Commentary: Housing’s Impact on the Economy

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In recent weeks we have had discussions on whether the proposed ARC (Aggie Research Campus) needs housing or not.  In those discussions, we have cited industry leaders who have pointed out that prospective companies are concerned about the availability of housing – particularly now during the height of a housing shortage – when they make decisions on where to locate.

This, of course, is not limited to Davis.  Some economists are concerned about the impact of the housing crunch on the state’s economy.

Christopher Thornberg, founder of Beacon Economics and director of the UC Riverside Center for Economic Forecasting, warns that while the job growth in California improves, a slowdown is “evident.”

In his report, he notes that California from May 2018 to May 2019 added, 282,700 jobs – which is equivalent to a 1.6 percent annual increase.

“This rate of growth represents a substantial slowing from the pace the state experienced a few years ago,” said Mr. Thornberg.

The problem, he said, is housing.

He said, “The problem isn’t labor demand, the economy is still very strong. The slowing is being driven by labor supply shortages that stem from California’s housing supply crisis.”

California’s labor force declined by 49,800 in the latest numbers, and combined with the 51,800 decline in April, has erased much of the labor force gain from earlier in the year.

As columnist Dan Walters put it, “Employers will not add jobs if they can’t find workers and workers either won’t come to California or migrate elsewhere, if they can’t find affordable housing.”

He adds, “That simple, but powerful, economic equation makes doing something about housing one of the state’s most important, but also most complex, political puzzles.”

This was a point made last year by the project manager at the University Research Park, who told the Vanguard that one of the challenges that businesses face “is hiring people because it’s so difficult to find housing in Davis. People I think have an expectation that if they’re going to work in Davis, they’re going to live in Dixon or Woodland or West Sacramento because the housing market is just so tight.”

Dan Ramos made a similar point when we spoke with him last month.

For many companies, Dan Ramos said, following many others we have spoken to, the need for housing is a huge consideration in where they will move their company.

He said, talking to Bay Area companies, he learned that housing is a huge issue and “so important for attracting employees.  It’s a big priority for them in terms of recruiting and everything,” Mr. Ramos said.

As some have noted, the housing market in California has been softening.  That may not be a good thing for the economy either.

Jerry Nickelsburg, an adjunct professor at UCLA and director of the Anderson School of Management’s forecast, said in May that “the slowdown in the state’s housing market also has implications for the California economy going forward.”

At the same time, the state continues to suffer from what experts are calling “a chronic housing shortage.”

“Home prices are falling in California as is the level of building,” Mr. Nickelsburg wrote.

One possibility is “higher mortgage interest rates are depressing prices but not the underlying demand.”

However, more likely, the problem is that prices have risen so much that people have given up finding housing and some are leaving.  That may relieve the housing crunch (somewhat) but also harm the economy.

In his column, Dan Walters highlights Gavin Newsom’s continued efforts to cajole more housing.

He noted that the governor has vowed to withhold transportation funding from cities that fail to build additional housing.

In addition, “Last week, Newsom and legislative leaders announced a deal on housing. The legislation divvies up already appropriated funds for battling street-level homelessness, creates a new $1 billion fund to reward cities that proactively promote construction and imposes fines, up to $600,000 a month, on communities that continue to lag behind.”

“If cities aren’t interested in doing their part, if they’re going to thumb their nose at the state and not fulfill their obligations under the law, they need to be held accountable,” Governor Newsom said.

Withholding transportation funds did not work with the legislature, but the housing deal is moving forward.

Writes Mr. Walters, “[T]he broader carrot-and-stick approach will not generate any uptick in new housing starts in the near future, and perhaps little or nothing in the longer run.”

He argues, “Zoning more land for housing is just one factor in increasing production to the 200,000 units a year the state says are needed.  Even if land is made available via zoning, projects still must clear often fierce local opposition, particularly to high-density development. Environmental impact reports, lawsuits and refusal to supply water are among the tools often used to block projects.”

He is also concerned that even if local governments overcome opposition, “developers must be willing to spend many billions of dollars to acquire the land and build” and he worries about “a growing lack of construction workers to do the actual work.”

A key problem there is “one reason for that lack is the reluctance of workers to come to California because they, too, cannot find affordable housing.”

He concludes: “What Newsom and legislative leaders are doing this year is only a baby step.”

—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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87 thoughts on “Commentary: Housing’s Impact on the Economy”

  1. Don Shor

    “Home prices are falling in California as is the level of building,” Mr. Nickelsburg wrote.

    Housing prices in California are falling? Hm. Only in Orange County, according to this.

    https://www.latimes.com/business/la-fi-southern-california-home-prices-20190426-story.html

    And there’s this: https://managecasa.com/articles/california-housing-market-report/

    I’d say at best it is accurate to describe the market as softening, that statewide the rate of price increase is slowing, and a few markets are showing possible declining prices after a long period of robust price increases.

  2. Ron Oertel

    Housing generally “hurts” local governments.  Already, the city is not receiving enough revenue from its existing housing supply (or its businesses), to fund long-term needs.

    The evidence can’t get any more obvious, than that. However, some want to “add” to the problem – including the Vanguard and some of its supporters. Those folks are denying reality.

    Costs rise (especially pensions/medical), but revenue is limited via Proposition 13.

    The same story throughout California.

    1. Don Shor

      Housing generally “hurts” local governments.

      “Local governments” exist because people live places.

      Costs rise (especially pensions/medical), but revenue is limited via Proposition 13.

      Yes, that is a problem. Another method of taxation is likely to be how services get funded. But services are needed where people live. They live in houses, in places called cities.
      I sometimes wonder what your actual urban policy would be in your ideal world. but it is outright laughable to say that people who are trying to make housing more affordable and deal with the pressures of housing costs are the ones who are “denying reality.”

      1. Ron Oertel

        You’re conflating the issues.

        The article’s premise is that housing “helps” the economy. 

        In reality, housing generally “hurts” local governments.

        1. Don Shor

          The article’s premise is that housing “helps” the economy.

