My View: A Quick Look At Revenue From Innovation Centers

Internal View of Mace Ranch Innovation Center

We have been talking about the impact of Economic Development in Davis for nearly a decade now and as such, we have mound of material to pour back over.  There is a reasonable chance at this point that Mace Ranch Innovation Center will come forward with a new proposal that could be voted as perhaps as soon as some time in 2019.

The city has actually done a number of different studies on the fiscal impact – the most recent being a 198 page report by EPS that examined the revenue impact of both MRIC and the smaller Nishi project.

To me there are three critical points here.  First, that we should look at Economic Development as part of a package of solutions to the city’s ongoing revenue shortfall.  Second, that the EPS report estimates around a $2.1 million net revenue generation from a fully built out MRIC – and while those are healthy numbers – we believe them to be a very conservative estimate.  Third, while some of that revenue is estimated to be from a hotel – there are reasons to believe we should build a hotel on the site even with the Marriott being built across the street.

Finally – while the city has already had EPS look into the revenue generated by MRIC, my suggestion given the centrality of the issue of revenue to this project (as opposed to a housing project), the city would be best off having EPS or another outside firm doing further analysis should MRIC come forward again and do so with sufficient time to allow the Budget and Finance Commission fully weigh in.

Fiscal analysis was an important issue in both Nishi and WDAAC – while fiscal criticism did not prove decisive – for a project intended to generate revenue, it will be all the more important.

To my first point, the city of Davis as we have previously have showed is at a competitive disadvantage in that it generates less in the way of sales tax per capita than most comparable cities (See this for just one example).  As we see the increasingly precarious nature of retail (see Gap is closing), we cannot count on building up our sales tax base simply by adding peripheral malls – and most people, myself included, would balk at such a development.

How do we address what is at least an $8 million shortfall in the funds to provide for things like pensions and infrastructure?  The first answer starts with cost containment – without containing the expansion of cost for the city no amount of taxes or economic development will solve the problem.  The second answer is that in the short term we will have to generate additional revenue through taxes – we have a half-cent sales tax that is about to expire in 2020 and we failed to pass a road tax in 2018.

The point here is that we are not proposing to rely on economic development to address the full deficit but rather as a package of solutions that helps us becoming fiscally sustainable into the future.  That not only seeks to address deficits, but it also looks at prosperity, at jobs, at the jobs-housing mix, etc.

That brings us to the key question – what can we reasonably expect from a 2.18 acre, 2.4 million square foot project like MRIC?

Here I will rely on the 2015 EPS report (see the 2015 analysis here), but there are several caveats here.  One is that the numbers include a 160,00 square foot hotel and do not include the possibility of housing units.  Second is that I have argued that the EPS report was extremely conservative in terms of its revenue projects.

I see two sides of the coin with that.  On the one hand, EPS cannot be accused of overly rosy projections.  On the other hand, it probably reasonably sells the revenue projections short which will be fodder no doubt for opponents of such development.

EPS projects around $3.79 million in ongoing annual revenues but $1.59 million in ongoing annual expenditures from the project for a total of $2.2 million in net revenue at buildout.

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 to $5 million in annual revenue by itself.

That leaves a conservative baseline for the project at $2.2 million in revenue.  If you then want to project housing many acres it would take to get to $8 million in net revenue, you would be looking at about 800 acres or roughly four parks.

However, we believe that the expanded direct benefit could be upwards of $6 or $7 million depending on a number of factors including perhaps a CFD.

The low end is basically the equivalent of a modest sized parcel tax or sales tax.

However, while those are necessary quick fixes, there are other advantages namely: commercial and economic development generates revenue for the city, it does so without harming the economic like a tax would and without increasing the cost of living, moreover, there is the added economic and fiscal benefit of jobs production which creates a multiplier effect that can actually generate additional revenue not measured in these analyses.

This point is quite important for as the EPS report notes: MRIC creates a huge ripple effect for both 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.”

Finally let us address the issue of the hotel.  As one person points out the loss of the hotel reduces the annual net revenue from $2.2 million to $1.47 million.  If we assume the loss of the hotel, we still end up with nearly $1.5 million in revenue generation on 2.18 acres of land.

That leaves aside other avenues for revenue generation including the CFD mentioned above and it also assumes that there will not be a hotel – which I’m not sure why we would want to make such an assumption.

It is true that the city of Davis is adding two hotels – the Hyatt House and the Marriott, with the Marriott going in across the street.  In addition, the University Park Inn is expanding to become the Richards Hotel, however, originally that project was to have a conference center but that has been scaled back.

The city approved those hotels as a way to generate additional revenue from TOT (Transient Occupancy Tax) and reports that suggested a substantial amount of leakage from Davis into surrounding cities (see PKF Consultant study here).

They write: “the YCVB [Yolo County Visitors Bureau] and a number of tech businesses surveyed indicate that the Davis market is currently leaking hotel demand due to a lack of higher end offerings and/or due to a lack of extended stay offerings. Depending on the market segments targeted by a given hotel project, new hotels included in the innovation park projects may capture currently unmet demand without affecting demand available to support existing hotels.”

There is some debate over those numbers, but the basic concept seems legitimate.

Moreover, that ignores possibilities for expanding the hotel market.  For instance, during his campaign Mark West suggested expanding athletics tournaments are a way to generate more hotel stay.  And without the hotel conference center at Richards, the need for a hotel conference center and the possibility of large scale tech conferences in Davis creates a renewed need for a hotel on the innovation center that would become a revenue generator not just for the center, but for surrounding hotels.

