Historical Resources Management Commission (HRMC) should include a discussion of an ASAP implementation on their August agenda (if they are having an August meeting) or their September meeting (if they are not).  Would you be willing to present this to the HRMC?  I would be more than willing to help you. If you are, a first stepwould be to reach out to Ike Njoku, Planner & Historical Resources Manager to see if it can get on the next HRMC agenda.

          Again, great idea.

        2. Adam Smith

          While this seems like an interesting idea to retain legacy businesses that are under financial pressure, I’m unclear as to how this help the City of Davis with its revenue problem.      I didn’t see any info in the link which would indicate that payments would be made to the city in order to preserve these businesses.

        3. quielo

          it’s interesting article but the dichotomy is the photo of Sam Wo’s who was forced out by the cost of meeting regulations and the quote by BOS Compost (as he is known in SF) blaming greedy landlords and wants to pass additional regulations.

           

          To maintain or recreate a historic atmosphere is good as it provides a sense of place.

          Other than the Mondavi which is disconnected from Downtown I have not seen a lot of music in Davis. UCD Music department hosts a lot of recitals and there must be touring acts with an interest in the student body so maybe a performance space downtown?

           

           

           

           

           

      1. Matt Williams

        I concur Don.  I’m not even sure if you would need buy-i from the landlords in a modest first step of the process, which would be to simply create an inventory of the businesses that either qualify or will qualify in the next five years.  When I think more about the idea, I suspect the Chamber could be a useful contributor to this effort.

      2. hpierce

        Looking at the link Roberta provided, the idea stinks… political patronage is needed to be considered, amounts to a public subsidy of a private business, little apparent objective criteria…

        Most small businesses fail/move on, etc., in much less than even 20 years… unless it is a family owned business (Davis Ace and/or Hibbert are examples).

        “Institutions” that even got close to or exceeded a 20 year lifetime [and were lesees], probably included, Quessenbery’s, Star Pharmacy, Discoveries, Stan’s meat market, Honorable G’s (usually the first time college student got to learn about ‘food poisoning’/dysentery’), the Varsity theaters (yes, with an “s”), the Naturalist, State Markets (same), Dairy Queen, Sambo’s, etc.

        I just don’t see the point.

        1. Mark West

          Protecting ‘legacy’ businesses from competition is exactly the sort of behavior that has gotten us into our current mess. The City should have no involvement in determining which businesses succeed or fail.

          Protecting ‘legacy’ buildings may have value, but only when the existing structure continues to add value to the cultural heritage of the region while remaining a viable location for business. Being old alone isn’t a good enough reason to protect a building.

      3. ryankelly

        What would qualify as a legacy business in Davis?  Almost everything goes through a change every 7-10 years.  There is nothing left in downtown Davis that was here from 40 years ago, except for the buildings themselves, except for Baskins & Robbins, and B&L Bike shop, maybe. Everything else is a different version of what was there before.  Which businesses rise to the level of being iconic, beloved destinations in a neighborhood?   What would keep businesses from falling into a malaise of poor service and code violations after receiving the designation?  Some of the businesses in the article had to close because of health and other code violations?  Would the legacy business designation override that?

        1. Matt Williams

          ryan, all good questions, but my suspicions are that you are getting the horse in front of the cart (as they say).  The first step in the process is to produce an inventory of our “legacy” businesses (and for that matter all the rest . . . the “non-legacy” businesses).  Once we have that picture of our businesses landscape, it hopefully will inform the decisions about what the next steps may be.

    2. Frankly

      From your article:

      “These otherwise profitable small businesses are at the mercy of a speculation-fueled real estate market with zero protections for commercial renters. This initiative incentivizes the preservation of our Legacy Businesses and gives them a fighting chance to make it through the affordability crisis.”

      This isn’t Davis’s problem.  Davis’s problem is the puckered-up old NIMBYs preventing additional development that would increase the supply of commercial real estate and drive down commercial rents due to competition.

      And also missing in this article is how the fund is funded.  Let me guess, Roberta and the NIMBY train will suggest another parcel tax.  Or maybe an other sales tax increase… oh wait… that will just be money we use to give city employee raises.

      And how many of those on the “say no to every development” crusade supported the destruction of RDA?