          No, the absence of sufficient housing can hurt the economy by creating labor shortages.
          Housing itself should be a wash for local governments. Municipal government exists to provide services for the residents. They should not be charging more than the cost of those services. Some types of housing end up requiring greater levels of service per square foot. But overall the cost of providing those services should balance the incomes cities receive from various sources. Those sources are mainly property taxes, sales taxes, occupancy taxes, and fees.

          One problem Davis has had for a long time is that the cost of city payroll was rising faster than revenues, and on at least two occasions tax increases led almost immediately to pay increases. The Vanguard brought that to the attention of the public, and probably more than anyone David Greenwald made it clear that certain public employee groups were overly influential in local politics. While that influence has waned (nobody’s seeking contributions from firefighters any more), the difficulty of reining in local government payroll costs is still an issue.

          Adding more non-residential property to the payroll tax base is one way to help balance the budget. Where the people who work at those newly-created jobs will live is a conundrum. I am realistic enough to accept that they are likely to live in nearby communities where larger houses and yards can be purchased much more cheaply. I am finding the jobs/housing “balance” debate pointless because it discounts the regional nature of housing markets.

          If we are going to annex the farmland east of Mace, IMO it should be for revenue generation for the city. Business purposes generate the most revenue at the least expense, so that should be the focus. If there is a desire to provide housing for people who work in Davis, we can start talking about housing development further north inside the Mace Curve, or actually building on the Covell Village site (yeah, right), or creating a new subdivision out by the hospital.

      2. Matt Williams

        Ron, regarding your comment above, and many of your comments yesterday, I went to my weekly book club meeting this morning, and the following passage from the portion of the book we were discussing this week really resonated  … especially the final ten words.

        But he said, ‘Alas for you lawyers as well, because you load on people burdens that are unendurable, burdens that you yourselves do not touch with your fingertips.

        1. Matt Williams

          You are partially right Ron, the passage has less to do with what you have stated.  Rather is has everything to do with how and why you have stated it.

        2. Ron Oertel

          Second time today, that you repeated a vague comment in two separate articles.

          Actually, the other article contains a whole host of other, similar comments.

           

        3. Ron Oertel

          Richard:  I’d rather not share my thoughts regarding “how” or “why” you comment.

          But, at least I have some level of trust, regarding Matt’s motivations.

        4. Matt Williams

          My motivations are very clear Ron.  They are to get you to spend equal time detailing your thoughts regarding possible solutions to the problem(s) rather than endlessly repeating your recitation of what you see as the problem(s).

          That is why I believe the passage provided earlier today is so very much on point … you load on people burdens that are unendurable, burdens that you yourselves do not touch with your fingertips.

        5. Ron Oertel

          Matt:  I have a somewhat different view of the problems and their causes, than you do.

          But, your citation has nothing to do with it. In fact, it’s off-topic from the article, itself.

        6. Matt Williams

          Ron said . . . “Matt:  I have a somewhat different view of the problems and their causes, than you do.

          But, your citation has nothing to do with it. In fact, it’s off-topic from the article, itself.”

          I completely understand that your view of the problems and their causes is different than mine.  I have absolutely no objection to that difference in our views.  The quote I provided, which is very much on-topic from the article, is a gauntlet thrown down to you challenging you to articulate how you would go about implementing solutions to the problems.  So far your attitude and actions regarding solutions are that they are burdens that you yourself do not touch with your fingertips.

          I’m simply trying to get you to exercise your fingertips vis-a-vis the topic of the article.  So far you haven’t been willing to touch any possible solutions with a 10-foot pole.

        7. Ron Oertel

          I’ve addressed those issues, more than once.  (See the other article which has more than 200 comments, including discussions regarding Proposition 13, the sales tax rate, the intractability of the system-wide problem impacting cities, counties, and the state itself, the fact that other cities are “hoping” for the exact same “solutions” (which have so far alluded them), state intervention for the system-wide problem (as demonstrated by the governor’s recent assistance to CALSTRS), the eventual stabilization of pension/medical costs as the current batch of retirees “dies off”, etc.

          I’d rather not repeat that conversation.

          But yeah, I’m not as concerned about that, as I am about a developer promising “solutions”.

  3. Ron Oertel

    In his report, he notes that California from May 2018 to May 2019 added, 282,700 jobs – which is equivalent to a 1.6% annual increase.
     
    “This rate of growth represents a substantial slowing from the pace the state experienced a few years ago,” said Mr. Thornberg.
     
    The problem he said is housing.

    The problem is that some folks are counting on the number of jobs (and corresponding workers) to increase indefinitely.  It’s a Ponzi scheme.

    1. Richard McCann

      Ponzi scheme is when no net wealth is created. Obviously that’s not the case when more jobs are created for more people. There may be a problem that we count on continual population growth and economic growth, but that’s not a Ponzi scheme.

  4. Ron Oertel

    He said, talking to Bay Area companies, he learned that housing is a huge issue and “so important for attracting employees.  It’s a big priority for them in terms of recruiting and everything,” Mr. Ramos said.

    News flash:  Mr. Ramos has recently learned that housing is expensive in the Bay Area.

  5. Ron Oertel

    “People I think have an expectation that if they’re going to work in Davis, they’re going to live in Dixon or Woodland or West Sacramento because the housing market is just so tight.”

    Perhaps an indicator regarding the level of salaries planned.

    Regardless, that would be my expectation, as well.  Regardless of any housing included.

     

     

    1. Richard McCann

      Regardless, that would be my expectation, as well.  Regardless of any housing included

      On what basis do you speculate about this? Do you have information on the salaries to be offered there that the rest of us don’t?

      1. Ron Oertel

        See Don’s comment:

        “I am realistic enough to accept that they are likely to live in nearby communities where larger houses and yards can be purchased much more cheaply. I am finding the jobs/housing “balance” debate pointless because it discounts the regional nature of housing markets.”

  6. Ron Oertel

    Don:  “I sometimes wonder what your actual urban policy would be in your ideal world.”

    For starters, it would be a world where facts like those listed in the first two statements aren’t viewed as a “problem”:

    In his report, he notes that California from May 2018 to May 2019 added, 282,700 jobs – which is equivalent to a 1.6% annual increase.