Bottom line: the report shows sufficient revenue generation even without a hotel, the report is modest in its revenue projections and why assume that we cannot utilize a hotel and especially a hotel conference center in the innovation center?

—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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81 Comments

  1. Ron

    So, it’s important to note that no fiscal analysis has been performed, for an innovation center that includes housing.

    I recall that the number of housing units included as an alternative in the EIR (that the council previously certified) was about the same (or more) than the entire Mace Ranch development. (I’ll try to confirm this, later.)

    I sure hope that the city doesn’t choose to put the city through another fight, again.

    1. Ron

      Poor choice of words, above:  I hope that the council doesn’t choose to put the city through another fight, again.

      As a side note, I drove past the property and onto I-80 yesterday (around noon), where I immediately got stuck in a half-hour delay, toward Sacramento.  For periods of time, traffic wasn’t even moving at all. I guess we want more of that?

      As I drove past the property, I tried to envision the destruction of the farm and open space (probably including Ikeda’s at some point, as well). Ultimately, making Davis look like every other place along I-80. Maybe David should take some photos of what would be lost (but I wouldn’t count on him doing so). (He did take a nice photo at the Covell Village site, to accompany his fundraising article. Given the Vanguard’s direction, it seems increasingly ironic that he’d use such a photo.)

        1. Ron

          Jeff:  A primary reason that MRIC is being proposed is because of the relatively unimpacted Mace Blvd. access points, from/to the freeway.  I recall the overpass being improved about 15 years ago.  MRIC would like to take advantage of that (and wreck it), without paying for it.  That’s the same pattern that’s occurred everywhere, regarding freeway developments.

          And, no one seems to be considering the larger impact on freeways, themselves.  It just gets worse-and-worse.

          You (and others) don’t really need to know this, but I also had to “pee”, while completely stuck on the freeway.  (Not the first time.)  I seriously considered doing so in front of everyone, and/or jumping off the side into the flood area, below.

          I was wondering what would be worse – holding it in, vs. breaking my ankles. Of course, I was also stuck in the middle lane, and couldn’t pull over anyway.

          But the bottom line is that if you build it (freeway improvements), they (developments) will continue to come. Same thing with housing, jobs, etc. And as always, freeway and other infrastructure improvements won’t keep up.

        2. Ron

          The cost/impacts of this is (once again) being shifted away from the developments that create the (additional) need, onto existing end-users. (And even then, not until it becomes a severe problem, with an inadequate solution that will soon be overwhelmed with even more traffic, regardless.)

          At one time, freeways were more than adequate to handle existing demands.  Developments keep adding to the impact, without paying for the cost.  A “free-ride” on the “free-ways”.

          Yet another example, regarding a failure to account for all costs created by developments. A portion of the additional cost belongs to each additional development. (And yet, its not reflected in any analysis.)

        3. Jeff M

          At one time, freeways were more than adequate to handle existing demands.  Developments keep adding to the impact, without paying for the cost.  A “free-ride” on the “free-ways”.

          Your comments on this topic often cause me to think that you are out of touch with the reality of the region.  It is growing.   The analogy is trying to stop a steady flow of water by standing in its way.

          1. Don Shor

            For quite awhile I have understood that CalTrans ultimate plan is to have 4 lanes in both directions for the I-80 corridor all the way from the Bay Area through Sacramento. The two places that routinely back up solely due to the volume of traffic are from the Causeway back to Davis, and east of Dixon toward Vacaville, both places where it is only three lanes in each direction.
            Here’s the plan that’s coming up first. The notion that “developments” cause this gridlock is an odd way of looking at it. People cause it. They choose where to live, where to work, and how to get there. And as noted, with the region growing and congestion already occurring, those people have every reason to believe that their tax dollars will be used to keep the freeways flowing efficiently. Spreading the cost of that onto users and the general tax-paying public is the most reasonable, equitable way to get that done. It is primarily gas tax dollars that fund these things.
            http://davismerchants.org/vanguard/i%2080%20corridor%20widening.jpg

        4. Ron

          Jeff:  That’s a recipe for Los Angeles.

          Yeap, each new development adds to the problem.  And apparently isn’t contributing sufficient funds to address its own impacts.

          It’s not unlike lobbying the government for levee funding, so that private developers can then take advantage of that.

          I vaguely recall reading that existing residents of Folsom are going to be subject to more water rationing, as a result of the massive new development south of Highway 50.  (Might make one briefly consider “flushing twice”, just to undermine that plan.) 🙂

          The bottom line is that there’s a reasonable carrying capacity of infrastructure and the environment, which might already be exceeded (in the long term). That is, unless you can get the government to continue funding more dams, levees, and your 6-lane freeway suggestion, and screw the environment.

        5. Ron

          At a minimum, perhaps the government can put in a few urinals along freeways, to help with the problem I described above (while stuck in traffic, which is increasingly likely).  🙂  Sometimes, it seems like we’re headed toward being a third-world country (at least for the “masses”).

          In all seriousness, I don’t feel particularly “cooperative” regarding the direction that’s being pursued. Nor do I see how it improves life, in general.

        6. Jeff M

          Sometimes, it seems like we’re headed toward being a third-world country (at least for the “masses”).

          In all seriousness, I don’t feel particularly “cooperative” regarding the direction that’s being pursued. Nor do I see how it improves life, in general.