      1. hpierce

        Wow… you managed to pollute the arguments by bringing “NIMBY” into it… why you didn’t focus on the probable lifetime of a small business, and the most common reasons for failure/moving on, eludes me.

        Thought that was part of your ‘business background’.  Apparently, my error.

        1. Frankly

          I would support this in a situation like they have in San Francisco, but give me a break.  Davis commercial real estate is at least 2-3 times the cost of similar property in surrounding communities.   Why?  Simple answer: supply and demand.

          Think about it.  WE cause the problem that results in retail pulling out of the downtown and then WE come up with band aid solutions that circumvent the cause.

          Just build more commercial real estate.  Yes put more retail on the periphery.   Yes, accept that there might be some vacancies downtown.  Guess what happens when you cannot find a renter to take your property at the current rent?  You lower the rent until someone takes it.

        2. hpierce

          Frankly… look at my words… read my lips… I’m pretty much agreeing with you, that the program SF is pursuing would pretty much never be a good fit in Davis… Sheez!

          You remind me of a certain presidential candidate who seems hell bent to impugn those who might be inclined to support the said candidate… ‘funny’…

        3. Frankly

          You remind me of a certain presidential candidate who seems hell bent to impugn those who might be inclined to support the said candidate… ‘funny’…

          LOL.  Ok, point taken.

        4. Jim Frame

          Guess what happens when you cannot find a renter to take your property at the current rent?  You lower the rent until someone takes it.

          As I understand the market, there are two factors that override that logic.  The first is the “unwilling landlord” who would rather lose money on an unrented space rather than accept a lower rent.  The second is the “unable landlord” who would prefer to rent the space but whose loan is conditioned upon a minimum rent; if he lowers the rent his loan gets called, which he can’t afford to have happen.

          Both conditions have practical limits, of course, but we’ve seen plenty of examples of these factors at work in our own downtown for what seem like absurdly long periods of time.

           

        5. Frankly

          Jim, it might take some time, but with greater supply you would see rents stabilize more with the region.

          We will see if these Brinley property buyers can succeed in making their anticipated cap-rate work.  If not, the appraised value of the property would decline.  Over time this would translate into lower rents as property changes ownership hands.

          When a property changes hands and leases are up for renewal, the leverage is on the landlord’s side when there is scant inventory that can work as an alternative.  However, with suitable alternatives available, the prospective renter has more leverage to ask for a deal.

    3. Roberta Millstein

      Here are some points that I think are undeniable:

      There are some previously successful businesses that had to close when the landlord raised the rent.
      Many of these were retail.  Davis could use more retail; it is becoming too entertainment-centered for it to be healthy.
      Retail brings in tax dollars to the City.
      “Legacy business” can be defined in a way that is appropriate for SF.   It doesn’t have to be 30 years.  It could be 15 years or 20 years.
      Businesses that are well established in Davis tend to spend money in Davis, support local charities, etc.

      The point is that it benefits the City in numerous direct and indirect ways, and so pays for itself.

      Thus, it would be good for us to consider something along the lines of SF’s Legacy Business Registry & Preservation Fund.  It doesn’t have to be identical.  We would modify it for our purposes and to suit our local situation.

       

  5. Don Shor

    Copying this from yesterday’s thread.

    Frankly summarized these points of agreement from a discussion on this topic in 2013. I thought it was noteworthy enough to copy and paste it out then.

    – Every commercial building in town, and every piece of empty real estate zoned commercial should immediately be rezoned to allow for retail (or at the very least, conditional use retail).

    – The zoning of the core should be changed to allow for taller buildings, with every building located between 1st street and the South side of 5th street, and between the railroad tracks and the University property, rezoned to allow for retail.

    – Stop allowing the university to take over prime commercial space for more offices when that real estate would make great retail space.

    These were suggestions made on that thread apparently by Mark West, to which I entirely concurred then and now.
    1. Don Shor

      To these points I would add:
      — areas that could be developed for retail should be identified*, zoning constraints should be addressed, and owners should be contacted as to their plans for the properties;
      — if neighborhood shopping centers are still underperforming, perhaps the obstacles can be identified and dealt with collaboratively by the city and the property owners.
      These seem like they might fit within the purview of the city’s CIO.

      * off the top of my head, it seems that 5th Street, 2nd Street, and Chiles Rd. are possible places to start.

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