One of the most contentious issues that has arisen with regard to the new Governor’s budget has been a proposal to eliminate redevelopment agencies in California.
How serious a threat was this? Serious enough that the city has already authorized bonds to encumber as many redevelopment projects as possible.
The other major project is that parking facility the city has been looking for at Third and G, coupled with a mixed-use center with commerce and housing.
These are clearly projects that the council has been wanting to do for some time. However, at this point the question is what will redevelopment look like after this year.
While the governor and legislature passed about $14 million in cuts a week and a half ago, redevelopment was not in that budget package.
Now in an editorial from John Shirey, executive director of the California Redevelopment Association, in this morning’s Sacramento Bee, it seems that there is now a compromise on the table to get everyone what they need.
Writes Mr. Shirey, “This proposal provides the state of California and schools with about $2.7 billion over the next 10 years to help reduce the budget deficit. It also retains redevelopment in California while instituting tough reforms that increase accountability and ensure redevelopment is being used responsibly to maximize job creation, revitalize run-down communities, clean up contaminated properties, finance infrastructure improvements and build affordable housing.”
Mr. Shirey claims that a bipartisan coalition of legislators has come together in support of the alternative package.
Under the plan, redevelopment agencies have the option of contributing 20 percent of their funds to local schools – these funds would come from any redevelopment funding source.
He continues, “In addition, agencies could contribute up to 10 percent of non-housing funds that year and each year thereafter for 10 years. In exchange for these voluntary contributions, redevelopment agencies would be granted extensions of their projects’ life spans.”
The RDA estimates that this plan would raise between $700 million and $1 billion for the first budget year, and an additional $1.7 billion for the next nine years, meaning a total of $2.7 billion over the 10-year life of the proposal. Not a ton of money, but “more than what the governor estimates would be available for deficit reduction from the elimination of redevelopment agencies.”
He adds, “the revenues are far more reliable, because the alternative avoids the costly and contentious litigation that is sure to follow if the governor’s plan is adopted. Because our plan calls for voluntary contributions, it doesn’t violate the state Constitution or the will of the voters who supported Proposition 22 in November.”
There are also reform proposals for the agency, which has come under fire for a variety of reasons including the fact that there is little evidence that redevelopment money actually improves blight. The agency has also had to endure the charge that the money simply goes to line the pockets of developers.
Mr. Shirey, on the other hand, argues, “Redevelopment has been a powerful tool to revitalize downtrodden communities and create jobs and economic activity that otherwise would not have occurred. In fact, redevelopment investments and construction activities are responsible for supporting more than 300,000 jobs each year.”
But there is little evidence to support this claim, and in fact, most studies suggest that redevelopment simply shifts the location of where the development occurs, but does not increase or improve blight overall.
The focus of reform in this compromise is with increasing “the accountability and efficiency of all agencies.” It is far from clear that this is the most basic need, but here are the proposals.
First, enhanced reporting which would require “the state controller to update and toughen audit guidelines for redevelopment agencies and requires agencies to file with the state an annual report on their finances and activities. The availability of consistent, transparent audits will lead to more accountability and will help expose any abuses.”
Next, focus on job creation. He writes, “The reform proposal refines the statutory authority of redevelopment agencies to provide direct assistance to businesses to build new or expand existing manufacturing and industrial facilities to grow jobs. Agencies would also be authorized to assist local businesses with financing for new technologies, machinery and equipment that also expand manufacturing and industrial job-creation.”
They would also move toward infill and away from peripheral or sprawl development, and toward energy efficiency.
He writes, “The reform would expand redevelopment tools to facilitate intensified infill development of urban areas, including assisting with the creation of commercial facilities, jobs and higher-density residential housing in the urban core, close to public transit. Agencies would also be authorized to provide financial and other assistance to remodel commercial and residential buildings to be more energy efficient to reduce pollution and greenhouse gases.”
This sounds good, but is this not what the RDA was supposed to be doing anyway?
Finally, they will promote affordable housing. They argue that the RDA is the second-largest funder of affordable housing in California, behind only the federal government. But the number is only 100,000 units since 1993. That is just over 5000 units a year. That is not exactly a number to be trumpeting.
In conclusion, he argues this is about the art of compromise and “this package is a reasonable solution to deliver on that promise.”