          The personal therapy industry thrives on this Ron.  Helping people overcome their inability to recognize and accept unwanted reality over a fantasy of what they prefer.

          Here is a hypothetical for you… you denigrate LA as a bad place to live even though millions live there and more come every day (although now a large percentage of them are poor immigrants and homeless people).  Do you think there was ever any reality of you and others changing what LA became?  People came there because they liked it.  They were pursuing a better life.  It grew.  Those that did not like the way it changed with all that growth had two choices: one – they could learn to accept the new reality, or two – they could move somewhere else that was a closer match to their fantasy of a perfect place to live.

          Davis is really a lie.  It is a lie clutching to a fantasy of something it is not… something in cannot be.  People are coming to the Sacramento region pursuing a better life.  More and more are coming every day.  They are clogging the lanes and so we need to build more lanes.  Ignoring this reality is like a divorcee staying in the same house while fantasizing that life will be the same.  Often the pages of the story of our life turn into another chapter without our control.  We can only adapt and/or move on.

          That is how I see it with you.  You have a fantasy of what your Davis and Sacramento region life should be like but the reality around you is making it impossible for you to maintain that fantasy.

          The difference between you and me on this topic is that I see the inevitable change taking place and the needs of the community and region.  What we have in common is that I don’t really like it.  I hate the traffic.  I hate the congestion.  But I apply an objective filter to keep paying attention to the half-full part of the glass.  Once it gets to the point where the glass is more empty, I will move away.

          This isn’t a small rural town deciding to build Sun City on the periphery.  I would be with you in opposing that.  This is a once semi-rural college town sitting within one of the fastest growing regions and along one of the busiest freeways in the nation… all following a change in the economy and society where we decided that every child needed a 4-year college degree and so demand for universities exploded… and UC Davis happens to be one of the best and most popular.

          You and other Davis growth-resisters have manged to only delay the inevitable… you have just put off reality.

        7. Richard McCann

          Ron

          “The cost/impacts of this is (once again) being shifted away from the developments that create the (additional) need, onto existing end-users.” “Existing end users” do not own property rights in roadways (even if such a thing as “existing” end users existed on an interstate that has constantly changing users. And don’t say “you know what I mean” because I have no idea what you mean when looking at this rigorously.

          And as pointed out by several others here, including Jeff M, you have no discussion of your vision for Davis other than “stop it” nor any proposed solutions to the problems that most everyone else has identified in some fashion. What is your vision of Davis in the context of a growing world population and economy? Just stopping building means that Davis housing prices will continue to rise at a much more rapid rate than surrounding communities. Is your point to make Davis unaffordable for most households?

        8. Ron

          Richard:  You have a valid point, regarding “ownership” of public facilities.  Perhaps the initial problem occurred when all taxpayers (e.g. across the nation) were forced to subsidize infrastructure which only benefits particular areas (and particular developers). Regardless, that initial “gift” is not limitless.

          As more development is added, someone has to pay for the additional costs and impacts.  (One of the reasons for EIR’s is to identify such impacts.)  I’d suggest that the days of having some other entity (e.g., national or state governments) is largely over (and has been, for years).  Unfortunately, developers haven’t been paying for these additional costs, which is the reason we’re all getting increasingly stuck on freeways, etc.

          Regarding my “vision” for Davis, I’d suggest that some of the “problems” are receiving an undue amount of attention on here, for the sole purpose of justifying more development.  (Which so far, has not improved any of those problems.)  What’s more, Davis already has a sufficient number of jobs, for example, as demonstrated by the net inflow of commuters.

          Even worse, some purposefully deny the problems that developments CREATE, as discussed above. And, they offer no solutions to those (other than more development), which often exacerbates the same problems that they’re promising to resolve.

    2. David Greenwald

      A few things –

      1. You are correct, no fiscal analysis for an innovation center that includes housing

      2. One possible alternative had 850 units

      3. Everything the city does precipitates a fight, even on measures that are supported handily.

      4. I don’t know what the MRIC proposal will look like – if it comes forward.  Still think one with housing will be a long shot to come forward.

      1. Don Shor

        Housing at MRIC is addressed in the EPS report as one of the sensitivity scenarios, which are presented for each project.
        Per page 1 of Table 2, MRIC with housing reduces the annual fiscal impact (net revenues to the city) by $235,000, from $2.2 million per year to $1.966 million per year. That is a 10 – 11% reduction in revenues annually when the project is fully built out.
        If you’re scrolling through the document, it’s page 134. But it isn’t numbered that way.
        https://cityofdavis.org/home/showdocument?id=3953

        1. Ron

          It should be noted that the EPS analysis studied both the Nishi proposal (which created a deficit), combined with the MRIC proposal. The analysis itself mentions the “synergy” between these two developments.

          At this point, an analysis would be needed for the MRIC proposal, separately.

           

        2. Ron

          The report (which is titled “Economic and Fiscal Impact Analysis of Proposed Innovation Centers in Davis”) states the following:

          “Numerous recent publications support the notion that Innovation Centers perform particularly well when they are developed in an intense, active urban centers with research strengths and a variety of cultural, civic, and educational supporting uses.  When the proposed projects are evaluated collectively, as part of the larger innovation ecosystem that includes UC Davis and Downtown, this umbrella network has the potential to enhance the city’s existing innovation ecosystem. Synergies are likely to arise from the combination of the Nishi and MRIC projects, as well as existing concentrations of technology-driven users in Davis”.

