Commentary: Commission Got It Wrong – Revenue Stream Is a Good Deal for Davis

Several of the commissioners and public commenters lamented the fact that the projected revenue stream from the 3820 Chiles Road apartment project at only $125,000 or so to start was insufficient.

Claire Goldstene, who chaired the meeting, noted that it could take about 20 years at that rate to equal a standard in lieu payment.

There were concerns registered that this was simply not enough money to actually build housing.

Claire Goldstene put it that “we have really prioritized the building of units and the need for housing.”  She said, “I do share the concern that if this is approved, this serves as an attractive example of other developments coming forward.”

Don Kalman was blunt: “My message: I want affordable units built in this town.  There’s a crisis.”

The thing is: I agree that there is a crisis.  Where I differ with the concerns of the commission is that I think this is the solution to that crisis.

That crisis in my view is created by three separate problems.  The first problem is that when the state canceled RDA (Redevelopment Agency funding), it cut off an annual stream of about $2 million going to the city.  The second problem is that the city now has to rely on market rate development in order to build affordable housing – and peripheral subdivisions with land dedication sites, the likes of which we saw at WDAAC (West Davis Active Adult Community), are going to be few and far between.

Finally, there is the financing issue.  This is the hard thing for people to accept but the margins for these projects, given costs of land, construction, and other requirements, is thin and that makes it difficult to add a lot of affordable housing without doing things like renting by the bed and providing affordable beds instead of units.

So why is this a good deal for Davis?

Matt Williams did a good job of laying out the math here in a public comment and a comment on the Vanguard.  Looking at the annual 5.26 percent rental increase, he was able to project the revenue stream based on gross rent (which by itself has some clear advantages) to go from around $131,000 in year one to nearly $270,000 by year 15.

As he points out – that not only is a good deal faster than inflation, it is also higher than the city’s ability to take an in lieu payment and invest it.

While Ms. Goldstene was concerned that we would not see the revenue equivalent of the in lieu fee until year 20 (it’s probably closer to year 15, looking at Matt Williams’ projections), Greg Rowe pointed out that the city with a steady revenue stream could actually get that money up front through bonding, and use the stream as their means to pay it back.

But there is another possibility here and it is one that gets me excited.  While some worried that this could become the norm and they worry that that means housing does not get built – I think becoming the norm will be a good thing, not a bad thing.

Let me throw out one scenario.  We have Chiles Road apartments, but we also have proposed projects so far at 2555 Research Park, the URP (University Research Park) mixed-use project, and the University Mall redevelopment.  Let’s take those four projects and add two more that could come along in the next few years, and by five years from now, if all of those generate a revenue stream, we could be looking at around $1 million per year annually – maybe going up to $1.5 million by year 15.

That’s becoming a big deal.  That is like half to three quarters of the replacement for RDA right there.  Add in perhaps a few hundred thousand we could get for affordable housing from the state, maybe a $50 parcel tax, and we could be looking at within five to 15 years having a revenue stream that completely replaces RDA – without even considering the possibility of a new tax increment.

Is that a big deal?  Yes it is.

This is actually a lot better than simply a replacement for RDA, because the city has a lot greater possibility of using the money more broadly.  Here are just two possibilities.  One is that Pacifico, for example, has two buildings that need renovation – using that revenue stream, we could have the money to do that.  That might open up 100 units for affordable housing just right there.

Another possibility that Mayor Brett Lee has raised is the possibility of the city itself having a voucher program.  So instead of having to build new affordable housing, what if they bridged the gap between subsidized housing and market rate housing by offering a $500 voucher?  That’s $6000 per year.  Using this principal, the city might be able to provide 100 vouchers for $600,000 a year.  Utilizing other monies could expand that further.

Because it is a city program, they can target more broadly – they could do middle income vouchers if they wanted to.

The bottom line is that this innovation is exciting and it has some remarkable possibilities that we have not even begun to explore.  Far from not providing housing, this could actually be the revenue stream we need to offer all sorts of affordable housing programs that we have never dreamed of.

The best part is we can do it in a way that is workable for the developers and those needing to get financing for these projects, and still do it in a way that provides great ongoing benefit to this community.

—David M. Greenwald reporting


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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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21 Comments

  1. Bill Marshall

    https://www.inflation.eu/inflation-rates/united-states/historic-inflation/cpi-inflation-united-states.aspx

    While I think the concept has merit, I question the numbers used in the projections… both the assumed increases in rental rates, and what they would mean if discounted for CPI/inflation.