    “This rate of growth represents a substantial slowing from the pace the state experienced a few years ago,” said Mr. Thornberg.

    The problem he said is housing.

     

    Don:   “I am realistic enough to accept that they are likely to live in nearby communities where larger houses and yards can be purchased much more cheaply. I am finding the jobs/housing “balance” debate pointless because it discounts the regional nature of housing markets.”

    Regarding that statement, I agree.

     

  7. Richard McCann

    For starters, it would be a world where facts like those listed in the first two statements aren’t viewed as a “problem”:

    Which two statements list facts as problems? Still haven’t seen what your urban policy would be…

        1. Ron Oertel

          That’s not entirely true. Ponzi schemes depend upon new funds.

           A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]; also a Ponzi game)[1] is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[2] The scheme leads victims to believe that profits are coming from product sales or other means, and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own.

          https://en.wikipedia.org/wiki/Ponzi_scheme

          This is similar to depending upon continued growth of jobs/workers (new funds), to maintain the illusion of economic and fiscal stability.

          And, it’s not sustainable – economically, or environmentally.

           

        2. Ron Oertel

          But actually, we should separate out “economic activity”, vs. fiscal (governmental) stability.  They are related, but not necessarily the same.

          That’s why developers, many business owners do more than “just fine” while their host cities are simultaneously struggling.

          Supposedly, we’re more interested in fiscal stability.

  8. Mark West

    In reality, housing generally “hurts” local governments.”

    This has been discussed here several times, yet I guess we need to do so again. Residential development from a city’s perspective is revenue neutral, with increased revenues being matched by increased costs to deliver services to the new homes and residents. In that regard from the perspective of local governments, housing development creates no direct change to the fiscal state so is neither helpful nor harmful.

    The claim that “housing generally “hurts” local governments” is on its face, false, no matter how often it is repeated.

    What does harm local governments fiscal condition are the decisions that increase the costs of providing services at a rate that is greater than the rate of revenue increases. This could be due to making existing services more expensive or by increasing the type or number of services that are being provided. This is frankly an issue of poor city management and has absolutely nothing to do with whether or not new housing has been built.

    We need to stop blaming residential development (and the people who want to live there) for the problems that result directly from the poor decisions of city leadership and management.

    1. Ron Oertel

      Mark:  “Residential development from a city’s perspective is revenue neutral, with increased revenues being matched by increased costs to deliver services to the new homes and residents.”

      That’s not what occurs, in reality.

      If you had stated that this is what is supposed to occur, it would be more accurate.

      One need look no further than the current situation in cities, counties, and the state itself to see direct evidence that this is not occurring. It is, in fact, the reason for the concern – at a system-wide level.

      Something about repeating the same actions over-and-over again, and expecting a “different” result.

      1. Mark West

        “That’s not what occurs, in reality.”

        Perhaps not, but if that is the case it is because of poor management decisions by the City allowing costs to rise beyond projections, and not a consequence of building more housing. You have misidentified the cause.

        1. Ron Oertel

          Those costs are to serve residences (and businesses).

          Your own comments show that those costs are rising faster than the revenues taken in.  There’s nothing unique to Davis, regarding that.  And, nothing to prevent it from continuing. Even now (during this period of supposedly “increased awareness”), you’ve noted yourself that costs are rising.

          It’s ultimately related to Proposition 13, as well. In which revenues were limited over time, but costs were not.

        2. Ron Oertel

          But, if you’re arguing that the city could do a better job controlling costs, I wouldn’t disagree.

          Still wondering why they hired a communications director, and recently increased the salaries of employees, for example.

          And again, this is occuring during a period of supposed “increased inerest” in fiscal matters.

          I can only imagine what will occur as interest in the budget wanes again, over time.

        3. Mark West

          There is nothing inherent with residential development that causes City costs to rise beyond projections. If they rise faster than expected it is entirely due to the decisions made by the CC and Senior Staff and has nothing at all to do with the development. If you want to claim that Cities are often poorly managed I will completely agree with you, but your blaming a City’s poor fiscal health on residential development is absurd.

        4. Ron Oertel

          There is nothing inherent with residential development that causes City costs to rise beyond projections. If they rise faster than expected it is entirely due to the decisions made by the CC and Senior Staff and has nothing at all to do with the development.

          Again, those costs are to serve developments. Attempting to “separate” or “isolate” those costs from the developments they’re intended to serve defies logic. 

          There is nothing to prevent the city from allowing those costs to rise again.

          Given the statewide scope of the problem (impacting cities, counties, and the state itself), you have a lot of “blaming” left to do.

          Some of those costs are beyond the control of individual entities/cities.

          1. Don Shor

            Again, those costs are to serve developments. Attempting to “separate” or “isolate” those costs from the developments they’re intended to serve defies logic.

            Those costs are to serve the people who live in cities. People like yourself.
            I am not understanding the way you are looking at this. A person lives in a house in town. That requires services — water, sewer, roads, housing, parks, schools. Apparently if it is a new bunch of houses, that is a “development,” but if it is your own neighborhood it is something else?
            Cities exist to provide services to their residents.
            If there are more people, more services are required.
            In a state and region where the population is increasing, more housing will be required. That will require more services. You cannot stop a state or region from growing. You can only create scarcity in one part of the region, and shunt the growth off to nearby cities.
            Is that your preference? Do you consider that a reasonable urban planning policy?

        5. Ron Oertel

          Don:  I’m not seeing anything in your comment which relates to, or seeks to clarify my comment. Yes, people live in the developments which create costs. Not exactly ground-breaking information.

          Purposefully adding jobs or housing will certainly create (or facilitate) more growth and development.

        6. Matt Williams

          Ron you are conflating two separate issues.  The first, which you and Mark  (and I) both agree on is that cities, counties, and the state have failed to control costs, and as a result, in each fiscal year, the inflation rate for costs is higher than the inflation rate for revenues.

          In addition you take a fatalistic position with respect to ever making any progress vis-a-vis cost containment … bottom-line yours is a “It won’t ever happen!!!” assertion.

          In addition, because of your consistent pursuit of binary polarization on the issue of growth, you aren’t willing to acknowledge your agreement with Mark. 

