Robb Davis/Matt Williams Dialogue on Nishi Financials – Part Two

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On Saturday afternoon Mayor Robb Davis took the time to provide eleven (11) responses (see LINK) to the eleven specific points I had made in my earlier comment (see LINK) Saturday morning. I thank Robb for doing so, and particularly thank him for the structured format he used to reply.

This is the second in a series of articles in which I will respond to all eleven of Robb’s points. I believe that covering them one-by-one will produce a more focused and fruitful dialogue. The first response can be viewed HERE.

Matt: Nishi’s cash contribution to City has shrunk 90% from $1.4 million down to $143,000.

Robb: Non-sequitur. Two very different projects, one with revenue from commercial activity, unsecured property tax, sales tax. I am not sure the point of this statement. It is less. It is a housing-only project.

I respectfully disagree with Robb’s non-sequitur assessment. The projects are definitely different, but they have many more similarities than differences.

Robb is correct that the revenues mix is different, with no unsecured property tax in this project The final EPS financial assessment of Nishi 2016 projected the unsecured property tax revenue at full-buildout at $9,000, which was one-half of one percent of the annual revenues … a rather minuscule difference.

The annual Sales Tax projection at full-buildout for Nishi 2016 was $286,000 as opposed to $198,000 for Nishi 2018, a difference of $88,000.

The absence of a commercial component impacts two revenue categories, Business License Tax and Community Services Revenues, which are down $48,000 and $61,000 respectively

Add those categories together and you get a revenue decrease of $210,000, which only accounts for 17% of the $1.25 million decrease from $1.4 million to $143,000.

The biggest revenue decrease (50% of the total) comes from Council’s removal of the $635,000 aggregate Community Services District revenues from the Development Agreement.

Another $150,000 per year decrease comes from Property Taxes that are lower in 2018 than they were in 2016. The developers decision to reduce density from 66 units per acre in the 2016 project to a sub-optimal 27 units per acre in the current project does unnecessarily reduce the Property Tax revenue projections.

Bottom-line, 62% of the revenue decrease is not because of any differences between the projects, but rather because City Council (and the FBC) chose not to bargain with the developer with the same vigor they bargained with in 2016. The result is the Davis taxpayers are forced to pick up the fiscal difference.

Matt: “$650,000 per year of Community Services District revenues in Nishi 2016 have ‘vanished’ in Nishi 2018..”

Robb: Correct. In the original Nishi project the FBC recommended a CFD (CC put forward a CSD instead) OR having the developer be responsible for maintenance. In this version we opted to have the developer pay for the maintenance.

I’m glad to see that Robb freely acknowledges that the $635,000 of annual Community Services District revenue has vanished. I won’t belabor that point; however Robb is 100% wrong when he says that “the FBC recommended a CFD (CC put forward a CSD instead) OR having the developer be responsible for maintenance.”

The FBC recommended in a unanimously passed motion that the funding of Parks and Open Space maintenance be from Nishi, with the understanding that the responsibility for maintenance of those privately owned parks and open space would be discharged by the City. The developer was responsible only for the $181,000 funding of the maintenance, not for the completion of the maintenance itself.

A Nishi CFD made no sense in 2016 and would make even less sense for Nishi 2018 than it did for Nishi 2016, and no CFD was ever proposed by the Finance and Budget Commission for either Nishi 2018 or Nishi 2016.

Where Robb is getting confused is because Dan Carson arrived at the January 2016 FBC meeting with a 12-page memo of his personal thoughts on the Nishi financials, and on pages 9 and 10 of his memo Dan talks extensively about the merits of a CFD at Nishi.

Any possible FBC recommendation of a CFD for Nishi died a swift death when the FBC unanimously agreed with information that Ray Salomon and I presented. Our two separate/individual analyses showed the Nishi representative, Tim Ruff, that to borrow $8 million his closing costs could/would be between 1% and 2% (between $80,000 and $160,000 rather than $2 million) and his interest rate would be between 3% and 4% rather than 6%. On a 30-year loan that meant the difference between an annual debt service payment of $725,000 and an annual debt service of between $410,000 and $460,000. The annual debt service reduction of between $315,000 and $265,000 works out to $400.00 per unit … each year for 30 years. Tim Ruff thanked the FBC and the subject of a CFD to build the Nishi 2016 infrastructure was never discussed again.