He concludes, “The two-pronged package is constitutional, avoids messy litigation against the state and represents a win-win for our state, local governments and taxpayers. It provides the state with revenues to help bridge the daunting budget gap, while also retaining redevelopment as an important local government tool to create jobs and grow the California economy.”
The key question is whether the governor will accept this.
—David M. Greenwald reporting
If this is accepted how would it affect our position with the bonds, etc??
We already took out our bonds, so it won’t impact us much at all.
Agree. The CDA proposal seems like a restating of what we thought was already happening, with a reduced budget and a “voluntary” pass-through to school districts. I’m not sure a lobby group’s statement would be accurate reporting or simply a way to increase pressure–“Do it our way and maybe we won’t sue the state.”
Wonder what the accounting shows was spent on those 100,000 housing units? I’m coming around to Councilmember Souza’s realization that it’s an outmoded option that’s too expensive in today’s world. I’ve yet to see anyone in these pages point out a Davis success in the affordable housing arena (except one, and he’s busy with the attorneys these days).
Regarding the redevelopment funding question, I thought the council instructed the city manager to hold off on bonds until the state forces the issue with a final decision on redevelopment agencies. Did I misunderstand the council action or did I sneeze and miss them changing their minds?
What will happen to the housewares, etc. part of Ace Hardware if the 3rd+G changes go forward? I would hate to lose that store.
dmg: “Not a ton of money, but “more than what the governor estimates would be available for deficit reduction from the elimination of redevelopment agencies.””
In other words, it seems clear that the totality of the former RDA funds was never going to trickle down to the local level to schools, cities and counties, but would have mostly stayed within the state’s bureaucracy to clean up its own budget mess.
dmg: “But there is little evidence to support this claim, and in fact, most studies suggest that redevelopment simply shifts the location of where the development occurs, but does not increase or improve blight overall.”
“redevelopment studies “suggest” that redevelopment simply shifts the location of where development occurs”? “Suggests”? In other words, on a large scale there is no real proof this has happened either – just supposition on anecdotal evidence is what I get out of this. If there is specific data that this went on on a large scale, please cite. Has that happened in Davis? If it has happened elsewhere but Davis RDA has been responsible, then why should Davis RDA be held accountable for missteps of other RDAs?
dmg: “The focus of reform in this compromise is with increasing “the accountability and efficiency of all agencies.” It is far from clear that this is the most basic need, but here are the proposals.”
If not that, then what reform was needed that was more important? If the argument is that schools need more money, schools will always need more money – they are a bottomless pit of need. Schools take up, what, over 50% of the budget, and it still isn’t enough? How about 75% – will that do? Or how about 90%? If the schools cannot make do with over 50% of the budget, then I say they need financial reform – just my opinion… we have spent more and more time, attention and money on our schools, but they are NOT IMPROVING for all that effort and expense. So why do we keep making the same mistakes, by shoveling more money at them and getting no bang for the buck? Seems to me accountability ought to start with our school system for starters…
dmg: “They would also move toward infill and away from peripheral or sprawl development, and toward energy efficiency.”
At some point infill space will run out, and the only choice for development is sprawl… unless you want skyscrapers in small towns…
dmg: “The key question is whether the governor will accept this.”
Does he realistically have a choice?
VANGUARD: [i]”The other major project is that parking facility the city has been looking for at Third and G, coupled with a mixed-use center with commerce and housing.”[/i]
As I understand this proposal, your report is incorrect. We won’t be getting that “parking facility the city has been looking for” from this proposal; and the new parking will not be at 3rd and G.
The idea here is this:
1) Tear down the Davis Ace home store*. (It will likely no longer exist after this project is done.) Tear down the streamline moderne building at the corner of 3rd and G which now has a Thai restauratn; tear down the building which houses the G Street Pub and Katmandu Restaurant; and remove the G Street Plaza and the parking lot behind it.
What you will now have is an empty block, save the Chen Building.
2) the replacement project will be new storefronts on G Street from 3rd Street to the Chen Building and 2 additional stories of office space above the commercial spaces; and
3) a new parking structure will be built on the H Street side of the new 3-story building. However, that will not be a new parking structure for the downtown itself. As I read the staff report, it will just provide parking for the office users in the new building and enough for customers of the new storefronts on G Street.
