Commentary: Davis’ Loss

For a brief time, Davis seemed to be on the right track, maybe even ahead of the curve.  In need of revenue for a city whose retail tax was not only lagging but heavily titled ironically toward auto sales, the city looked at the possibility of developing a peripheral research park.  The city put out a Request for Expressions of Interest (RFEI), and it got three proposals that led to two applications.

The two applications – one near Sutter Davis Hospital called the Davis Innovation Center, and one at Second and Mace called the Mace Ranch Innovation Center (along with the proposal of 300,000 square feet of R&D space at Nishi) – had the potential to transform this community.

Not only would it bring in desperately needed revenue in the form of fees, property tax and sales tax, but it had the chance to help the community, the university and the region realize its potential as a high-tech market.  The research at the university would be spun off into the private sector through a process known as technology (or tech) transfer.

The hopeful optimism of 2014 has given way to a more somber assessment of the situation.

It is easy to point fingers, but there are many reasons the two large innovation centers have failed to materialize before a public vote could even be taken.

In order to convince more voters to support the project, the RFEI requested that proposals be commercial only, with no residential component.  While politically that decision made a lot of sense in Davis, which remains highly skeptical of housing developments and peripheral developments of any sort, financially it was probably a non-starter.

MRIC attempted to add in a mixed-use component, a proposed 850 units of workforce housing, and the council shot down that proposal – where at least vocal segments of the community were highly opposed.

We have seen this argument come back – the belief that these houses will not end up serving the workers and employees of the site and could fall into the hands of students.  Others have argued this is basically bait and switch – that we were promised a proposal without housing and then given one with housing.

The reality, I think, is a bit different.  We now see that the Woodland Research and Technology Group has submitted a mixed-use proposal.  Some have called this basically a housing proposal with a research park component.

I don’t believe that is a fair assessment.  The R&D space will be 2.15 million square feet which, as it turns out, is fairly similar to the proposals in Davis on a smaller footprint.

Some have reasoned that the need for housing means “the regional demand for business parks is too weak to making building them feasible without a large subsidy in the form of high profits from residential construction.”

That is certainly a fair question that we should dive into more deeply at some point.  From my discussions, there are some unique factors in business parks that seem to require something to anchor investments.

When one builds a home, the expectation is that it will be filled within a relatively short period of time, and therefore it is a safe risk for investors.  A commercial development will often have critical anchor tenants that will immediately be committed to move in, which again makes the financing fairly straightforward.

However, a research park is different.  The major infrastructure costs figure to be up front, but the build out for a research park looks at a 20 to 30 year time horizon.  That means that investors may not get the immediate return on investment that they need.

There are ways to mitigate against this.  From what we have seen in other locations, there have been public-private-university partnerships where the universities plop down a huge amount of investment money to go with private developers and the cities to make the project viable.

Some of these research parks are separate from the university.  For instance, for the Purdue Innovation District, the Purdue Research Foundation and Browning Investments are teaming up on what will be a $1.2 billion mixed-use project at the west end of Purdue that will take about 15 to 20 years to build out.

The 450-acre project will have “several million feet of building space including housing for students, faculty and city residents; a hotel with conference center; restaurants; office and business space; parks; research facilities and industrial space.”

Again, even with the large investments from the private industry and the Purdue Research Foundation, they will have commercial and residential components to the project.

Other projects like in Champaign, Illinois, are actually attached to the university.

Housing seems to be a critical component to the financing for these project – however, the Vanguard has suggested that the presence of a major university investment, or a facility like the World Food Center, could act as the sort of anchor-tenant that might make a project possible without housing.

The Railyards project in Sacramento has some major anchor tenants as well.  In addition to pushing for an MLS Stadium and the World Food Center, the Railyards can rely on a Kaiser Facility.

Davis, if it got the World Food Center or some equivalent investor like the university to plop down half a billion dollars (as what happened with USC Village), could avoid a mixed-use project.

But is it even rational at this point not to include some sort of housing component?

Tia Will pointed out in her comment: “I see the problem as a broader one in which Davis will not accept any project which entails housing for a variety of reasons. Given that we have both revenue and housing needs, this approach seems short sighted to me.”

Not only does Davis have housing problems – for students and also for young families – but also the research park figures to add to that housing pressure by creating perhaps 10,000 new jobs without creating housing for those people working.

So it makes sense for environmentally conscious Davis to have people work in Davis but commute from Natomas and Elk Grove?  There is a disconnect here that is rather remarkable.

I see this move to Woodland as good for the region, but a huge blow for Davis.  I agree that this is not a zero sum game.  This is not a direct loss for Davis. But it is a loss.  This is somewhere around $10 million in revenue that will go to Woodland and not go to Davis.

Davis is fortunate to have Area 52 and the University Research Park, but if Davis doesn’t figure out how to make housing and commercial space work, we are going to be losing out on millions of revenue from technology transfer coming from OUR university and that would be tragic, given the state of our finances.