          If you were to actually separate those two conflated issues into their two individual parts, you would be faced with the factual conclusion that growth isn’t the cause of the City’s fiscal problems … and that factual conclusion does not help you advance your political agenda.

          In your follow-up comment above you say “Again, those costs are to serve developments. Attempting to “separate” or “isolate” those costs from the developments they’re intended to serve defies logic.”  That is clearly not the case vis-a-vis many of the City’s costs.

          — The $320,217 of City Attorney costs are predominantly for the existing footprint of Davis

          — The $239,105 to pay and support the City Council are predominantly for the existing footprint of Davis

          — The $6,804,633 for the staffing of the City Manager department is predominantly for the existing footprint of Davis

          — The $24,040,809 for the staffing of the Administrative Services department is almost 100% for the existing footprint of Davis

          — 50% or more of the $7,311,694 for the staffing of the Community Development and Sustainability department the consideration of new development in Davis

          — The $14,927,196 for the staffing of the Parks and Community Services department is almost 100% for the existing footprint of Davis.

          — The $13,075,582 for the staffing of the Fire department is almost 100% for the existing footprint of Davis.

          — The $21,587,328 for the staffing of the Police department is almost 100% for the existing footprint of Davis.

          — 50% more or less of the $9,845,273 for the staffing of the Public Works – Transportation/Engineering department the consideration of new development in Davis

          — The $45,667,119 for the staffing of the Public Works – Operations/Utilities department is almost 100% for the existing footprint of Davis.

          — The $66,041,890 of Capital Improvements costs are predominantly for the existing footprint of Davis

          Bottom-line, out of the $231,056,567 total City Budget, no more than $30,000,000, if that, is related to new development, and 90% or more of those dollars are spent on third-party contractors rather than existing City employees.  The City’s cost inflation problem is almost completley due to support of the existing footprint of Davis.

        7. Ron Oertel

          Without running through each of these costs, are you claiming that the majority would  be the same, regardless of the size of the city?

          And, when you describe “size”, are you referring to the physical size, or to the number of people?

          This reminds me of the conversation I had with David, regarding both Sterling and Nishi.  I recall that he argued that there would be no additional costs (e.g., for police/fire), because “existing” employees would be able to handle the increased workload.

          Even if that was true, there would be a tipping point at which a new employee would need to be added.  And, according to David’s “model”, that cost would then presumably need to be allocated entirely to the development which finally broke the camel’s back, so to speak.

          Regardless, what you put forth is not a fiscal analysis.  Do you agree that the purpose of fiscal analyses is to determine what the projected revenues and costs are, regarding a proposal?

          And, that those costs cannot be “separated” or “isolated” from a development proposal>

           

        8. Ron Oertel

          And, are you claiming that the costs you listed have no relationship to the developments that they serve?

          That would certainly be an “interesting position”, to take. 😉

          I provided a link to an actual fiscal analysis (for Nishi and WDAAC), in response to a comment below.

        9. Matt Williams

          Ron asked . . . “Without running through each of these costs, are you claiming that the majority would  be the same, regardless of the size of the city?”

          .
          No, I ABSOLUTELY am not claiming that. Absolutely NOT.

          There definitely are incremental costs when any jurisdiction increases in size.  There also are incremental revenues when any jurisdiction increases in size.

          Ron asked . . . “And, when you describe “size”, are you referring to the physical size, or to the number of people?”

          .
          BOTH, as well as other size “metrics” as well.

          Ron said . . . “This reminds me of the conversation I had with David, regarding both Sterling and Nishi.  I recall that he argued that there would be no additional costs (e.g., for police/fire), because “existing” employees would be able to handle the increased workload.”

          You are confusing your “forward-looking” conversation with David, with your “as-is” conversation with Mark.   In certain legal jurisdictions/situations you and David would need to include the following with your statements … “Our discussion may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially.” 

          Mark takes an “as-is” perspective in the points he makes.  The City Budget numbers above take that same “as-is” perspective. “As-is” isn’t required to provide disclaimers.  “Forward-looking” does have to provide those disclaimers.

          Ron said . . .  “Even if that was true, there would be a tipping point at which a new employee would need to be added.  And, according to David’s “model”, that cost would then presumably need to be allocated entirely to the development which finally broke the camel’s back, so to speak.”

          .
          Absolutely correct!  And there is incremental revenue that offsets, partially or completely, those tipping point costs.  The point David (and Council member Dan Carson) has made in the past is that in the reality-period between the current budget and your tipping point the incremental costs are zero and the incremental revenues are greater than zero.  While I think that argument is too simplistic, it does make a legitimate point.  The key is in the assumptions.

          Ron said . . . “Regardless, what you put forth is not a fiscal analysis.  Do you agree that the purpose of fiscal analyses is to determine what the projected revenues and costs are, regarding a proposal?”

          .
          It absolutely is a fiscal analysis.  It is an “as-is” fiscal analysis.  It is not the kind of “forward looking” fiscal analysis (like the Nishi and WDAAC ones you refer to) that you want as a support of your pre-judgment/agenda.

          BTW, the “official” fiscal analyses for Nishi and WDAAC were perpetually in the black. They never went into the red, I don’t personally agreee with either of those “official” results, but that is a different matter. Regardless of what my personal opinion is, “official” is official.

        10. Ron Oertel

          Mark takes an “as-is” perspective in the points he makes.  The City Budget numbers above take that same “as-is” perspective. “As-is” isn’t required to provide disclaimers. 

          It’s a listing of current costs, associated with the current size (footprint/population) of the city.  It does not contain any information regarding the appropriate allocation of costs to various developments, since it simply “exists” (as does the city, and all of its developments).

          In theory, had an accurate fiscal analysis been performed prior to the “development” of the city, it would have indicated a shortfall resulting from the developments.  Of course, the city was built over time, making that more complicated.

          “Forward-looking” does have to provide those disclaimers.

          That’s correct.

    2. Bill Marshall

      This is frankly an issue of poor city management and has absolutely nothing to do with whether or not new housing has been built.