          (I retyped this, so please forgive any minor discrepancies from the actual text.) But, the analysis was intended to analyze the combined impact of both of the innovation centers. (As a side note, the deficit that would have been caused by Nishi 1.0 is noted in this analysis.)

          If the Vanguard is (also) now claiming that Nishi 1.0 would not have caused a deficit, then perhaps this entire analysis is out-of-date.

  2. Matt Williams

    David Greenwald said . . .  To me there are three critical points here.  First, that we should look at Economic Development as part of a package of solutions to the city’s ongoing revenue shortfall.  Second, that the EPS report estimates around a $2.1 million net revenue generation from a fully built out MRIC – and while those are healthy numbers – we believe them to be a very conservative estimate.

    There really are only three ways to address the City’s ongoing revenue shortfall … (1) raise taxes on the existing residents and businesses and visitors to Davis, (2) reduce the amount/level (and cost) of services the City delivers to its residents and businesses and visitor, and (3) increase economic development and thereby increase the City’s receives.  So, it is hard to argue with David’s first point at the holistic level.  The key questions are (a) what economic development, and (b) how much City revenue will be generated?

    Please note that I capitalize the word “city” which denotes the municipal jurisdiction (budgetary entity) rather than the community (economic or otherwise) within the City Limits.

    The most recent EPS evaluation of the potential fiscal impact of MRIC on the City was presented to the FBC in April 2016. That EPS report can be accessed as part of the meeting agenda packet at this  LINK on the city website Because the MRIC developers withdrew their proposal prior to the FBC meeting, that EPS report was never actually discussed by FBC.  With that disclaimer, it is the EPS report on MRIC that I personally would consider the most up-to-date.  Table 3 on page 5 of that report (shown below) shows the annual revenues and costs impacts to the City at 5-year milestones, with full buildout achieved in Year 25.  The bottom-line for the City in Year 5 is a modest surplus of $205,000, growing to $1.5 million in Year 10 and $2.5 million in Year 25. Without a hotel the $2.5 million drops to just below $1.8 million.

    https://www.davisvanguard.org/wp-content/uploads/2018/12/Table-3-from-April-2016-EPS-report-to-FBC-on-MRIC.png

    https://www.davisvanguard.org/wp-content/uploads/2018/12/Table-3-from-April-2016-EPS-report-to-FBC-on-MRIC.png

    The impacts to the overall economy of the city and the county are shown in the September 2015 EPS report presented to FBC, and very actively discussed by FBC.  Table 1 on page 2 of that report (shown below) shows those one-time and annual ongoing economic impacts for both the city and the county, which are approximately $2.8 billion per year for city’s economy.  Some simple math says that EPS estimates that each dollar of the $2.5 million bottom-line the City receives, the city’s economy will receive over $1,100 ($2.8 billion divided by $2.5 million).

    The magnitude of that 1,100:1 ratio is mind boggling.  It also makes me believe that EPS was being extremely conservative about how additional dollars generated buy the local economy would/will translate into net dollars in the City of Davis budget.  Since FBC never got to discuss the April 2016 EPS report with either EPS or the MRIC development team, I would strongly suggest that discussion happen (ideally with lots of public attendance/participation) if/when the MRIC development application is reopened by the development team.

    https://www.davisvanguard.org/wp-content/uploads/2018/12/Table-1-from-September-2015-EPS-report-to-FBC-on-economic-impact.png

    1. Richard McCann

      On the expenditures side, I’m disappointed in the rather simplistic assumptions about growth. I presume the lion’s share of the growth if from the planned build out. The analysis makes no adjustments for scale economies–the City Council costs rise at the same rate as for public safety, each growing about 8 fold over 20 years (equating to a growth rate of over 10% a year.) One would expect that administrative costs would increase little with increased size as that those expenditures are driven by (1) the number of entities involved (which would be 1 most likely) and by the annual growth increment (e.g. for permitting etc), which would be relatively constant over time. Just assuming constancy in admin costs from Year 5 forward adds $200,000 to the net in Year 25. The three large cost categories of public safety and public works would seem to need a similar review.

  3. Ron

    One thing I’m failing to see (in any analysis) is the impact of Proposition 13, over the decades-long period for buildout.  Costs to serve a proposal will rise indefinitely and unpredictably – and will likely outpace revenue increases (taxes), which are limited by Proposition 13.

    Also, if more economic activity is created, then more money-losing housing will also be created (somewhere).

    Again, it’s important to note that there’s fiscal challenges throughout California. If innovation centers were a savior, there’d be a lot more of them by now. (Probably should refer to Rik, regarding how many would be needed to address the trillion-dollar shortfall, across the state.)

    1. Don Shor

      One thing I’m failing to see (in any analysis) is the impact of Proposition 13, over the decades-long period for buildout.

      I think you can reasonably assume that the impact of Prop 13 is built into any projections about tax revenue returns.

        1. Don Shor

          Don: I wouldn’t “assume” that.

          You wouldn’t assume that fiscal analysts would be aware that Prop 13 has an impact on property tax revenues, and include that in their assumptions? Do you think they are stupid or incompetent?
          Property turns over, property taxes go up.

        2. Rik Keller

          Prop 13 effects are built into the report based on the assumed ownership turn-over rate for the various uses (which would trigger re-valuation). HOWEVER, it is pretty critical what those assumptions are. And a lot of times there are master lease owners and the turn-over in tenants doesn’t trigger a tax re-valuation.

