Monday Morning Thoughts: Tax Disadvantage Doesn’t Negate Advantages of Economic Development

Share:

Earlier this week, the Vanguard reported on a chart in the city staff report on the revenue measure which shows that, under the best case scenario, the normal tax take by the city maxes out at 27.5 percent and most parts of the town are less than 20 percent and some as low as 10 percent or so.

This becomes important because, as Mayor Robb Davis argued from the dais, passing local taxes is a much more efficient way to generate local revenue for the city.  Unlike baseline tax rates, when the voters pass a parcel tax there is no tax share agreement.  The city gets to keep 100 percent of the tax revenue locally.

Some, however, have taken this fact to the extreme.  They point out (correctly) that the city receives a small share of the total property tax for each parcel and that the city’s share is further reduced by any tax share agreement with the county.  This therefore further reduces the already limited percentage that the city receives from these parcels.

The problem here is that they are using – or attempting to use – this fact as a reason not to do any sort of commercial development expansion.

While the Vanguard views tax measures as a necessary short to middle term solution to the city’s revenue shortfalls, there a number of advantages to pursuing an economic development route even if
the revenue take is substantially lower as a percentage than the direct tax method.

As many will note, the city is currently receiving zero tax for two parcels proposed for future development, Nishi and Mace.

The original Nishi project was not billed as a huge revenue generator, but a combination of factors would have allowed it to become so – that included a hotel, Community Facilities District (CFD), and better assumptions on the true cost of police and fire.

The EPS Fiscal Impact Report on Mace Ranch Innovation Center (MRIC) showed a potential $2.2 million in revenue at buildout – also a very conservative number.    There are a number of problems with the analysis, and one is that the estimation of costs $1.59 million annually would seem very high.  The other is that, once again, the $3.79 million estimated revenue is probably on the conservative side – one of the proposals was to have a $2 per square CFD which by itself could generate another $4 million in annual revenue.

So the conservative baseline for the project was $2.2 million in revenue, the equivalent of a modest sized parcel tax, but the expanded direct benefit could be anywhere from $6 to $7 million.

We certainly acknowledge that the revenue generated from commercial development is not going to be as efficient or direct as a parcel tax.  That is why we likely have to pass tax measures.  Further, we are talking about benefits at buildout which could take decades.

On the other hand:

  1. Commercial and economic development can generate large amounts of revenue
  2. It does so without the harm caused by increases taxes
  3. And by producing jobs, it creates a multiplier effect which means that the direct impact is not the end of the story

The last point here may be the biggest.

The EPS report on MRIC, for example, really hammered home the “ripple effect” that could have been 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 then-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 Mr. 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.”

There was also going to be a one-time boom for the community from construction and related fees.

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.”

None of that is factored into the $2.2 million of ongoing revenue, but it is definitely a benefit to the community.

But here’s the kicker – we can lament the fact that the city’s tax take is less than ideal for projects such as these and that the costs eat into the revenue base.  But the bottom line is that, whatever the tax take, our take on Nishi and Mace currently is zero because there is nothing there to generate revenue for the city.

—David M. Greenwald reporting



Enter the maximum amount you want to pay each month
$
USD
Sign up for

Share:

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

3 thoughts on “Monday Morning Thoughts: Tax Disadvantage Doesn’t Negate Advantages of Economic Development”

  1. Keith O

    under the best case scenario, the normal tax take by the city maxes out at 27.5 percent and most parts of the town are less than 20 percent and some as low as 10 percent or so.Unlike baseline tax rates, when the voters pass a parcel tax there is no tax share agreement.  

    The problem is that the people still have to pay 100% of those taxes no matter where the money goes.  So by passing more local taxes it just increases the burden on on taxpayers.

  2. Roberta Millstein

    Commercial and economic development can generate large amounts of revenue
    It does so without the harm caused by increases taxes
    And by producing jobs, it creates a multiplier effect which means that the direct impact is not the end of the story

    This is false.  There are harms to increased economic development, at least of the kind that you are pushing (namely, MRIC): increased traffic, increased need for services, increased pressure for housing, increased prices for housing and other services, loss of farmland.  See: Silicon Valley.

    And I don’t know why you single out Mace and Nishi as “property we’re not getting taxes from.”  By that logic, we should be annexing all of the county land that surrounds us, land that is also land we’re not getting taxes from.

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