      Nuance, Mark… if by ‘City management’, and the CC kow-towing to vocal demands for expanded services, no disagreement… if you mean City staff, independent of CC, I do somewhat disagree… @ any given CC meeting, the CM has to count to 3.   Never met one who wasn’t aware of that.  CM recommends policy, CC directs policy.  Simple, and complex at the same time… seen it for 40+ years…

      1. Mark West

        Bill –

        City management = CC and CM.

        CC makes policy, and…

        “CM recommends policy’

        and the CM is responsible for that policy which is recommended. There are plenty of examples where either or both are properly blamed for poor decisions. In the end though, if the City is mismanaged, it is the responsibility of both the CC and the CM. One might argue that the greater blame lies with the CC as they are the ones who hire the CM, but that doesn’t take into account the situations where the CM limits or manipulates the data and options presented to the CC for consideration (sometimes with the support of one or more CC members who for their own reasons want the options to be limited).

  9. Ron Oertel

    Matt:  “If you were to actually separate those two conflated issues into their two individual parts, you would be faced with the factual conclusion that growth isn’t the cause of the City’s fiscal problems … and that conclusion does not help you advance your political agenda.”

    Matt:  I’ll go ahead and repeat my comment from above, since this was already addressed:

    Me:  “Again, those costs are to serve developments. Attempting to “separate” or “isolate” those costs from the developments they’re intended to serve defies logic.”

    As a side note, this is the very reason that fiscal analyses regarding development proposals are performed, in the first place.  (Seems like something you should know, already.)

     

    1. Matt Williams

      Your repeated comment is just as wrong now as it was when you originally made it.  The department-by-department look at the $231,056,567 City Budget clearly shows that to be the case.

      I believe you are arguing with your heart rather than your brain.  Arguing from passion rather than dispassion.

  10. Mark West

    Ron: “Again, those costs are to serve developments.”

    Ron – It is important to remember that development fees are set to reimburse the City for the costs of providing services to the development and may not to create a ‘profit’ for the City above those costs (net neutral). If at some later date the costs of providing services rise beyond the projections, the problem is not a consequence of the development, but rather due to subsequent City management decisions. This is true whether we are talking about a new development or something completed fifty years ago.

    If we are going to solve our fiscal challenges (among the host of others we are faced with) it is important that we correctly identify the causes of those challenges and address those. Misidentifying the cause simply creates new problems without ever addressing the original challenge. Residential development is not the cause of the City’s fiscal challenges, but the lack of residential development has certainly caused or exacerbated many of our other challenges.

     

     

  11. Ron Oertel

    Matt:  “Your repeated comment is just as wrong now as it was when you originally made it.  The department-by-department look at the $231,056,567 City Budget clearly shows that to be the case.”

    Are you claiming that the listing of individual costs that you provided above is in any way a fiscal analysis?  If so, I’d suggest that you are not qualified to be on the finance and budget committee.

     

      1. Matt Williams

        Ron, those are forward-looking analyses rather than as-is analyses. In addition, Table 21 of the Nishi analysis shows annual expenditures of very close to $1 million per year (sometimes less and sometimes more).  $1 million per year is 0.43% of the annual City Budget.  To put thast into a realistic context, take your personal annual budget and divide it by 231 and you will get an equivalent proxy for the meaning of the Nishi amnount in the context of the “as-is” City.

        For a person who spends $50,000 a year, a component equivalent to the Nishi impact is $217 a year.

        1. Ron Oertel

          Matt:  I understand that it’s a forward-looking analysis. That’s what’s supposed to be what’s performed, when analyzing new developments.

          But again, your listing of costs is not equivalent.  We already know that revenue collected from existing development is not sufficient to cover its own costs.  Again, the same thing that’s occurring throughout the state.

          In theory, had an accurate fiscal analysis been performed prior to the “development” of the city, it would have indicated a shortfall resulting from the developments.  Of course, the city was built over time, making that more complicated.

           

           

        2. Matt Williams

          Ron said . . . “In theory, had an accurate fiscal analysis been performed prior to the “development” of the city, it would have indicated a shortfall resulting from the developments.  Of course, the city was built over time, making that more complicated.”

          Ron, I provided the forward-looking disclaimer statement with a very clear purpose.  Here, again, is the language of that statement

          “Our discussion may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially.” 

          That statement clearly illuminate the realities of “subsequent events.”  Are you certain that an “accurate fiscal analysis” was not done?  What was the impact of “subsequent events” on the eventual fiscal results?   For example, could the “subsequent event” of the fiscal performance of CalPERS have been “accurately” anticipated?

          20/20 hindsight is really easy.

        3. Ron Oertel

          Based upon the results throughout California, it seems safe to say that an “accurate analysis was not performed”.

          You alluded to one of the probable reasons, regarding a reliance upon CALPERS’ performance.

          Proposition 13 is also a factor, in that it permits cities to incur future costs that may not be covered by future revenues.

          Some of the results were probably predictable.

          Prior to Proposition 13, I believe that cities essentially charged all residents for the cost of new development.

          I’m not seeing any fundamental disagreements between us at this point.

  12. Ron Oertel

    I’ll go ahead and repeat this comment, as well (since it was ignored):

    “Again, those costs are to serve developments. Attempting to “separate” or “isolate” those costs from the developments they’re intended to serve defies logic.”

    As a side note (to Matt), this is the very reason that fiscal analyses regarding development proposals are performed, in the first place.  (Seems like something you should know, already.)

    1. Matt Williams

      Ron, it has not been ignored.  If there has been any ignoring it has been your ignoring the detailed answer already provided.

      Ron you are conflating two separate issues.  The first, which you and Mark  (and I) both agree on is that cities, counties, and the state have failed to control costs, and as a result, in each fiscal year, the inflation rate for costs is higher than the inflation rate for revenues.

      In addition you take a fatalistic position with respect to ever making any progress vis-a-vis cost containment … bottom-line yours is a “It won’t ever happen!!!” assertion.

      In addition, because of your consistent pursuit of binary polarization on the issue of growth, you aren’t willing to acknowledge your agreement with Mark. 

      If you were to actually separate those two conflated issues into their two individual parts, you would be faced with the factual conclusion that growth isn’t the cause of the City’s fiscal problems … and that factual conclusion does not help you advance your political agenda.