          And it should be noted that areas like Silicon Valley are notorious for properties with giant corporations paying minimal property tax because they are just leasing and the tax rates have been locked in 40 years ago.

        3. Ron

          Thanks, Rik.

          Yes – I’ve heard that this is a problem with some commercial properties (in particular). I’ve also heard of “shenanigans” regarding ownership, involving group ownership for a given property.

        4. Howard P

          Rik and Ron make good points for pursuing the ‘split-roll’ approach as to property taxes…  Paul Gann’s ‘poison pill’… making sure that the Prop 13 provisions would benefit business/corporate California far more than the homeowner/senior folk that he pretended to ‘protect’.  Not convinced Jarvis saw thru that deception… he seemed to be a ‘true believer’ that he was protecting homeowners.  Yeah, I met him and talked with him during the Prop 13 campaign… nice guy, supporting a questionable measure.

          In Millbrae, where, pre-Prop 13, kept reducing their prop tax rates, because they didn’t need the $.  Prop 13 actually raised the tax rate… in Millbrae… it might have been an ‘outlier’… but it happened…

          Gann was not shy, in many of his writings, that he wanted to support business, and ‘screw government’, under the cloak of “protecting John Q Public”.  The sheep bought the spiel…

          Ironically, he died of AIDS complications (blood transfusion), that government monies used for screening blood, testing,etc. might have prevented his death @ age 77…

        5. Rik Keller

          Ron: yes, LLCs and such are set up all the time to own the properties and avoid any re-valuations.  It might be that EPS’ projections for ownership turnover are optimistic compared to what actually is likely to occur to the real world.

          As Matt Williams points out, the reports have not been publicly vetted/reviewed.  I have a LOT of questions about the valuation assumptions for the industrial and flex space components—they seem far out of line with actual market rates.

        6. Ron

          Rik:  “I have a LOT of questions about the valuation assumptions for the industrial and flex space components—they seem far out of line with actual market rates.”

          Looking forward to seeing you at the finance and budget committee hearings, when this turkey is relaunched.  Your ability to engage in financial and fiscal analysis is impressive (and is probably above that of at least some on the committee and council).

          Note that there will be a concerted effort by some, to downplay the realities. (You’ve already seen that in action, on the Vanguard and elsewhere.)

        7. Rik Keller

          This article is typical Greenwald campaign mode in a nutshell: asserting without evidence that the revenue projections are too conservative and the costs projection are too liberal. Just because he wants it to be that way.

        8. Ken A

          This may be my last post but I’m hoping that Howard will check in on his comment that taxes went “up” in Millbrae after Prop. 13.

          My Aunt and Uncle moved to Millbrae from SF in the 60’s and bought a home for a little over $20K, by 70’s it was worth over $200K (10x more but they were not making 10x more money) and my Uncle was active in the Prop 13 movement (getting me to pass out pro Prop 13 flyers with him on more than one day).

          The link below says “Before Proposition 13 passed, the average property tax rate in California was 2.67 percent”

          https://lao.ca.gov/reports/2016/3497/common-claims-prop13-091916.pdf

          I was not actually writing property tax checks in the 70’s but I find it hard to believe that 1. Millbrae taxes before Prop 13 were only about 1/3 of the state average and 2. That my Uncle and all his pro Prop 13 friends would have been so happy if their taxes actually went UP.

          P.S. To Rik and Ron owning a property in a LLC does not do anything to keep property taxes low since each property is reassessed when the control of a LLC changes (If I sell a shopping center in town owned by a single member LLC with me as the sole member to David and he keeps ownership in the same LLC he will have to pay the same property taxes as someone who bought it in their own name from someone else who owns it in their own name).

          P.P.S. I know that there are some people who have figured out how to transfer a property without getting it reassessed but they are breaking the law and it is really rare (I’m betting that Ron and Rik can’t post even one address in the county where this has ever happened)…

        9. Ron

          Ken:  What makes you think LLC’s are generally owned by one individual?

          Perhaps more analysis is needed, regarding how often properties like this are actually reassessed.

          There’s a reason that there is an effort underway to change Proposition 13 (in regard to commercial developments). Of course, that might also impact investments (viability), regarding such proposals.

        10. Ken A

          Rik:

          Thanks for the link, but the focus of the report on “land” values is not real helpful and seems that it was written to try and fool people since “total taxes per acre” or “total taxes per square foot” is what the county actually receives.  If one commercial property is paying taxes on a $9mm value and another similar property is paying on a $10mm value who cares that the property paying the higher taxes has a lower “land value”.  They recently tore down a dumpy place on J Street and built some new homes.  Once they are completed they will probably pay more per unit and per sf in the entire neighborhood despite a low tax value on the “land”.  The report seems to “hint” that LLCs are getting away with keeping taxes low but it is only if the control of the LLC does not change (few trusts last a long time since almost all heirs want to end them to get control of the assets including real estate).

           

        11. Howard P

          Ken wrote, in part,

          (few trusts last a long time since almost all heirs want to end them to get control of the assets including real estate).

          What is “long time” to you”?

          “since almost all heirs want to end them to get control of the assets including real estate”… basis for that conclusion?