As such, this is not a proposal for an alternative location for the proposed new multi-story parking garage between E and F Streets. That project remains short of funds.
*One thing to keep in mind: It is not yet known if the Anderson family which owns Davis Ace, the Davis Ace home store building and the corner restaurant building are on board with this proposal.
I should add one more thing: I think this proposal is a great idea if all of the private property owners are willing to go along with it. It saddens me to lose the historic corner building, but the benefits of having G Street built out are worth it. However, I don’t think it makes sense for the RDA to fund this project. I have no idea why it could not be done entirely with private capital and private debt.
Here is the link to the agenda packet material on the Wiseman proposal for 3rd and G. http://cityofdavis.org/meetings/councilpackets/20110329/07 Wiseman Company G Street ENA.pdf As best as I can tell, it would take out several buildings with viable businesses already in them. Now while Ithe dive at G St. Pub could be viewed as blight that needs redeveloping, the other businesses in the lot are not. They include the ACE Hardware housewares building, the Thai place at 3rd and G and some other small places on the east side of G south of 3rd. Is this an appopriate use of redevelopment funds?
VANGUARD: [i]”This week, the council will consider two major construction projects – an upgrade to the University Park Inn & Suites to build a conference center to help attract major out-of-town conferences to the city.”[/i]
I don’t know why you skipped half of this part of the story. You list the University Park Inn (which is the hotel behind Caffe Italia on Richards), but you entirely neglected to report that [b]the Hallmark Inn[/b], downtown, also has a proposal. Here is what the staff report says:
[i]”The owners of both the Hallmark Inn and the University Park Inn have developed preliminary proposals to add conference space and additional rooms on their properties. Since fall of last year, staff has been working with both owners to refine their proposals and identify opportunities for Redevelopment Agency participation in financing the projects.
“Both proposals have significant merit and would be strong additions to the downtown. A full service hotel and conference center would increase the community’s ability to capture conferences emanating from UC Davis activities, and the corresponding hotel nights and visitor spending. It would also provide a venue for community events that cannot be accommodated in our existing facilities, and an off-site meeting space for local businesses. A further benefit is that the conference facility would be expected to hold events that would result in additional room nights at other local hotels.”[/i]
The idea behind loaning money to these hoteliers is to capture more tax money for the city. The staff report notes that the $5.1 million loan for the University Park Inn would generate a half million a year in new revenues:
[i]”The net annual tax increment is approximately $500,000 in transient occupancy taxes and property taxes, after netting out 25 existing rooms which will remain in operation.”[/i]
Rifkin: “The idea behind loaning money to these hoteliers is to capture more tax money for the city. The staff report notes that the $5.1 million loan for the University Park Inn would generate a half million a year in new revenues: “The net annual tax increment is approximately $500,000 in transient occupancy taxes and property taxes, after netting out 25 existing rooms which will remain in operation.””
And this is why RDA funds are used to help foster such development – bc with responsible stewardship, RDA funds are supposed to bring in more tax revenue/increase property values, which enures to the benefit of all citizens…
It makes little sense to remove one type of downtown retail to replace it with different retail. Sales tax revenues vary by retail category, but I doubt if the increased tax revenue would cover the cost of the city’s bonds. Hotel projects usually pencil out for city revenues, as I understand it.
[quote]But there is little evidence to support this claim, and in fact, most studies suggest that redevelopment simply shifts the location of where the development occurs, but does not increase or improve blight overall.–David Greenwald[/quote]The methodologies for these “studies” employ meaningless indicators. In the case of Davis, South Davis would be isolated from the rest of Davis and our downtown probably would not have the vitality that it has today without the RDA and its backfill.
Everyone agrees that RDAs need more parameters to assure meaningful projects. But RDAs remain the only mechanism that has evolved to give cities some additional funds for infrastructure and for economic development, and if they are abolished they will not be replaced. (Schools, for example, get state matching funds for construction). This is why those who represent cities are saying: reform, don’t abolish. If we don’t set aside some money for local infrastructure and for economic development that generates revenue, quality of life and basic services will ultimately suffer.
If the state wants more money, it should look at the new $175 million county courthouse it is funding in Woodland.
Interestingly, the content of the link that I recorded yesterday has been changed, obscuring the clear description that was given at that link.