I still do not believe this requires a major compromise from the community value of protecting agricultural land.  A 200-acre project is probably all we will need for the next 50 years.  It may not completely solve our problems, but it will create a huge ongoing revenue stream and good well-paying jobs for our student graduates.

Davis was on the forefront of a great movement and now is getting on the back of the bus.  Woodland will have their research park up and running within a year.  Sacramento has the Railyards.  And Davis is still getting in its own way.

People keep asking, why are you pushing for this stuff that the community doesn’t want?  First of all, I don’t know that the community doesn’t want it and, second, I don’t see another way to make the city’s finances pencil out.

A well-designed mixed-use research park would fit right in with the city’s university town character and we could do it in a way that would enable us to remain financially viable while precluding other major development for the next 20 to 50 years.  That seems like a good approach to me.

—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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15 Comments

  1. John Hobbs

    “heavily titled” or perhaps “heavily tilted?”
    “A 200-acre project is probably all we will need for the next 50 years.”
    Small thinking, imo.

     

      1. Mark West

        I think ‘small thinking’ is the problem. Instead of being forthright and addressing real needs, we make timid attempts at efforts that are designed to offend the least number of voters. Whether it be tax increases or economic development, the efforts being put forward are designed to appease the expected opponents rather than honestly address our problems head on.  The result is that everyone knows that the timid efforts are insufficient, and consequently won’t see them as necessary or a priority. We need to change the paradigm and make solving our problems the priority. Do it openly and honestly and the majority of voters will respond.

         

        1. David Greenwald

          Maybe, but I don’t think that’s a politically viable approach.  Politics is the art of the possible.  Right now, I think a modest proposal is possible.

        2. John Hobbs

          “timid attempts at efforts that are designed to offend the least number of voters.”

          ” Right now, I think a modest proposal is possible.”

          All previous voter rejections would seem to be evidence to the contrary, David.

          I don’t buy into the intellectual superiority thing you guys profess, but if there really are some above average minds there, they might indeed be more receptive to big solutions instead of patch the potholes here and there..

        3. Mark West

          The piecemeal approach that we have been following is self-defeating, and what you might choose if you really don’t want to solve the problems but want to act like you are doing something. In my view, it is fundamentally dishonest and should be rejected.

          Let’s figure out what we truly need and work to fulfill that goal through a combination of cost reductions, tax increases and the expansion of economic vitality. A ‘small thinking approach’ will just make the problems worse.

           

        4. David Greenwald

          We haven’t had a piecemeal approach – we’ve had a brief approach where projects came forward and died before they got to the voters.  That’s not piecemeal.

        5. Mark West

          “We haven’t had a piecemeal approach”

          Yes, we have. The actual need to cover our unfunded obligations and balance our economy will be closer to 1000 acres of commercial development, yet you are arguing that we only need 200. Your proposed approach ignores the true magnitude of the need and is therefore functionally dishonest. I also mentioned tax increases in my comment, where we have in the past voted for a $49 park tax when the known need at the time was 4x greater. There are those arguing now for a $100 parcel tax for infrastructure when the known need is greater than 10x that amount.  There are all examples of small thinking that do not honestly address our problems. Piecemeal, if you will.

          1. Don Shor

            Well, there was an economic development strategy. Two stand-alone business parks, plus one that included some housing. All derived from a several-year process of identifying sites, putting it out for bids, and so on. Problem is two of the development teams bailed and the voters didn’t cooperate. We’re back where we were in about 2009.

        6. Mark West

          “We’re back where we were in about 2009.”

          We are back where we were in 1995 when the City recognized the severe shortage in commercial space and sales tax revenues (in a report prepared in advance of the General Plan update) and then proceeded to ignore the problems.

        7. David Greenwald

          I don’t think the council is pushing on this hard enough, but unless you are consider “the city” to include the citizens, I don’t think this is a fair comment

  2. Tia Will

    Davis seemed to be on the right track”

    First of all, I don’t know that the community doesn’t want it and, second, I don’t see another way to make the city’s finances pencil out.”

    I believe that you see this as “the right track”. You have been very consistent on this point. I believe however, that there are almost always multiple solutions to a problem. In your own words you seem to see this as the only option. However, I think that there is ample evidence that the majority of people in town do not agree and do not want a major innovation center of this type. It was not “a small group” that narrowly defeated Nishi, it was a majority of the voters.  I do not see a huge outcry for this type of development from any group except the developers , investors, and those whose businesses would benefit. While I believe that they have every right to advocate for their own interests, I would suggest that the “community” has demonstrated a lack of interest, if not outright opposition to such a large scale project.

    1. David Greenwald

      Tia – there is not one solution, as I’ve said on multiple occasions. But I don’t see any solution without an economic development component.

  3. John Hobbs

    ” But I don’t see any solution without an economic development component.”

    Tia has said repeatedly that she will gladly pay her share and yours, so no problems. right?

     

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