          As the Trustee of a trust, that had a 14 year duration, I respectfully question everything quoted above.  The heirs never pressured me to truncate early.  Your posit does not fit with my reality…

        12. Rik Keller

          Ken A.:

          The report does address the issue of improvements (buildings) vs. land: “We were not able to do definitive statistical calculations examining these differences. But looked at various ways, the differences in building values are at most 4 or 5 times, while land values are far more disparate.”

          And from p. 18 of the report, the difference in land valuations ends up being the difference between the portion of the property tax for the land in the low $10,000s and hundreds of thousands.

          LLC’s, Trusts, Limited Partnerships: avoidance of change of ownership. The most direct way in which change of ownership is avoided is by the use of LLC’s (limited liability companies), Trusts, and Limited Partnerships. Discovering these properties requires examining not only the property ownership but the deeds which have been filed for these properties. Sorting through each of these is a painstaking process.
          Examples. From our research, substantial amounts of land in California are owned by trusts, LLCs, and partnerships, the underlying ownership of which are often highly complex….

          …Such a result is not uncommon for hotels, by which the underlying land is leased from an LLC, partnership or trust. If those 10 acres were comparably assessed with other land in the area, the landowner would pay about $500,000 instead of the $9,000 it currently pays in tax on the land.

           

           

        13. Howard P

          Ken A… you questioned my previous post re:property taxes in Millbrae, with the passage of Prop 13

          I posted that the tax rate went up… I stand by that… it was under 1% when the measure passed… your confusion might lie in the fact that prop 13 ALSO rolled back assessments to 1976 levels… do you remember the 70’s and inflation?

          So, a property in Millbrae had a rate increase, but due to the rollback in valuation, it was either a push or a decrease for a given a SF property.

          I stand by what I wrote.  Can you do the same?

           

    2. Jeff M

      Again, it’s important to note that there’s fiscal challenges throughout California. If innovation centers were a savior, there’d be a lot more of them by now.

      This is indicative of a big gap in your understanding Ron.  Most communities would kill for this opportunity but they lack a world-class research university.

      Davis is failing to leverage this unique opportunity.  It makes Davis residents look very foolish to the rest of world.  Our roads crumble while we ignore and resist our fortune… and also deny our responsibility.

      1. Ron

        Jeff:  MRIC isn’t exactly close to UCD.  (Any traffic between the two would go right through town, as well.)

        I’ve heard (more than once) that commercial markets are looked at regionally, not by city.  Hence, the proposals in Woodland, Dixon, West Sacramento, etc.  (Not to mention the taxpayer-funded proposal, in the form of Aggie Square in Sacramento.) It will be interesting to see if all of these “fiscal saviors” are actually built, and what type of impact they’d have (not to mention the increased competition that a Davis proposal would face).

        1. Howard P

          (Any traffic between the two would go right through town, as well.)

          Really?… think I’d go via Mace/I-80 (maybe along 113)/UC Davis exits… perhaps a tad longer, but no signal delays to speak of… I await your inevitable rebuttal… your forte…

        2. Ron

          Howard:  I-80 is increasingly impacted, as I just noted above. As are the freeway entrances and exits.

          Once you’re committed, you’re stuck on the freeway. (That doesn’t happen, when traveling through town.)

          I suspect that a lot of traffic will end up on Mace/Covell (on the North side), or 2nd Street – parallel to the freeway (on the South side). And, from those points, drivers would work their way through even more impacted streets.

  4. Rik Keller

    MRIC proposal is “2.18 acres”?

    I’m glad that finally after at least a half-dozen articles in the subject and, Greenwald finally started looking at fiscal impact numbers, albeit still on a superficial level.

    It would be good also to look at actual performance of existing research parks as a reality check. Maybe after other 6 campaign articles for the project, he can get around to that.

    One key thing glossed over here: the baseline MRIC proposal includes a hotel, and when taken away in a comparison alternative the net City budget revenue gets reduced by 33%. Take away the ancillary retail component of the project and you probably lose another 15-20% from there.

    Those uses are not connected to a the research park component, could be located elsewhere in the city. Including them in the analysis just makes the research park component look like it is producing a lot higher returns than it is. Furthermore, Greenwald repeatedly characterizes the EPS analysis as “conservative” without providing information to back this assertion  up. Where are the comparisons to the performance of other research parks?

    Just as one example of strange, seemingly non-conservative assumptions in the report, the industrial/manufacturing component is assumed to be valued at $250/sf for tax assessment purposes. This valuation is very high with regional industrial space sales prices in 2018 around $90/sf. http://www.kiddermathews.com/downloads/research/industrial-market-research-sacramento-2018-2q.pdf

    Note also that market rents for the Davis/Woodland submarket are well below the regional average at $0.32/sf monthly compared to $0.48/sf.  That’s equivalent to only about $60/sf sales value for industrial properties, or 25% of the number in the EPS report. With the industrial component at about 35% of the total project square footage, a more realistic valuation of that component would reduce the projected City fiscal benefits substantially.

    Similarly, the flex/office valuation in the EPS report likely overstates a realistic valuation more in line with regional averages of around $160/sf rather than the $245/sf figure used in the report.

    Additionally, the Davis Vanguard has neglected to describe the larger context and impact of the project. For example, there are 5,800 projected employees (in the “no hotel” alternative). And the EPS report projects a total of 10,300 local jobs that will be created due to the project. Translated to local households, to provide housing for employees at the current jobs-household ratio of 1.2 (Davis has a higher jobs-household ratio than the regional average and therefore already underprovides workforce housing), that would mean a population growth of about 21,500 (at current 2.5 persons/HH). The fiscal costs and impact of this population increase are, of course, beyond, the scope of the EPS report.