    I have no better numbers, but the calcs shown to date are “squishy”, and imply “guaranteed” rates of return, in ‘real’ dollars… which isn’t “real“…

    The concept is sound… and should be tried… as to the actual #’s, am thinking there is work to be done, with all assumptions disclosed… then, tested.

    As I see it, it is (or should be) meant to be a trust fund, rather than an annual “dollar in, dollar out” thing… it should be structured to minimize “feast or famine” situations… I believe that should be the goal… i.e. (dare I say it?) sustainable

    I leave the actual #’s to others… beyond my ken, and paygrade…

    1. Bill Marshall

      I still have problems with the commissioner who abstained/demurred.  These folk are charged with making recommendations… and, if unable to do so, step down for others who can… if the commissioner had made a motion to ‘table’ to get more info, or have a longer time to absorb the info, I’d have no problem.

      Commissioners are unpaid… they have nothing to risk except ego.

      1. Bill Marshall

        The commission made a suggestion that there be a floor.

        I agree… the floor should be original commitment, plus CPI/inflation. [opinion, mine]

        I still question the number projections bandied about.

        You have not addressed that.  Neither has Matt.

    2. Matt Williams

      Bill, you raise a very reasonable point, and my data file allows me to address that issue, by CPI adjusting each annual rent amount, and then seeing the trend

      The table below was created by establishing the low point in the 1975-2018 data as a CPI-adjusted rent value of 1.0.  That happened in 1980-81.  As you can see from the table, renters in Davis today are spending over four times as much for renting a 2-bedroom apartment and 3.5  times as much for renting a 1-bedroom apartment.

      https://www.davisvanguard.org/wp-content/uploads/2019/02/Rents-History-with-CPI.jpg

  2. Richard McCann

    Another advantage over an RDA: funding needed not be restricted to a “blighted zone” designated for redevelopment. So the City can spread the funds farther geographically.

  3. Sean Raycraft

    So I’m not against the idea of a recurring contribution to an affordable housing trust. I actually think it’s a good idea. Where I start to scratch my head is at the 1.65% number. Where does that come from? It seems like a pittance to me. Why not 5%?

    1. David Greenwald

      What he said was that the 1.65% number was what they calculated they could pay. Should it be more? You can make a point of that. I consider that part negotiable. But think in this way: right now 1.65% means they are getting to the in lieu fee in 15 years time in terms of total contribution. But for every project this percentage is going to vary and it will be up to the city and council to determine the right level.

    2. Matt Williams

      Sean, the parallel question to your question is, “Why 5%?” or alternatively “5% of what amount?”

      Are you asking for 5% of the bottom-line or 5% of the gross margin or 5% of the gross revenues?

       

    3. Bill Marshall

      Sean…

      Where does 5% come from?

      Why not 10%? 15%? 90%? 110%?

      Exactions… aka coercion… in some cases, “capricious and arbitrary”…

      There is something called the Fifth Amendment… read ALL of it… related to ‘taking of property’… revenue from rentals/development… that’s arguably “property”… the key is “due process of law”… you need a “nexus” between an exaction and the impact caused by an action… very “squishy” when it comes to ‘affordable housing’, which I don’t believe is a constitutional “right”, but a darn good goal for society.

      Sean, how much of your income/personal resources do you give directly to support/provide affordable housing?  Perhaps that %-age would be a good baseline to expect from others?

  4. Darryl Rutherford

    My problem with this process is that we are allowing one project to dictate how the city revises what is already an interim affordable housing policy which seems to have been driven/motivated by developers challenges vs the city’s needs to begin with. Staff failed in providing enough information to the commission in their attempt to push this amendment through without proving good cause as to why we can’t allow council to make a one-time exemption…I believe the commission did the right thing based on the lack of info, transparency, and motivation behind amending the ordinance. I’ve always been told that policy shouldn’t be dictated at the dais until it’s been fully vetted through the public and the amendments proposed haven’t been vetted. City staff are failing us by not being deliberate and intentional in revising our affordable housing policy. It’s time they put together a robust community outreach process to gather input from the community and other stakeholders with expertise in affordable housing policy/financing to develop a comprehensive affordable housing plan specific to Davis’ unique needs. So kudos to the SS commission for standing up and pressing pause on revising such an important policy…hopefully council will also stop and think through the potential consequences of amending this policy without having it fully vetted by the experts.