Yesterday, the website described the project clearly: The Court is vacating the magnificent old courthouse, leaving the title of that valuable building to the county and building a new $175 million courthouse to place it. The historic courthouse is next door to the massive atrium-style county administrative building (compare this to the Davis converted schoolhouse city hall).
Of course, an annex to the existing historic courthouse could have been built in the parking lot behind it for a fraction of the cost.
Let’s put this huge county in perpspective:
The City is looking at [b]LOANING somewhere between $5 and $15 million[/b] to generate hotel occupancy tax and create synergy for the businesses downtown.
The State is [b]SPENDING $175 million[/b] to replace a beautiful old courthouse in the county with a massive new one.
We have to look across all state expenditures, rather than focus on the RDAs.
(Maybe someone could look up the number of trials per capita in Yolo County? Just about everyone I know in Davis is called for jury duty about once a year or so. I lived in the East Bay for 13 years and was called for jury duty once.)
My god… the uptight attitudes from commenters on this blog are too much to handle. I’m sorry if the G Street pub isn’t your cup of tea, but it’s certainly not blight. And neither were the old houses on B Street and neither is Olive Drive. Just because the people that live/drink/work there are poorer than you, and are not remotely part of your social circle, it doesn’t mean that their facilities should be bulldozed and resold to the more affluent.
This is a big reason I’ll be happy to see Redevelopment Agencies go. They’re far too often used screw over people who aren’t associated with the political/gadfly/rich crowd. There are tons of second/third generation Davis locals who drink at G street pub, and just aren’t involved in the Davis process. It would be a shame to see their bar get torn down and social circle damaged because they lack power. Especially after it re-opens.
I’d love to stay a silent reader, but it’s becoming difficult. The relaxed and accepting attitude I remember from people while growing up in Davis is clearly not evident in the people on this blog or the policy coming out of the city government.
Berryessa-Wilcox: I have been trying to explain over the course of the last few months that the RDA has undergone an important and desirable mission creep. Its scope has expanded from strict “blight” mitigation to helping provide for infrastructure (much of it required by new growth that the state mandates but doesn’t allow the city to fully charge the developers for) and economic development investment. I believe this expansion of mission should be codified into the RDA mission when and if it is reformed.
I have never been in favor of tearing down affordable housing or existing historic housing, or affordable commercial rental space which can be used by local downtown retailers. My focus has always been on redeveloping other underused industrial sites and commercial sites.
I could see making limited exceptions for increased downtown parking to help generate business for our local merchants.
Rich: “*[i]One thing to keep in mind: It is not yet known if the Anderson family which owns Davis Ace, the Davis Ace home store building and the corner restaurant building are on board with this proposal.”[/i]
If you read the staff report, the developer indicates he has approval from the property owners to seek the exclusive negotiating rights for this project (“both owners have expressed a willingness to work through the possibilities” and “the neighboring landowners support an exclusive negotiation agreement.”).
Thus begins the dismantling of Davis Ace Hardware.
Don Shor,
Rather than speculate, why don’t you call up the owner of the property? This project might be quite speculative, and there is no commitment of RDA funds.
I should emphasize that the bulk of the RDA money is going to the courts, so we should seriously consider which is a better use of the money: [b]A $175 million dollar new courthouse[/b] to replace the beautiful historic County courthouse in Woodland, or maybe $10 or 15 million of RDA funds to lend to new businesses which will be repaid and which will bring new revenue to the City, and some backfill to hire two policemen downtown and improve some needed municipal infrastructure?
Sue: [i]”Rather than speculate, why don’t you call up the owner of the property? This project might be quite speculative, and there is no commitment of RDA funds.”
[/i]
I have no reason to doubt that the owner of Davis Ace has agreed to the simple proposal that an exclusive negotiator be contracted. Whether she has a strong interest in the specific proposal, or was just willing to consider it, is immaterial at this stage.
The questions I have are:
–to whose advantage, other than the developer, is it that there be an exclusive negotiator? Is it in the city’s best interest?
–are all property owners on board for this proposal?
–why does a sound development proposal even need any RDA consideration? If it pencils out and is within current zoning, they can finance it on their own. Why is this even on your agenda?