    Looking at just the research park component of the project and using more realistic projections, at build-out decades down the road, it would likely have a net positive City fiscal impact significantly less than $1 million/year, a small fraction of the current $8 million shortfall in the  City’s budget. It would also induce population growth at 30% higher than existing levels. Those are extremely modest gains for a very large impact.

     

     

     

     

    1. David Greenwald

      “I’m glad that finally after at least a half-dozen articles in the subject and, Greenwald finally started looking at fiscal impact numbers, albeit still on a superficial level.”

      What’s weird is you failed to recognize that you’re jumping into this after six years of discussion on this subject and the numbers presented here have already been presented and chewed through for several years. There is in short nothing new here – I simply realized after some of the comments, they needed to be revisit. No acknowledgement by you that the EPS numbers are nowhere near what you’ve been claiming.

      Second, “One key thing glossed over here: the baseline MRIC proposal includes a hotel, and when taken away in a comparison alternative the net City budget revenue gets reduced by 33%. ”

      I addressed this point – I also don’t understand why you assume it will be taken away. There are actually more reasons not to take it away given that the Embassy Suites Hotel Conference center has been reduced in scope.

      Third, I agree that we are going to have to figure out some of the housing situation. I favor housing onsite – it won’t completely fix the problem, but realize as well that we are adding that population over a 30 to 50 year period, so we can address it over time, rather than all at once. I still don’t think the project will have housing, but there are alternative locations like the property next to Harper inside the curve. That’s why I think the Chiles Road housing is important for down the line as well.

      Finally, I think we can get between $2 and $5 million from this in revenue. Like Matt Williams, I think $8 million is a low number and it is going to grow in time. I view this as a package of options needed to give the city sustainability and reslience, but it’s a very important one for a lot of reasons beyond just the bottom line of the budget.

      1. Rik Keller

        Greenwald: What makes it all the more sad is that you have “six years” to look at this stuff or whatever, and I can “jump in” and look at a document and immediately point out things that you  missed, like the fact that in the EPS report the hotel accounts for fully 1/3 of the projected net revenue for the city. And that the valuation for the industrial uses is 4-5x what the actual regional sales/lease rates are.

        If you are going to be an actual “community watchdog,” you need to have a better understanding of the subject material and look at things with a critical eye. Instead, we see you pushing your own irresponsible projections not supported by evidence in your efforts to campaign for certain projects.

        1. David Greenwald

          Rik: I stated the hotel is my original article in 2015 and I state it here.  Not sure exactly what you’re missing. Moreover, for the third time I ask – what makes you think there’s not going to be a hotel? I cite the tax leakage report, the need for a hotel conference center (desperate need btw) which has a direct link to innovation, and Mark’s point about the lost revenue from sports tournaments due to our lack of hotel accommodations.

        2. Don Shor

           assumed to be valued at $250/sf for tax assessment purposes. This valuation is very high with regional industrial space sales prices in 2018 around $90/sf.

          Recology just bought the DWR site for $120/square foot, and that building is a couple of decades old. I suggest we seek a new evaluation of the square foot value of commercial properties, particularly new construction. It’s possible the EPS report was overstating it. It’s likely you are understating it.

           that would mean a population growth of about 21,500

          Population growth of Davis is controlled by the voters.

        3. Rik Keller

          Greenwald: You mentioned the hotel in passing, but didn’t provide any perspective on how much revenue of the proposal it accounts for. It took me pointing this out before you even addressed it. And you have not even attempted to look at other actual research parks as examples of the types of returns expected.

          For the purposes of analysis, isn’t it a good idea to separate the hotel and retail uses from the research park uses in order to see what the actual benefits of just the research park components are? he hotel and retail uses can be built elsewhere in the city and have no real connection to research park uses. What they do is make the returns from the research park look far more impressive than they actually are.

          There might be a lot of good reasons to support a research park, but one thing is clear: it’s a really inefficient way to try to make up City budgetary revenue shortfalls.

          And the impact of an MRIC-scale development would mean increasing City population by more than 20,000 people. That’s a huge impact for marginal budgetary gains. And the impact of that population increase, of course has not been analyzed at all.

          1. Don Shor

            And the impact of an MRIC-scale development would mean increasing City population by more than 20,000 people.

            Population growth of Davis is controlled by the voters.

            The hotel and retail uses can be built elsewhere in the city

            Where?

        4. Ron

          According to the analysis for 3820 Chiles Road (retyped below):

          “In its detailed analysis, EPS identified as the source of this conclusion low commercial rents prevailing in Davis and regional markets.  For an office/R&D project to make sense to an investor and lender, monthly lease rates would have to rise by about 50 percent ($2.90 per gross leasable foot), a phenomenon that would likely take decades”.  

          Building additional new structures (in a market where there’s “low prevailing rents”) isn’t likely to change that fact. (Doing so usually works in the opposite direction.)

          1. Don Shor

            Building additional new structures (in a market where there’s “low prevailing rents”) isn’t likely to change that fact.

            Location, location, location.

        5. David Greenwald

          Rik – one of the problems is – you’re coming into this discussion really late.  And that’s fine.  But a lot of the points you are raising have already been discussed thoroughly and so when re-raise them, as you should, you’re not raising new issues, but rather raising things we have already discussed in the past.  It’s a good reminder to circle back – but you need to understand what it is that you’re doing is not raising points that have been neglected.