In order to address the $106,000 annual deficit presented in the initial EPS analysis, the FBC recommended an aggregate set of three additional revenue components, the largest of which was given the work-in-process name Community Services District (CSD). The CSD approach (1) proposed by the Finance and Budget Commission, (2) validated by the EPS/Plescia/Goodwin consulting team, (3) in conjunction with staff and (4) the City Attorney, and (5) mutually agreed to by the developer and City Council (under the modified name of a “Land-Secured Financing District”) had the same fiscal impact as a CFD, but was a proactive maintenance of homeowner/taxpayer value rather than a retroactive give-away to the developer. And it accomplished it with 0% closing costs rather than 20% closing/reserve costs and 0% annual interest rate rather than 6% annual interest rate.

The reason that the EPS/Plescia/Goodwin consulting team liked the CSD (Land-Secured Financing District) approach was that it brought the Effective Tax Rate (ETA) for the Nishi project up to the same level of taxation as The Cannery. Unfortunately, in the Nishi 2018 negotiations/agreements, City Council has chosen not to include a CSD. Until Robb’s comments here in the Vanguard on Saturday, no member of Council has explained why they have chosen not to do so.

In his explanation Saturday, Robb said (Note: I have bolded certain sentences for emphasis).

DA Exhibit F states the following (please see final paragraph included here):

Circulation improvements to serve the Property, including the grade-separated crossing to the UC Davis campus and any at-grade or grade-separated crossing at Putah Creek Parkway are solely the responsibility of Developer, at the Developer’s sole cost, subject to the of fee credits as set forth on Exhibit I . Notwithstanding the above, City and Developer shall collaborate to seek grant or other financing for grade-separated connection to UC Davis.

City shall diligently pursue Richards/I80 interchange improvements, provided, however, that the City Council shall determine whether it has the available funds to construct the improvements prior to construction. City and Developer shall attempt to leverage local funds with SACOG or grant funding.

Developer shall own and be responsible for all maintenance of roadways and pedestrian/bicycle infrastructure within the project area, and shall grant the City full public access rights over said facilities in a manner that is acceptable to the Public Works Director. The privately owned and maintained roadway, bicycle and pedestrian facilities shall be built and maintained in accordance with City standards or as otherwise acceptable to the Public Works Director.

Robb is correct in his citation, which brings up two important points.

    1. The annual amount EPS has for full life-cycle costs for roadways and pedestrian/bicycle infrastructure maintenance is $54,000.
      1. 2. Regarding the grade-separated crossing to the UC Davis campus, both the Nishi 2016 and Nishi 2018 developments were/are perfect opportunities for UC Davis to come to the table as a “win-win” partners with the City, and “win-win-win” partners with the developer and the City. However that has not happened either in 2016 or in 2018. I say that because UCD is the party that benefits most if/when the Nishi project goes forward. However, as yet UC Davis has not come to the table with anything other than a non-binding

Memorandum of Understanding (MOU)

      1. .

This MOU is a statement of broad policy objectives and interests of the parties and is not intended to create any contractual commitments of any party. The parties acknowledge that there are no express or implied agreements herein and no party has any obligation to pursue any of the matters described below.

    1. A good place to start the dialogue is an open and transparent comparison of the dollars and resources UCD has spent on West Village to the dollars and resources UCD has committed to the Nishi 2018 project. It is much easier to talk about “win-win” when there actually is a “win.”
    1. 3. What is the “win” for UCD? UCD suffers from a housing shortage for its ever growing enrollment. I’m in the process of working with Student Housing to show the size of that shortage on a year by year basis. With the enrollment growth trend of 1,000 additional students per year, that housing shortage has gotten significantly worse in the past five years, and will get even worse in the years to come. Every parent who decides where their child will go to college factors lots of pieces of information into their decision process when choosing between schools. Availability (and safety) of housing is one of the key factors. The higher the probability that their child will have to commute from non-Davis housing to UCD every day, the greater the probability that they will choose either (A) not to apply to UCD, or (B) not to actually go to UCD when actually accepted. Lost students means lost revenue. A meaningful (and persistent) increase in lost students means a diminished reputation for the University. Housing that is only 0.5 miles from the UCD Quad, with no commuting safety concerns (crossing Old Davis Road being the highest risk interaction point, is a very low transportation risk, high quality mitigation to UCD’s housing shortage.
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About The Author