    As for the Chiles road project itself – I think it’s a good project and like the idea of allowing this ONE-time exemption which I believe the interim ordinance allows Council to do. That money could pay for a full-time city housing expert to be on staff in the city manager’s office. We need someone with the right housing expertise dedicated to leading our city’s housing decisions. If I were council-person I would be reaching out to (or having staff seek out) a legal opinion from those specializing in housing law who may have a different opinon on the legality of allowing this one-time exemption. There are plenty to choose from – Goldfarb & Lipmann, Western Center on Law and Poverty, Public Interest Law Project, Thomas Law Group…just to name a few off the top of my head.

    I’m really starting to wonder/question who is driving the bus in this town when it comes to affordable housing policy…

    1. Bill Marshall

      With all due respect, Darryl, the commission did exactly nothing… they had the chance to “drive the bus”… the commission had the opportunity to say “no”, or say “yes”… the commission punted, and did nada.

      Staff did not cause a commissioner to abstain.  An inconvenient fact.

      As was the PC action to approve subject to review by another commission… they had the opportunity to ‘steer the bus’, as well…

      I question the value of advisory commissions, if they are not prepared to advise.

      1. Bill Marshall

        Amendment:  I question the value of individual commissioners if they are not prepared to advise.

        I really care not if the commission voted “aye” or “nay”… or even voted to table until further specific information was made available.  They did none of that.

  5. Georgina Valencia

    As one of the commissioners on the Social Services Commission I was disappointed by the Commissioners vote on the proposed change to the Housing Ordinance.  The discussion that ensued showed a lack of understanding by the commissioners and I would add a poor presentation by staff at that February 25thmeeting.

    To add to the confusion when the developer originally brought the project before our commission on January 28th.  There were two options presented that could be used to satisfy the Affordable Housing requirement. One option was a revenue stream for the Housing Trust Fund (HTF).  The second option was an Affordable Housing component made up of middle income and low/moderate income (80 to 120% AMI) deed restricted apartments.  Both options were well received by the Commission and there was very strong support for the HTF revenue stream.

    When the developer came back to our commission on February 25th, after their presentation to the Planning Commission, the only item mentioned was the revenue stream. I know that, for myself, I was concerned as to why the proposed amendment to the Housing Ordinance only addressed the revenue stream.  When I tried to engage staff to enlighten us as to the reason we were looking at just the revenue stream and not the proposed middle income/low moderate housing too the explanation from staff ‘s response was a non-sequitur, and then a hand off to the developer.

    The result was confusion and a little suspicion on my part. We, the Social Services Commission, didn’t get to the “why the ordinance change was needed”, “why there was no language regarding the middle income and low/mod housing”, etc.  City staff really could have done a better job of explaining why the change in the ordinance was being presented as it was.  And the Commission could have done a better job of drawing the information out of staff.

    With that said let me restate my public comments made at the February 13thPlanning Commission meeting.  A HTF is one of the tools that can help with satisfying Affordable Housing requirements.  These funds can be used for “all things affordable housing”, i.e. Housing Vouchers, Repairs of existing Affordable Housing, down payment assistance, construction of affordable housing, purchase of land for affordable housing to name just a few possibilities.  To propose a revenue stream to the Housing Trust Fund, revenue that comes from the rental income of an apartment project, is a creative approach and could advance the efforts this community is making to solve our Housing Crisis.

    So, let me restate that I enthusiastically support the concept of the HTF revenue stream.

    Thank you,

    Georgina Valencia, Broker/Owner
    Valencia Real Estate & Consulting

    1. Bill Marshall

      My sense is that we need both the HTF and the deed restrictions in “the tool box”… the former is probably more amenable to “trust, but verify”… there have been numerous problems with the “permanently affordable deed restrictions”, and with some of the ‘qualifications’ in the programs as they have existed…

      So, am whole-heartedly agreeing with Georgina.

      Any path to a goal can be a good one, if the goal is met.

      Perhaps ironically I think that also applies to the on street/off-street parking thing… ‘parking’ people (housing) or cars… analogy is weak, and has inherent problems, but still…

      Goals need to be clear, and accepted…

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