As I noted over the weekend, if MRIC should come back before the council, we would hope that it would be fully analyzed by an outside consultant and reviewed by the Finance and Budget Commission. We were able to find Phase II of EPS’s Economic and Fiscal Analysis of the Proposed Innovation Centers. It was written in 2015 and presented to the Finance and Budget Commission on September 14, 2015.
What I will present here is only a very quick overview of the 199 page document and only as it pertains to MRIC as opposed to what would have then been Nishi 1.0. It is important to understand that the project evaluated by MRIC was the version without housing – although they do reference at times the impact of housing on MRIC’s fiscal impact.
EPS concludes: “The proposed Innovation Centers have the potential to create benefits that generate economic value to the City and UC Davis alike. The projects could also support the goal of strengthening academic-industry partnerships in Davis and throughout the region, in support of the Next Economy Capital Region Prosperity Plan (Next Economy). The proposed Innovation Centers have great potential to move forward simultaneously. If phased and developed in concert with evolving market forces, the market should be able to accommodate both projects.”
In particular they note: “By increasing the supply of employment opportunities to be more in proportion to the housing available in Davis, the concept has the ability to improve the local jobs-to-housing balance while making fiscal revenues available to fund key City services in support of continued economic innovation and the overall quality of life in Davis.”
In addition, EPS warns of “significant opportunity costs if the projects are not built.” They write: “The City runs the risk of losing more fast-growing companies to other communities due to its limited supply of land and buildings for business activity.”
Here are some of the key findings as they relate to MRIC and Innovation Centers overall.
First, “The proposed Innovation Centers have the potential to generate benefits to the City, Yolo County, and the region.” UC Davis has “established research strengths that are aligned with challenges of our global food system through rigorous multi-disciplinary study of food and health, water and energy systems, adaptation to global warming, and development of sustainable technologies.”
While the city has attracted a number of prominent tenants like DMG Mori, FMC Shilling Robotics, and Marrone Bio Innovations, “in recent years, local and regional economic development representatives have noted interest from several companies that have not been able to find suitable space in Davis and have located elsewhere in the region or in other competitive communities.”
The proposed Innovation Centers “offer the opportunity to expand the amount of space that can house establishments interested in maintaining or establishing a presence in Davis.”
Second, “The intersection of UC Davis research strengths and the regional innovation economy point to clusters and related types of industries and companies that can potentially fill space in the proposed Innovation Centers.”
Third, “The proposed Innovation Centers have the potential to more than double the amount of existing office, flex, and industrial space in Davis, while fostering a stronger and more competitive innovation ecosystem.”
At the time of this study, Davis had about 2.6 million square feet of office, flex and industrial space but more than two-thirds of this was “office” space. EPS estimated that MRIC and then Nishi would generate 3.1 million square feet of office, flex and industrial space and while Nishi has gone away with its 300,000 square feet, URP and Sierra Energy could more than pick up the slack.
The report notes: “Land and space constraints in Davis have led to volatility with the periodic loss of large tenants, however the City generally features lower vacancy rates and higher rents compared to regional averages, owing to its competitive advantages across a number of success factors related to university proximity and quality of life.”
They look at four prototypes and find, “The Flex-R&D/Office prototype is likely to be a critical component of the proposed Innovation Centers because of its alignment with targeted clusters and company types and its ability to generate high assessed values and sales tax.”
They look at a number of the alternatives. For example, they argue, “the MRIC Mixed Use alternative that adds housing could reinforce links with the university.
“In the MRIC Reduced Project, the removal of the hotel precludes stays from visiting scholars, and rotating staff from global partners, while the omission of the conferencing space reduces possibilities for university-related events and activities that would strengthen the UC Davis connection.”
They conclude: “The only alternative that similarly supports the Innovation Center concept is the MRIC Mixed-Use Alternative. In this case, the potential for slightly higher development costs may well be offset by improved overall vitality offered by the inclusion of housing in a mixed use format. If well-designed and properly integrated, housing could lead to strengthened overall economic performance and would be attractive to younger, knowledge-based workers.”
Here are some of their economic impact findings:
First, “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.”
Second, “Establishments operating in the nonresidential space and residents occupying the housing units in the proposed Innovation Center projects will support ongoing economic impacts in the local economy.”
“The cumulative ongoing economic impact associated with the proposed MRIC and Nishi projects is estimated at approximately 11,000 jobs, $2.9 billion output, and $704 million of labor income on an annual basis in the Davis economy.” About 85 percent of this is generated by MRIC alone.
Again they found that most of the alternatives for the Innovation Centers “decreased one-time and ongoing economic impacts.” They do believe however that the MRIC Mixed-use alternative will increase ongoing economic impacts finding that it adds “residential construction activity and household spending on top of the base MRIC proposal.”
Fourth, “At buildout, the proposed MRIC and Nishi projects could directly support about 7,000 jobs on an ongoing basis.” Again about 85 percent of that would be from MRIC and they believe with a multiplier effect, “spending, these projects could generate an additional 5,000 jobs in the local economy. These additional jobs will create incremental off-site demand for commercial real estate, which could translate to roughly 1.5 million square feet.”
Finally, “The Innovation Centers can benefit substantially from the economic impacts of a specific group of targeted clusters if the appropriate conditions are created.”
Finally they looked at the fiscal impact:
Here, MRIC “is estimated to generate an annual net fiscal surplus of about $2.2 million for the City’s General Fund.” This assumed a 50-50 tax split, which is what the city and county agreed to on the recent projects.
EPS looked at four scenarios: the addition of housing in the MRIC project; the removal of the planned hotel in the MRIC project; a decreased City share of the applicable property tax rate (25 percent); and a lower capture of taxable sales generated from the Innovation Centers’ residents and employees.
They find with respect to housing that it would “result a lower net fiscal impact for the City’s General
Fund.” But, “the presence of housing is a positive attribute that will enhance the mixed-use character valued in innovation centers and may improve the internal economics of the project.”
—David M. Greenwald reporting