Matt Williams has been a resident of Davis/El Macero since 1998. Matt is Chair of the Finance and Budget Commission of the City of Davis (FBC), and a member of the Downtown Plan Advisory Committee (DPAC) and Broadband Advisory Task Force (BATF), as well as Treasurer of Davis Community Network (DCN). He is a past Treasurer of the Senior Citizens of Davis, and past member of the Finance Committee of the Davis Art Center, the Editorial Board of the Davis Vanguard, Yolo County's South Davis General Plan Citizens Advisory Committee, the Davis School District's 7-11 Committee for Nugget Fields, the Yolo County Health Council and the City of Davis Water Advisory Committee and Natural Resources Commission. His undergraduate degree is from Cornell University and his MBA is from the Wharton School of the University of Pennsylvania. He spent over 30 years planning, developing, delivering and leading bottom-line focused strategies in the management of healthcare practice, healthcare finance, and healthcare technology, as well municipal finance.

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23 thoughts on “Robb Davis/Matt Williams Dialogue on Nishi Financials – Part Two”

  1. Ron

    The bottom line: 

    If a proposal loses the first time, don’t quickly come back a second time with an inferior proposal via a rushed, incomplete, and undisclosed process.

      1. Matt Williams Post author

        There are lots of possible answers to your question David, but the one that resonates the most for me was given to me by a couple at the Farmers Market several weeks ago. Both are very active and highly respected business professionals.   She is a community building and finance professional and he is an environmental engineer.  The question they asked me was, “Didn’t we just have a vote on this project recently?  What are the compelling reasons this is being brought back to the voters for a second bite of the apple?”

        Neither of them were impressed when the best answer that could be given to them was,

        Brett Lee – “For better or for worse, it’s near the railroad track which is a source of pollution absolutely, it’s also a source of a lot of noise… I think the air pollution issues are, that mitigations can be done which will reduce the risk. But I do believe that that site does have air quality challenges.”
         
        Rochelle Swanson – “I was a little disappointed to see the change from 1.0 to 2.0 and some of the loss in innovation.”
         
        Lucas Frerichs – “… I’m not sure that anybody is %100 totally satisfied with Nishi 2.0. I know I’m not entirely satisfied with it. For me I think still I think Nishi 1.0 was superior in many ways particularly vis-a-vis smart growth principles, higher density, mixed use, both residential commercial and R&D spaces, nearly 30,0000 square feet previously proposed, the mixture of rental and for-sale housing.”
         
        Will Arnold – “This is a reduced project from the project that we had in front of us 2 years ago and like others on the council have said there was a lot of things I liked about Nishi 1.0 that I’m lamenting aren’t part of this project, in particular the innovation piece. This was seen from our Innovation Park Task Force as The. Best. Location in town for this small incubator innovation site. So the fact that’s not part of this project? Sure, that gives me a little bit of nostalgia, sadness.”
         
        Robb Davis – “…that doesn’t mean [Nishi 2.0] was an optimal project. From my perspective it wasn’t. […] I liked Nishi 1.0 better because it was a broader project that met more community needs…”

        1. David Greenwald

          There is no rule under Measure R that precludes repeated iterations of a project.

          I’ve pointed out previously that one of the downsides of Measure R is that political considerations will outweigh land use considerations.

          1. Don Shor

            Nishi barely failed last time. The salient issue seemed to be traffic. Removing the traffic from Richards solved that, but made commercial and retail unfeasible on the site. Single-family homes were objected to because of the longer residency and the air quality factor. So it was made rental, focusing on the short-term student renter as customer. The EIR and other aspects basically remain the same. The finances change somewhat, but that did not appear to be a major factor in how people voted.
            That is the political calculus that gets it back on the ballot as soon as possible. I don’t think the project partners have an unlimited appetite for paying for elections. Whatever gets hammers pounding nails the fastest helps the rental market the soonest. Arguments for delay are just another way of killing the project once and for all.