      In your follow-up comment above you say “Again, those costs are to serve developments. Attempting to “separate” or “isolate” those costs from the developments they’re intended to serve defies logic.”  That is clearly not the case vis-a-vis many of the City’s costs.

      — The $320,217 of City Attorney costs are predominantly for the existing footprint of Davis

      — The $239,105 to pay and support the City Council are predominantly for the existing footprint of Davis

      — The $6,804,633 for the staffing of the City Manager department is predominantly for the existing footprint of Davis

      — The $24,040,809 for the staffing of the Administrative Services department is almost 100% for the existing footprint of Davis

      — 50% or more of the $7,311,694 for the staffing of the Community Development and Sustainability department the consideration of new development in Davis

      — The $14,927,196 for the staffing of the Parks and Community Services department is almost 100% for the existing footprint of Davis.

      — The $13,075,582 for the staffing of the Fire department is almost 100% for the existing footprint of Davis.

      — The $21,587,328 for the staffing of the Police department is almost 100% for the existing footprint of Davis.

      — 50% more or less of the $9,845,273 for the staffing of the Public Works – Transportation/Engineering department the consideration of new development in Davis

      — The $45,667,119 for the staffing of the Public Works – Operations/Utilities department is almost 100% for the existing footprint of Davis.

      — The $66,041,890 of Capital Improvements costs are predominantly for the existing footprint of Davis

      Bottom-line, out of the $231,056,567 total City Budget, no more than $30,000,000, if that, is related to new development, and 90% or more of those dollars are spent on third-party contractors rather than existing City employees.  The City’s cost inflation problem is almost completley due to support of the existing footprint of Davis.

      1. Ron Oertel

        Again, a listing of costs is not a fiscal analysis, at least when it comes to proper allocation of costs.  (A primary component of such analyses, when analyzing the impact of new developments.)  I’ve already provided an example of the type of detailed analysis that a member of your own committee performed, in regard to the Nishi and WDAAC proposals.

        What you provided above is in no way an example of the type of fiscal analysis that is generally performed when analyzing new developments.  In addition, you’ve included some entirely unsupported and meaningless statements, regarding “footprint”.

        Since you’re now simply copying and pasting your own comments (without any connection to my comment), I’ll do the same.  Especially since you still haven’t responded to them:

        “Again, those costs are to serve developments. Attempting to “separate” or “isolate” those costs from the developments they’re intended to serve defies logic.”

        “As a side note (to Matt), this is the very reason that fiscal analyses regarding development proposals are performed, in the first place.  (Seems like something you should know, already.)”
         

  13. Ron Oertel

    Mark: “Ron – It is important to remember that development fees are set to reimburse the City for the costs of providing services to the development and may not to create a ‘profit’ for the City above those costs (net neutral).”

    I understood that development fees are generally intended to offset one-time costs, and not for providing ongoing services.  If that’s not correct, please let me know.

    Whether or not they’re adequate is not something I’m addressing, here.

    1. Mark West

      “I understood that development fees are generally intended to offset one-time costs, and not for providing ongoing services.”

      Yes, and if you truly understand this then you should also understand that it is not the new development that causes the costs of ongoing services to rise faster than revenues. The per parcel cost of providing ongoing services to new development are the same (or perhaps even lower due to a difference in required maintenance/repair) than providing those same services to older neighborhoods. The new development is not the cause of rising costs.

      1. Ron Oertel

        Thank for confirming that your initial statement (repeated below) was incorrect:

         Mark: “Ron – It is important to remember that development fees are set to reimburse the City for the costs of providing services to the development and may not to create a ‘profit’ for the City above those costs (net neutral).”

        Regarding your other statement, I’d prefer to wait until actual fiscal analyses are performed (on a case-by-case basis), before arriving at any conclusions. Such analyses should correctly show that costs associated with proposed developments are expected to rise, over time. That’s why projected deficits generally show up in later years.

        1. Mark West

          My statement is correct, Ron. What is lacking here is your interpretation or understanding of the words. I will agree though that my meaning would have been clearer had I stated “providing access to services,” but then I didn’t think that was necessary. Development fees, after all, are intended to address the incremental costs to the City, not continuing ones.

          “Such analyses should correctly show that costs associated with proposed developments are expected to rise, over time. That’s why projected deficits generally show up in later years.”

          .
          The costs of providing services to all residents increase over time, not just for new developments. Those costs rise primarily in response to management decisions and are independent of when a particular house or neighborhood was built. It is faulty logic to believe that new development is the cause of those increases.

        2. Ron Oertel

          The funding mechanisms of providing access to services are generally very different than those associated with the cost of providing ongoing services.  I agree that it would have been clearer if you stated it as such.

          Mark:  “Those costs rise primarily in response to management decisions and are independent of when a particular house or neighborhood was built. It is faulty logic to believe that new development is the cause of those increases.”

          In regard to fiscal analyses of development proposals, it is faulty logic to believe that costs resulting from new development should be allocated to anything other than the new development, itself. Including those allocated costs that are reasonably expected and projected to rise, over time.

          And yet, that’s exactly what some have argued, on here.

          It’s outright dishonest.

        3. Matt Williams

          Ron, the key words in your post above is “some have argued.”  Neither Mark nor I qualify for inclusion in the “some.”  You need to acknowledge that.  The points you are making to mark and me are appropriate for other people, not for either of us.  You need to be honest and acknowledge that fundamental reality.

        4. Mark West

          “it is faulty logic to believe that costs resulting from new development should be allocated to anything other than the new development, itself. Including those allocated costs that are expected and projected to rise, over time.
          And yet, that’s exactly what some have argued, on here.”

          No, Ron, what I and others have been trying to explain to you is that when costs of services rise 10-20 years in the future it is because those costs have risen all over town, not just with the new development. You are the one trying to allocate those cost increases exclusively to the new development, which is both faulty logic and dishonest.

        5. Ron Oertel

          Matt:  “Neither Mark nor I qualify for inclusion in the “some.”  You need to acknowledge that.” 

