Commentary: We Are Running Out of Options for Financing Our City

Mace Ranch Innovation Center

When Chancellor Gary May took over at UC Davis in August, one of the first things he said is that pushing for a center for innovation, technology and business in the Sacramento region would be among his goals.  And while it is clear that the chancellor and others are eyeing Sacramento as a location, neither the chancellor nor Sacramento business and innovation leaders are completely ignoring Davis.

To illustrate the commitment from Sacramento regional leadership, Greater Sacramento Area Economic Council sent John Krueger, their executive vice president, on Tuesday to the council meeting to speak to their support for Mace Ranch Innovation Center (MRIC).  Mr. Krueger stated, “The idea is that the strengthening of the economy can be done utilizing UC Davis’ research in a research park and an innovation center like this really means strengthening our entire six county region.

“With the strengthening of the economy, it means new revenues to the city of Davis,” he pointed out.

We have heard from people who complain that this project is risky.  We have heard concerns that support of this project means turning back a commitment to slow growth.  I believe that the opposite is true.  I believe this is a low risk endeavor and I believe that supporting this project can help preserve our commitment to slow growth principles.

I will explain both in some detail here.

There is no such thing as a zero-risk project.  There is no such thing as something in life that has no risk associated with it.  But we take calculated risks all the time and operate in a world of uncertainty simply by mitigating our risks.  That is how I see the MRIC project.

It is very clear that UC Davis is in many ways an untapped resource, which is why regional leaders from Greater Sacramento’s CEO Barry Broome to Sacramento Mayor Darrell Steinberg are eyeing UC Davis’ potential for generating jobs and transferring university research to technology and private sector job opportunities.

As Mr. Broome put it, “There’s 174 university research parks in the United States. For us to have a university doing a billion dollars in research and not have a research park? It’s beyond a missed opportunity, it really is negligent.  UC Davis is the missing link in this region turning a corner, because it has so much to offer.”

What is the risk if an innovation center fails?  And this really gets to why I believe that an innovation center can enhance our slow growth legacy, not threaten it.

The worst case scenario is that you build the research park, and companies do not come.  I think that’s a relatively low risk because the location of the park is such that the impacts will be mitigated.  The land is already between a conservation easement and the Mace Curve.  That means that we are unlikely to see this spawn new development or create sprawl.

We would be transferring about 200 acres of agricultural land for urban uses, but one of the great advantages of Davis is that the type of research and development is more likely to be along the lines of agricultural technology, which means that many of those fields could well remain in agriculture into the future.

The worst case scenario is that you have a limited amount of agricultural land converted to a use that does not work out and therefore will need to be converted to another use.  That does not seem to be a catastrophic impact.

Let us therefore address economic issues as well as slow growth impacts – as I think they are actually rather closely related.

The city’s finances are not in good shape and the real problem here is that we are running what would appear to be about an $8 million shortfall, which I think is actually a low number and probably a very low number compared to the actual shortfall, during times of relatively good economy.  This isn’t a booming economy, but we have had relatively consistent economic growth for at least half a decade now.

And yet the city is struggling to pay its obligations to employees and is well behind in terms of its ability to provide for basic infrastructure.  As a result, city services and amenities are being threatened.  And, to be quite frank, we really haven’t had that “come to Jesus” talk as a community for what this all would mean.  I think we are in heavy denial as to the severity of the challenges that face us.

The problem that we have is that our options are rather limited.

We have talked about cost containment which is a very necessary component of a sound fiscal policy.  But I think we have to be clear – cost containment is just that, containment.  That means that we will hold the line, so to speak, to prevent our costs from spiraling further out of control.  We are not going to fix an $8 million deficit on a containment strategy.

Where I see a cost containment strategy as effective is that it holds costs in line to allow revenue measures a chance to work.

Second, we have taxes.  As I said earlier this week, even in the best case scenario, economic development is middle term strategy.  We are not going to see revenues for at least ten years on this.

The reality is that the best time to do economic development is ten years ago.  Had we undertaken an innovation center back in 2010 when these efforts really began in earnest, we would be just now starting to see the fruits.  The second best time to do economic development is now.  Because, again, the fruits are delayed.

Therefore, taxes have to come and that is not a good thing, but it is a necessary thing.  First of all, taxes will make this city even harder for those of modest or middle income to survive.  Second, as we have seen with the teacher salary discussion, there is always going to be competition for scarce tax dollars and city purposes are going to often finish a distant second.

Third, there is growing our economy.  And, again, the city is adding hotels and hoping that they get some additional revenue from TOT (Transient Occupancy Tax).

But again, as we have seen, retail is struggling and adding retail is unlikely to generate a lot of new revenue.

The bottom line here is that not only does a tech park line up with the purpose and strengths of a university town, there really is nothing else here.

UC Davis generates billions of dollars each year.  It is a huge and largely untapped economic engine.  And a 200-acre tech park three miles from campus is a potential gold mine for the city to transfer some of that research into viable private sector technology.

Are we counting on MRIC to be a savior?  Unfortunately, I think we are and that is not a good thing.  But tax revenue is going to be difficult to obtain, retail is struggling, and the city needs revenue.

The good thing, I think, is that we can do this while protecting our legacy as a small college town.  Two hundred acres sounds like a lot, but it is a 30- to 50-year build out.  That’s not fast growth.  That is adding on average 4 to 7 acres a year over one-third to half a century.