          2. Don Shor

            The best evidence for the political dynamic, in my opinion, came from how readily the planning commission and the council came to their decisions. I was at the Planning Commission meeting, prepared to answer air quality questions or anything about the details of the urban forest. They had none. The commissioners were already familiar with the project. It was pretty much the same as before, but scaled back. No traffic issues. A few questions about recreation facilities. Same with the city council; all of those council members had already done their homework on the first iteration and this is not markedly different except for having addressed the major concerns from before.
            I think this was a reasonable judgment on the project partners’ part and that this version will create a very nice student housing environment: close to campus (basically on campus), on the arboretum, close to downtown. It’s not an inferior project from the standpoint of renters. Of all the business park sites on the economic development strategy, it’s the smallest and least consequential. It meets a pressing need and shouldn’t be delayed any further.

        2. Matt Williams Post author

          I agree David, which makes Ron’s initial point all the more compelling.  It is not a rule, but it is an observation of human nature.  People regularly make decisions based on WIFM (What’s In It For Me).  Nishi 2018 has narrowly defined WIFM.  The “Me” they are catering to with this project is dominated by the UCD student cohort, with an ancillary WIFM group in the SFR neighborhoods close enough to the campus to feel the pressure of mini-dorm conversions.  A better project could have delivered WIFM benefits to a much broader swath of Davis.  They had an opportunity to follow the sage advice of Yogi Berra, “When you come to a fork in the road, take it.”

        3. David Greenwald

          That’s the exactly the problem.  Nishi is tackling the biggest issue facing the community.  Because there is nothing in it for “them” many voters will ensure continued hardships on students.  I view that as a source of shame, not pride.

        4. David Greenwald

          This is another reason why Measure R doesn’t work – the people voting on the housing proposals primarily are not those in need of housing.

        5. Howard P

          Hold it… are you saying that only those needing housing should vote on a Measure J/R thing?  Or are you saying that those who need the housing are, by law, ineligible to vote in Davis elections?  Or, something else?

        6. David Greenwald

          I’m saying that there is a disconnect between those needing housing and those who generally vote in elections which makes it difficult in a place like Davis to pass housing.

        7. Matt Williams Post author

          David, the 3,000+ students whom this suboptimal project are leaving without a roof over their head, need a voice too.  Especially since it is highly likely that the 67 you have cited were at the Vanguard housing townhall will never live at Nishi.  Those 67 are willing to benefit 2,200 students per year while permanently disadvantaging 3,000 students per year. 

          As I have said many times before this current Nishi project has been co-opted by politics and brinkmanship, and as a result suffers from a woeful lack of integrity.  My personal belief is that that was not the case two years ago.

        8. David Greenwald

          You’re playing let’s make a deal with student housing.  You are walking away from the $250,000 prize in hopes of winning the $ million prize.  The problem is that it’s a huge risk.

          There is no guarantee that there will be another Nishi project if this one goes down to defeat.  There certainly is even less of a guarantee they’ll come back with a larger project.

          So we are turning down 2200 beds that we really need right now in the slim if not nil hope of getting 5000 to 7000 beds.

        9. Matt Williams Post author

          David Greenwald said . . . “The problem is that it’s a huge risk.”

          That is your personal opinion.  It is not an opinion that I share.  Neither you nor I can prove the level of risk.  I’m committed to a “Never Up, Never In” position.  You are committed to a “Running Scared” position.  Chocolate and Vanilla.

          My work-in-process calculations show that UCD’s current contribution to unmet housing demand is at least 10,000 beds, probably substantiallymore, and if the enrollment increase trajectory of the last 6 years continues, that contribution to unmet housing demand will increase 1,500 additional beds each year (1,000 students, 167 faculty and 333 staff).

          As Don has wisely and passionately argued there is also a substantial non-UCD unmet housing demand.  I will let him weigh in with a WAG or SWAG as to the size of that non-UCD unmet housing demand component.

          We are where we are because during the summer of 2017 when the Nishi team approached the City about resurrecting the Nishi application as 100% housing, no one stepped back and analyzed what would be best for the community, and best for the thousands and thousands of UCD students in that unmet housing demand cohort, and best for all the Davis Single Family Residence (SFR) owners/residents who are seeing SFR houses in their neighborhoods converted to minidorms.