          I didn’t necessarily have either of you in mind, when making that statement.

          However, I would look forward to a response (from Mark in particular), to this comment:

          “In regard to fiscal analyses of development proposals, it is faulty logic to believe that costs resulting from new development should be allocated to anything other than the new development, itself. Including those allocated costs that are reasonably expected and projected to rise, over time.”

          I may repeat this comment (again), until I receive a direct response to it. Is there something “controversial” about this, or difficult to respond to?

          Also, Mark “should” acknowledge that I NEVER made any claim such as the following:

          You are the one trying to allocate those cost increases exclusively to the new development, which is both faulty logic and dishonest.

        6. Mark West

          “Also, Mark “should” acknowledge that I NEVER made any claim such as the following: 

          You are the one trying to allocate those cost increases exclusively to the new development, which is both faulty logic and dishonest.

          Sorry, not going to happen. You have repeatedly argued that new residential development harms cities (as the justification for blocking any such development) while conveniently ignoring the fact that the residential development that you live in has an equal (if not greater) impact on ongoing service costs. You are consistently blaming the increased City costs exclusively on the new development, which is dishonest.

        7. Ron Oertel

          Mark:  None of what you claim in your comment above is true.

          However, I would still welcome a response to the following, as I believe it may be a key point of disagreement between us. Do you agree with the following statement?

          “In regard to fiscal analyses of development proposals, it is faulty logic to believe that costs resulting from new development should be allocated to anything other than the new development, itself. Including those allocated costs that are reasonably expected and projected to rise, over time.”

        8. Bill Marshall

          Ron… you wrote,

          Mark:  None of what you claim in your comment above is true. 

          In response to Mark’s,

          Sorry, not going to happen.

          You have repeatedly argued that new residential development harms cities (as the justification for blocking any such development) while conveniently ignoring the fact that the residential development that you live in has an equal (if not greater) impact on ongoing service costs. You are consistently blaming the increased City costs exclusively on the new development, which is dishonest.

          Let’s unpack this….

          “Sorry, not going to happen”. (apology)… at a 99.999% confidence level, Mark spoke truly, unless you have a fool proof method of blackmailing him.

          “You have repeatedly argued that new residential development harms cities” … patently true, related to City government, which is the appropriate context,based on your previous posts…

          “You are consistently blaming the increased City costs exclusively on the new development…”

          Highly true, although you have said that pension, PREB also contribute.

          “… which is dishonest.”  

          Given the other statements where you said Mark said untrue things… well, to paraphrase a certain author of the Declaration of Independence, “your untruths are self-evident”… not a new pattern for you.

           

        9. Ron Oertel

          Bill:  Disassembling Mark’s comments in the manner in which you did is misleading.  At least one of your comments is also untrue.

          However, I’m not very interested in discussing the accuracy of Mark’s statement.  Nor do I care if he (or you) acknowledges that it was untrue.

          I’m more interested in his response to the following, to which he still hasn’t responded (other than to make the untrue statement described above, which is of no interest).

          How about if we just let Mark respond, to this?

          “In regard to fiscal analyses of development proposals, it is faulty logic to believe that costs resulting from new development should be allocated to anything other than the new development, itself. Including those allocated costs that are reasonably expected and projected to rise, over time.”

        10. Mark West

          “In regard to fiscal analyses of development proposals, it is faulty logic to believe that costs resulting from new development should be allocated to anything other than the new development, itself. Including those allocated costs that are reasonably expected and projected to rise, over time.”

          If you are honest with yourself Ron, you would understand that we are essentially stating the same thing…just from different points of view. The increased costs should be properly attributed as you state. The major difference between us is that you completely ignore the impact of the existing developments (and residents) in the equation, and act as if the new development is exclusively responsible for the expanding costs. What I have attempted to point out to you is that in the ‘out years’ the increasing cost of services should be proportionally attributed to both the new and old developments on a per parcel basis. It is inaccurate to state that the new development (exclusively) becomes ‘net negative’ for the simple reason that City management decisions result in all of the City’s neighborhoods becoming (equally) net negative.

          You need to stop blaming new residential development for something that is common of all the City’s neighborhoods and entirely dependent upon the decisions of the City’s management. We should be building appropriate housing to meet the obvious need in the community, not holding back due to inaccurate and frankly inappropriate fears of potential future costs.

        11. Ron Oertel

          Thanks, Mark.

          There is still some inaccuracy regarding your claims, as I do not “act as if the new development is exclusively responsible for the expanding costs.”  That is something you are reading into my comments, which isn’t there.

          Regarding the following quote:

          Mark:  “It is inaccurate to state that the new development (exclusively) becomes ‘net negative’ for the simple reason that City management decisions result in all of the City’s neighborhoods becoming (equally) net negative.”

          When analyzing the cost of a new development (over time), the portion of increasing costs that are created by that development would simply not exist, in the absence of the new development.

          That’s why analyses (over a period of time) are performed. I’ve provided an example of this above, regarding Nishi and WDAAC. Both of those analyses were limited in scope to the developments, themselves. (Not the entire city.)

           

           

           

        12. Matt Williams

          Ron said . . . “When analyzing the cost of a new development (over time), the portion of increasing costs that are created by that development would simply not exist, in the absence of the new development.”

          First, I want to thank Ron and Mark for this conversation.  It has been illuminating, and I believe very productive.  Differences in opinion to be sure, but expressed constructively.

          With that said, Ron’s quote above is (in my opinion) the very heart of this issue … and it is a two-way street, because it is equally important to understand that When analyzing the cost of a new development (over time), the portion of increasing costs that would exist even if that development did not exist must be identified … the costs of the City that exist in the absence of the new development.”

          One of the major challenges the City currently has is that its New Development Fiscal Model has no way to segregate the costs with even a broad-brush-stroke degree of accuracy.  As a result the Nishi and WDAAC fiscal analyses that Ron provided links to are grossly inadequate and significantly misleading.  Further, in the case of both Nishi and WDAAC there are “dueling analyses” that used the same modelling structure, but with different assumptions with respect to costs.