Given that the land is largely surrounded by existing development and a conservation easement, it is not likely to lead to sprawl or leap frog development.  It is a modest and quantifiable expansion of our land uses, not a giant leap ahead.

And it has the potential to integrate existing agricultural uses rather than strictly replace them.

I really do not see another alternative path here and this remains a modest one.

The other option is that we could do nothing.  We could argue that this is an imperfect project and that we should just stay the course.  I don’t see that as a viable strategy, but at some point things will get bad enough that people will force change and that change is likely to be much more desperate and much more radical.

Bottom line: Two hundred acres over a 30-to 50-year period is a small price to pay for a chance to preserve the key benefits and strengths of this community and be able to provide the revenue we need to keep the Davis that we all know and love.

—-David M. Greenwald reporting

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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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  1. Sharla C.

    When I drive to Woodland, I see this area that is devoted to industry – large warehouses and commercial buildings that can accommodate businesses.  I’m reminded that this is something that Davis does not have. We have these little pockets of areas zoned for industrial uses, then allow day care centers and theater groups and other non-profits to be established that threaten to limit manufacturing and research in those zoned areas. We convert these areas to multi-family housing, because the land is cheaper and available and has few neighbors that will protest it.  We have business establish themselves in Davis and then have to leave to Woodland or West Sacramento once they become successful and need more space.  It is something that Davis needs.  There is slow growth and then there is smart growth.  Smart growth can  be slow, but “growth” is not static, by definition.

  2. Tia Will

     I believe this is a low risk endeavor and I believe that supporting this project can help preserve our commitment to slow growth principles.”

    You have not mentioned one key component regarding “slow growth” even one time in the entire article. That is housing. You have said a sum total of zero about where these additional workers, students, interns and those who run businesses to serve their needs are going to live. If we provide housing for all of them, that is certainly not “slow growth”. If we do not provide housing, are we encouraging commuting ?  Not one word, and yet you are sure” this project will help preserve our commitment to slow growth principles” ?

    I cannot state that I am either for, or against a project that does not exist. I have written this only to point out that “growth” cannot be defined solely economically or in terms of population. To be realistic, any assessment must include both.

    1. David Greenwald

      That’s an important point.

      Clearly council has made it clear (three of them) that this is going to be a commercial only development.

      Clearly mixed use would be less problematic for this, even without a clear enforcement mechanism for how to get to 60% of housing residents to be workers.  And I happen to believe there are ways to get that number up.

      I know some have suggested that the property inside the curve by Harper might be conducive to housing for MRIC.

      And there is another variable and that is mismatch between jobs and housing that we already have with 21K coming into town for jobs and 16K leaving town to go work.  If we can align that better, perhaps that is an answer.

      Clearly housing is an issue that we haven’t adequately addressed.  Clearly finance is an issue that MRIC will be designed to address.

      I know I get accused of believing that the sky is falling, but despite chicken little becoming a metaphor for false prosphecies in this regard, sometimes the sky does in fact fall on communities.

  3. Leanna Sweha

    Well argued, David.

    GSAEC’s message appears to be, “it’s yours for the taking, Davis, but if you don’t want it, we’ll gladly take it in Sacramento County.”

    1. John D

      Or Yolo, or Solano…..but what the hey, we’re a rich community (from what I keep reading)….and, besides, who really needs a job (apart from all those wonderful new graduates)….. but, then again, that’s not really our problem – right??

  4. Richard McCann

    I think I saw in an earlier Vanguard article that 60% of our sales tax comes from the car dealers at Mace and I-80. We can’t continue to be dependent on what is two dealership owners (Hanlee’s and University Honda). I see two threats to those remaining in Davis. The first is that Woodland is growing south, and with the new research park on 113, will have a ready platform to add an auto mall closer to Davis and up the road from 80. The second is that the projected increase in electric vehicle sales could squeeze dealership finances. EVs have much lower maintenance service needs than conventional internal combustion engine (ICE) cars. Dealers really make their profits on servicing the cars they sell. And there are stories of dealers discouraging EV buyers for this reason. There may be a good reason why Tesla has moved to a direct sales model instead. For these reasons, much of our sales tax revenue could disappear, even suddenly. Diversifying is critical to our fiscal future.

  5. Richard C

    The other option is that we could do nothing.  …… but at some point things will get bad enough that people will force change and that change is likely to be much more desperate and much more radical.

    It’s likely that the “do nothing” strategy will be the way we go.  So I wonder what the “much more desperate and much more radical” measures will be?  Would we be talking about the city going bankrupt, or would it be something else?

    1. David Greenwald

      Bankruptcy for cities doesn’t solve the problems that we have. The problem we have is we don’t have enough revenue to cover our needs. We don’t have huge debts and debt service payments that might be assisted by bankruptcy.

      I think the Prop 13 example is most prescient. It was obvious that housing prices and taxes were pricing people out of their homes, there was a failure to address it, and so the voters revolted and enacted a most draconian measure that fixed the problem but a whole lot else that really wasn’t wrong.

      A breaking point will happen, the only question is when and how the voters ultimately react to it.

    2. Richard C

      Bankruptcy for cities doesn’t solve the problems that we have. The problem we have is we don’t have enough revenue to cover our needs.

      It seems that a big part of the long term financial problem the city faces is the overly generous employee compensation and benefits that have been contractually agreed to. The city apparently faces huge unfunded liabilities in the future, especially with regards to post employment benefits for city employees.

      I wonder if there are “desperate” and “radical” measures that could be taken to get compensation and benefits under control?

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