          Howard has argued that the owners of an existing parcel within the City Limits should not have to pay a “membership assessment” in the form of high Development Impact Fees and/or higher annual taxes.  I find his argument compelling.  However, Nishi (and West Davis Active Adult Community) are not being proposed on existing parcels within the current City Limits.  They are asking the City to give them dispensation in the form of annexation.  They have an alternative.  They can file their project application within their current jurisdiction, YoloCounty.  However, they have chosen not to do so.

          That is their choice … just as it is our choice to look at the application with the following criteria in mind … what would be best for the community, and best for the thousands and thousands of UCD students in that unmet housing demand cohort, and best for all the Davis Single Family Residence (SFR) owners/residents who are seeing SFR houses in their neighborhoods converted to minidorms.

          I don’t expect to change your mind.  You have clearly decided to become an advocate for this proposed (poor in my personal opinion) project.  I have clearly decided to follow the example of Howard Beale and fight to put an end to inconsistent, short-sighted planning.  Never Up, Never In.

          BTW, there are no guarantees in life.

    1. Jeff M

      Davis has proven the absurdity of wasting copious ink in fact-based intellectual discussion about the merits of a peripheral development project only to see it defeated with hyped up emotives and fear.

      With Measure R that is our reality.  The intellectual chattering class that frequent the blog are no match to for the ability to make up crap to scare people (did you know that Nishi #1 would actually murder Murder Burger?!).

      So here is the new counter scare… the city of Davis is significantly harming young people and low income people by failing to build enough rental housing.

      We are now in crisis.  Families will be ripped apart and sent to the streets.  Students will freeze to death trying to couch surf and failing… thus finding themselves on a park bench.  Those already struggling and next finding themselves unable to afford housing will become a greater risk for drug use and suicide.  Their pets will be abandoned and left to starve on the streets.

      Without more rental housing we will see hundreds if not thousands of people materially harmed in ways that they may never recover from.

      Building more rental housing is now a social justice cause.

      1. Matt Williams Post author

        Jeff M said . . . “Without more rental housing we will see hundreds if not thousands of people materially harmed in ways that they may never recover from.”

        I completely agree Jeff, which is why I believe the City should have (1) insisted that the 2018 Nishi project be designed and built at the same density of Nishi 2016 (and the current Davis Live proposal on Oxford Circle), and (2) used this 2017/18 Nishi proposal as an opportunity to have UC Davis to come to the table as a “win-win” partners with the City, and “win-win-win” partners with the developer and the City.  However that has not happened either in 2016 or in 2018. I say that because UCD is the party that benefits most if/when the Nishi project goes forward.  A good place to start the dialogue is an open and transparent comparison of the dollars and resources UCD has spent on West Village to the dollars and resources UCD has committed to the Nishi 2018 project.  It is much easier to talk about “win-win” when there actually is a “win.”

         

         

      2. David Greenwald

        Jeff – Don’t get to say this often, but completely agree with you from about paragraph 3 on.

        Matt – What youare proposing is a lose-lose.  We lose the current project and we lose the possibility of housing because this isn’t coming back and certainly not as you envision.

        1. Matt Williams Post author

          David, that may be the case, but our City processes are so massively broken and inconsistent that you have to pick a time where we start turning the Queen Mary … and the time is now … just as it was when the Cannery CFD was approved.  Just think Howard Beale.

          1. David Greenwald

            For the most part I think what’s broken is the level of nitpicking scrutiny that every project has to endure. No project, in no city, would withstand that level of scrutiny. What I have seen picked apart borders on the absurd. Meanwhile we have failed to provide for the most basic of human needs, we have students sleeping in their cars, sleeping in the library. I estimated 3 percent based on a UCD survey, but Don Gibson and others think it’s closer to the state average of 12 percent. Meanwhile, we debate and dither over the absurd.

        2. Matt Williams Post author

          David Greenwald said . . . “We have students sleeping in their cars, sleeping in the library.  I estimated 3 percent based on a UCD survey, but Don Gibson and others think it’s closer to the state average of 12 percent. Meanwhile, we debate and dither over the absurd.”

          Let’s do some simple mathematical drill down into that statement.

          — UCD reported a average of 36,735 students during the three quarters of the 2017-2018 academic year.

          — 3% of 36,735 is just over 1,100 students sleeping in their cars, sleeping in the library each night.

          — 12% of 36,735 is just over 4,400 students sleeping in their cars, sleeping in the library each night.

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