        6. Rik Keller

          You keep saying that I am coming to the discussion “late”. At the same time, earlier this week you stated that economic development has been put on the shelf for 4 years or whatever and now the city if focusing on it again. And you felt the need to publish a bunch of articles recently on the subject: why are you just recycling old material if everything has actually already been discussed?

        7. David Greenwald

          Rik –

          Several reasons.

          Some of this is coming out in response to the Chiles 3820 report which is current.

          Some of this is coming out in response to the Barry Broome talk which just happened.

          Some of this is coming out in response to the MRIC which may be coming forward with a new proposal in January.

          And finally most of it is coming out in response to points that you have raised having read this stuff apparently for the first time.

        8. Ron

          David:  Frankly (because I’m “not”), I would think that you’d welcome the type of analysis that Rik is providing (unless your only goal is to act as a cheerleader for development).

          There are folks who superficially look at this stuff for years, who have no real clue (or interest) regarding fiscal analyses. It doesn’t require years – it requires work and the ability to dig into the details. Rik has already demonstrated his talent, to do so.

        9. Rik Keller

          Greenwald: you think you have read the reports previously, but you lack the knowledge base for critical analysis, and therefore you are unprepared to address the points I raise. If you were actually a “community watchdog” as claimed, you would look at things with a critical eye, rather than just accepting things at face value and irresponsibly arguing for even rosier projections unsupported by evidence.

      1. Alan Miller

        whatever happened to “Keep Davis Boring”? 

        That’s what happens after anonygeddon, when, for example, this comment string goes from a conversation between six people to a conversation between the editor, the moderator and one person.

        Or was that “Keep the Davis Vanguard Boring”?

        1. Keith O

          LOL, no Alan, we’re being told that commenters will magically appear out of thin air as they’ve been afraid to post because of all the anonymous boogeymen.

        2. Howard P

          LMAO…

          Jim posts:

          I have often thought that Ron and Howard are the same person.

          Go back to Mayberry, and chanell Opie… do you actually think?  Why would I call myself a “troll”?  Repeatedly… tu est bete.

        3. Keith O

          Howard writes:

          Go back to Mayberry, and chanell Opie

          Howard, did you travell far to schooll to learn how to spell chanell?

          As they say, don’t throw stones…….

  5. Ron

    Jim:  “Right now it may be just a few people with multiple aliases. I have often thought that Ron and Howard are the same person.”

    It would take an evil genius to pull that off (or even to think of it).

    Oh, wait – taken together, it might be a single Hollywood celebrity! (Hadn’t noticed that, before.) It might even include “Opie”.

     

  6. David Greenwald

    Ron, you wrote: “So, it’s important to note that no fiscal analysis has been performed, for an innovation center that includes housing.”

    On page 80 of the EPS report they put out: “Housing would be a powerful mechanism for improving returns, as well as creating a basis for funding infrastructure.”

    They may have put out a phase II, though I don’t think if they did, I ever saw it.  Checking with the city.

  7. Rik Keller

    Greenwald said: “On page 80 of the EPS report they put out: “Housing would be a powerful mechanism for improving returns, as well as creating a basis for funding infrastructure.””

    You realize that they are talking about returns for the developer?  The analysis already shows that adding a housing component would be a money loser for the City’s budget.

    1. David Greenwald

      No, the analysis doesn’t show that housing would be a money loser for the city’s budget.  Much less than adding housing to an innovation center would be.

      1. Rik Keller

        Greenwald: you don’t think that residential development is generally revenue negative for jurisdictions, especially higher density rental housing?

        Just as one example, in EPS’ MRIC analysis, the net City General Fund proceeds were decreased by $235,000 (about 11%) in the option with a residential component, compared to the baseline non-housing option. Note that the projected revenues actually went up by $959,000, but costs were significantly higher by $1,194,000 and outweighed these.

        1. Matt Williams

          Rik, the FBC was primed and ready to ask questions like that one in April 2016 when the EPS analysis of MRIC was scheduled to be heard by the FBC, with staff, EPS, Plescia, Godwin and the MRIC development team all present.  But that never happened because the MRIC development team withdrew their application.

        2. David Greenwald

          In general – the housing projects in town have been revenue neutral. There are two factors that lead projects to turn negative. One is the allocation of costs to those projects that will be born by the city regardless of whether or not the project is built. And the second is that over time the expected rate of costs (mostly from employee compensation increases) outstrips the projected tax revenue produced by the project. The former is largely an accounting issue and while I understand the technical need to allocate those kinds of costs, those costs exist independent of the development. The latter is a problem but I view it as the cost of running the city rather than the cost of the development. In short, if we hold the line on employee compensation growth, the project pencil out over time, if we don’t, the problem of city budget will well outstrip the impact of a single project.

        3. Rik Keller

          Matt: “the FBC was primed and ready to ask questions like that one in April 2016 when the EPS analysis of MRIC was scheduled to be heard by the FBC, with staff, EPS, Plescia, Godwin and the MRIC development team all present.  But that never happened because the MRIC development team withdrew their application.”

          Argh. So, now we are discussing these un-vetted reports without important questions having been asked.

          One big question I have if these figures are revisited: why is industrial land valued at 4-5x the going regional rate? That one figure (along with valuation of office/flex space that seems inflated but not as dramatically so) changes the revenue calculations dramatically.

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