          The FBC has recognized this problem and provided City Staff with a technical specification for creation of a new Fiscal Development Model that would improve the City’s current modelling capacity immensely.  The Finance Director has that project on his long list of To-Dos, but progress has been slow.  The technical specification has been designed to give much more clarity to the understanding of costs that are at the heart of Ron’s and Mark’s comments in this discussion thread … better than the lick the thumb to see which way the wind is blowing method that the City currently uses.

          I can post the specification language if anyone wants to see it, but won’t do so unless asked.

          1. David Greenwald Post author

            Matt – This is well put and expresses my concern which is separating out the impact of housing on the city finance’s from the impact of the increase in labor over time. Or as I have put it – when do the impacts of a development end and simply become the increasing cost of doing business in the community.

            Put this another way – most fiscal models show that projects go negative by 15 years – but are the projects really in the red at that point? If all projects went red after 15 years the city would have massive deficits. That’s clearly not what’s happening. Unfortunately, the conversations are too infused in politics and policy decisions to bear a lot of fruit here – at least in my experience.

        13. Matt Williams

          David Greenwald said . . . My concern is separating out the impact of housing on the city finance’s from the impact of the increase in labor over time. Or as I have put it – when do the impacts of a development end and simply become the increasing cost of doing business in the community.

          That is one of the key questions David.  There are four questions in total.  Your question is the second of the four.

          The first question is to determine what proportion of the current operational expenses should be allocated to the project.  The reason for that question is that some operational costs are fixed and some are variable.  For fixed costs, adding a development (size and/or population) does not add costs to the City.  For example, adding Nishi (both size and population) to the City does not affect our annual Police Chief costs or annual Fire Chief costs.  Variable costs are affected by incremental development.  The FBC’s technical specification for an upgraded New Development Fiscal Model actively deals with that issue.

          The second question is yours.  I’m going to throw it back to you.  How do you think that question should be dealt with?

          The third question has to do with “prepaid” costs/expenses … prepaid by the existing residents and businesses of Davis in prior year(s).  What needs to be determined with those expenses is when the prepayment runs out and whether a fair share of the costs should be picked up by the development at that point.  Routine operational repair/maintenance/replacement costs are examples.  Police equipment, fire equipment, consumable inventory, etc. are all examples of this important category of costs.

          The fourth question has to do with the capital maintenance costs for repair/replacement of capital assets at the end of their useful life.  In many cases the “strike point” for those major maintenance costs are outside the 15-year window of the model.  How do you think those (sometimes very expensive) costs should be handled in the model.

          David Greenwald said . . . “Put this another way – most fiscal models show that projects go negative by 15 years – but are the projects really in the red at that point? If all projects went red after 15 years the city would have massive deficits. That’s clearly not what’s happening. Unfortunately, the conversations are too infused in politics and policy decisions to bear a lot of fruit here – at least in my experience.”

          The serious challenge with trying to resolve those questions currently is that the City’s model is little more than the licking of a thumb to see the way the wind is blowing.  The FBC is trying hard to put an end to that long-standing era of uncertainty.

          1. David Greenwald Post author

            I appreciate your operationalization. In response to the second question, I you need to look at the difference between added costs from a specific development versus increased costs due to expanding costs for the city to do business.

        14. Ron Oertel

          David:  “Or as I have put it – when do the impacts of a development end and simply become the increasing cost of doing business in the community.”

          I would ask, when do the costs associated with a given development proposal “end”, for the city?

          David:  “Put this another way – most fiscal models show that projects go negative by 15 years – but are the projects really in the red at that point?”

          This is a question regarding the accuracy of the models, not necessarily related to the year in which they go “red”.

          David:  “If all projects went red after 15 years the city would have massive deficits.”

          We do have long-term deficits.  As do cities and counties throughout the state. (Cumulatively, it’s “massive”.)

          David:  “That’s clearly not what’s happening.”

          It is.

          David:  “Unfortunately, the conversations are too infused in politics and policy decisions to bear a lot of fruit here – at least in my experience.”

          Agreed.  To some degree, you bear responsibility for that.
           

          1. David Greenwald Post author

            “I would ask, when do the costs associated with a given development proposal “end”, for the city?”

            When the additional costs are due not to expanded services but to overall increase in the city cost to doing business.

        15. Ron Oertel

          David:  “When the additional costs are due not to expanded services but to overall increase in the city cost to doing business.”

          What about the portion of those increased costs that would not exist, in the absence of a given development proposal?

          Are you suggesting that those costs be disregarded, when analyzing a given development proposal?

          Overall, Matt’s statement and questions to you in his 8:48 a.m. comment (above) are well-explained, and his comment includes a discussion of these costs.

        16. Ron Oertel

          That hasn’t been the history, in Davis or elsewhere.

          But again, I’d refer back to Matt’s 8:48 a.m. comment, since it’s pretty carefully-written and expands beyond such simple statements.

        17. Ron Oertel

          Although, one point I would add in response to Matt’s 8:48 a.m. comment is that even “fixed” costs can become “variable”, as more developments are added to the city.

          Perhaps better to discuss in a future article.

        18. David Greenwald

          Ron: Agree that the council has not sufficiently contained costs and that’s a factor, but the movement of costs from black to red is forestalled by properly containing costs.  The other option of course is increasing revenues.

        19. Ron Oertel

          David:  That’s a different issue.

          In regard to fiscal analyses of new developments, it seems that you’re suggesting that the costs that they create over time should ultimately be “allocated” to the city itself. I”m sure that many developers would welcome that approach when analyzing the costs of new development.

          I noticed that you didn’t provide a complete response to Matt’s 8:48 a.m. comment, but I’m sure that the issues will come up again.

    2. Matt Williams

      Ron said . . . “I understood that development fees are generally intended to offset one-time costs, and not for providing ongoing services.  If that’s not correct, please let me know.”

      That is correct Ron.  Property Taxes aintended to offset the costs of delivering ongoing services.

  14. Ron Glick

    “Even if land is made available via zoning, projects still must clear often fierce local opposition, particularly to high-density development. Environmental impact reports, lawsuits and refusal to supply water are among the tools often used to block projects.”

    Opponents of new housing in Davis have used all these tools and more including Measure R.

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