An article last week in the Sacramento Business Journal written by Melanie Turner reported that while UC Davis brings “long-term stability” to the city, the current budget problems are having a huge impact on the business in this community.
These economic limitations are beginning to drive the university and city governments to look more seriously at creating of partnerships. One recent and well cited example is the work that the city and university fire departments are doing in moving towards the consolidation of operations and thus a model of shared-resources to go with shared-response areas.
The Business Journal quotes deputy city manager Kelly Stachowicz, “IN terms of the university’s economy hitting the city, I think it certain does have an effect when you have staff and faculty who are furloughed and they live in the community.”
According to John Meyer, former Davis City Manger and current vice chancellor of administrative and resource management, the cost savings at UC Davis generated from furloughs and staff reductions. As Mr. Meyer points out that will have an impact on disposable income.
The university not only used furloughs to close the budget gap last year, but will have to address an additional shortfall this year between $38 and $78 million. The result will be additional layoffs. There were 160 last year, 210 this year, in addition to 500 employees who were lost due to attrition. The university anticipates another 300 or more layoffs this year.
The problem that the city of Davis faces now is the impact of UC Davis furloughs combined with state-mandated furlough Fridays means a large percentage of Davis residents have less money to spend.
One impact according to Kelly Stachowicz is the amount of people who send their children to recreational activities this summer. The article cites Community Services Director Elvia Garcia-Ayala who told them that the number of individuals signed up for city recreation activities is down from 4727 last year to 4077 this year, that’s about an 18 percent decline. Overall revenue from recreation activities stands at $428,171 which is down slightly from the $4431,662 last year at this time.
Businesses that the Business Journal talked to told them that while a lot of their customers work at the university, it is difficult to tell what percentage of them do. Business is down across the board, but the overall economic downturn as well as the state and university budget problems serve as contributors.
They interview Claire Impens, assistant manager for Shuz of Davis who told them that business has been slower this year compared to last year with revenue down at least 15 percent and they are not alone.
Alphabet Moon Toys and Treasures, which sells children’s games and toys has it’s revenue decline by 14 from 2008 to 2009 and another 14 percent from 2009 to now.
Owner Christine Hildebrand not only blamed the economy as many of her customers are affiliated with the university and customers are spending less on birthday gifts and have less elaborate birth parties. Moreover, she blames the arrival of Target. Ms. Hildebrand is quoted saying, “We were the only show in town for a long time.”
Joy Cohan who is director of the DDBA told the Business Journal that the university is pulling back on private leases and that is having an impact on downtown Davis.
John Meyer told them, “When we were in hyper growth mode last decade, we were leasing space in Davis and other parts of the region. Now, we’re aggressively trying to bring those leases back to campus.” Part of that may also be the rash of new construction on campus, and the ability for the university to house some of these offices on campus as opposed to off campus.
Whatever the cause, Brian Abbanat who is an economic development specialist for the city of Davis said the university intends to vacate 62,000 of 370,000 square feet between 2009 and 2011.
Already the university has vacated about 31,500 feet and the pullout will leave about 3 percent of the total downtown office market vacated. Mr. Abbanat hopes some of this may be absorbed, however he is hearing that there is concern among building owners.
According to Stachowicz, “The economic situations on both sides of the street make it so that need to collaborate more because we have to figure out how to make the best out of scare resources.”
In addition to the proposed fire department consolidation, the university is working with the city and county about doing shared ground maintenance where each government would have responsibility for taking care of grounds that are closest in proximity.
Despite the problems, John Meyer still believes that the university brings stability to the community in the long term. And while business have been hit hard by the recession, Joy Cohan believes that Davis benefits greatly from having UC Davis in its proximity.
As evidence, Davis has fared far better than many other communities which fewer foreclosures and a lower unemployment rate. In April the unemployment rate was 12.9 percent in Yolo County, 12.4 percent for the region, but only 8.4 percent in Davis, with 3200 unemployed.
Commentary
The City of Davis has banked on the arrival of Target to bolster sales tax revenue and capture some of the sales tax leakage that has occurred with Davis residents leaving Davis to do the bulk of their shopping. The problem is that some of that sales tax from Target will come at the expense of existing businesses. That combined with the slumping retail revenue probably means that we will not see the kind of bump that some city leaders expected.
There was an interesting side exchange on Tuesday where some were hoping the addition of Trader Joe’s would lead to more sales tax revenue. The problem as Sue Greenwald pointed out, much of the items that Trader Joe’s sells are not taxable and while alcohol is, it is debatable whether people will increase their purchases of alcohol based on the addition of Trader Joe’s.
Sales tax revenue may be floundering, but the bigger impact on the city’s budget is the fact that the real estate market which was producing 10% annual increases in revenue last decade is flatlining at best. The result is that current revenue will not keep up with new demands on the budget from pensions and other commitments.
The article in the Business Journal laid out what we kind of expected, the city of Davis may not have seen the worst of this downturn, because the people who live in Davis work in industries such as the government sector which has only recently really seen the impact of the economic downturn. The furloughs have really been put into place this year and the impacts of that downturn may continue into the future. The city is actually projecting modest rebounding in the out years of its budget, but right now that seems way too optimistic.
—David M. Greenwald reporting
David… my understanding was that the properties within the city that UCD leased were exempt from property tax due to the lease… do you know if this is true, and if so, might this not be a good thing for the city (if not the landlords)?
if we’re lucky, commercial rents might actually fall low enough for non-chain start-up businesses to get a toehold. a drop in commercial rental rates would take a lot of the pressure off of existing businesses as well. anyone know if rent has fallen at all during this housing/commercial implosion?
[i]An article last week in the Sacramento Business Journal written by [b]Melanie Turner[/b] reported that while UC Davis brings “long-term stability” to the city, the current budget problems are having a huge impact on the business in this community.[/i]
Melanie Turner was a Davis Enterprise reporter four about 4 years, ending about 9-10 years ago.
[i]if we’re lucky, commercial rents might actually fall low enough for non-chain start-up businesses to get a toehold. a drop in commercial rental rates would take a lot of the pressure off of existing businesses as well.[/i]
Wu, that really is “not seeing the forest for the trees.”
First, the rents are lower because the economy is bad, unemployement is high, banks won’t lend, etc. For a “start-up business to get a toe-hold” it needs* customers with money to buy its goods or services and banks to finance its investments. It doesn’t matter if rents are low if no one is buying what you’re selling and you can’t get a loan.
Second, rent, as a percentage of gross expenses, is very often a modest part of a business’s monthly cash out. (Labor, regulations and taxes are the large costs of doing business for most companies. For some, gas & electric are huge costs.) No doubt that some marginal businesses in Davis are driven out of town by escalating rents for office space and the like in downtown. However, what is driving them out is not usually chain store** or a Fortune 500 company. It’s usually another small business which derives higher revenues in Davis and bids more to take over the office or commercial space occupied by the marginal tenant.
*The exception is a business which makes money in a down economy by undercutting the prices of its competitors. Wal-Mart is that kind of company. Small firms usually are niche players which rely on fulfilling a higher end need with far better service that the large companies ignore because they are focused on the mass market. As such, a bad economy hurts the small guys more than the big ones.
**I realize that there are franchise operators (who are normally local people) which compete for our limited commercial spaces. But most “brand name” operators that lease small commercial spaces in Davis are not owned by the corporate name behind them. The large stores — like a Safeway or Borders or CVS or Office Depot — are parts of their large corporate operations. But they usually lease very big spaces, not the small units locally owned companies tend to rent.