Thank you David for bringing this John Shirey Editorial on RDA’s to the attention of your readers. I think many good people put in a lot of work to create a structure for redevelopment that can make a valuable contribution to local economic development. Given the over $200,000 of RDA funds that City staff funnelled to DACHA (so they could defend themslves against breaking the law)I am certainly interested in the emphasis on abuse in the proposed legislation.
Shirey writes: “Our package contains 14 reforms to ensure agencies are spending housing funds responsibly.” I doubt what city staff did in Davis with RDA funds will be an approved use under this new legislation.
With a business like approach, competent management and a focus on efficiency and leveraging RDA funds could emerge as our best tool to create the City we aspire to. Change is drastically needed here in Davis to restore people’s faith in a government that manages public funds wisely.
David Thompson
Twin Pines Cooperative Foundation
PS: And yes there have been effective uses of RDA funds in housing although Dos Pinos has achieved the most without one dollar of public money.
Since we, the citizens of Davis floated these bonds and are assuming large financial risks, what is the return on the publics money? Are these loans 10 year or 5 year notes? Did all these business owners investigate other loan sources or are they simply going after funding from the city simply because it’s cheap money? Could it be because they can’t qualify for a loan in the real world? If that’s the case, I think we need to know why.
What is the loan to value (LTV)? Heaven forbid the Banana Republic of Davis would have to repossess one of these properties. However, we the people need to know we can get our money back. So I think this LTV needs to be somewhere around 70%.
The days of throwing money around willy-nilly has to STOP!
[i]” I’m sorry if the G Street pub isn’t your cup of tea, but it’s certainly not blight. And [b]neither were the old houses on B Street[/b] and neither is Olive Drive.”[/i]
For the record, the two B Street Aiken houses, 305 and 311, which were moved to J Street and are now under the management of the Davis Solar Co-op Housing, have absolutely nothing to do with blight or with the Davis RDA or any issuance of public bonds. I’m not sure why you would include them in your list of complaints on this particular topic.
To toot my own horn a moment, it was my idea to move traditional neighborhood houses to that J Street site in the wake of the 3rd and B Visioning Process. Before I suggested that site as good for relocations, the City had in mind to build new, low-income housing there, which I thought was a bad fit and would have been a lost opportunity as a traditional neighborhood relocation site.
However, my hope was to just move the historically important house (formerly 311 B Street) to J Street, and wait for a corner house which was historically important and needed to be moved. Danielle Foster surveyed owners in the 3rd and B area and found no takers, so the City made the mistake of moving 305 B Street to the corner lot at 3rd and J.
Lo and behold, we now have the Peña House, which is on the corner of 4th and D, in need of relocation. (Four couples have proposed a very large, very green project for that site. I think the new project looks very nice.) The Peña House is a much more significant house (from a historical perspective) than 305 B. It could be rehabbed and relocated to a corner lot in a traditional neighborhood. But that rare corner lot where the former 305 B Street now is was taken. There are no other such lots available.
In all likelihood, the Peña House will either be demolished or it will be moved to a much less appropriate location.
For those who don’t know anything about 337 D Street, it was owned and occupied by people in the Peña family (mostly Narcissa Peña, who was for a long time the house mother at the frat next door at 4th and C next to Central Park). The Peña and Vaca families were the owners of a very large Mexican land grant going back to about 1840, covering everything from what is now Davis to what is now Vacaville. Vacaville was named for Manuel Cabeza Vaca.
The import of Narcissa’s house, however, is not so much that she was a Peña or that she was such an important Davisite. It’s really that her tiny Victorian house dates back to 1890-95. With only a few other exceptions–all the others being large stately homes–we have lost all of our pre-1907 houses in Davis. (I should add that 1907 was when UC Davis essentially started, marking the end of the 1868-1907 period when Davisville was mostly just a railroad stop between Sacramento and Vallejo.)
So when the Peña House is destroyed, we will have not one single working-class house in Davis from the 19th C. There were at one time hundreds of them, making up most of today’s core area between A and I and 1st and 5th.
[i]”Since we, the citizens of Davis floated these bonds and are assuming large financial risks, what is the return on the publics money?”[/i]
That is not yet known. No deals have been struck.
[i]”Are these loans 10 year or 5 year notes?”[/i]
Also not yet known. However, it’s worth noting that the Davis RDA got its money in two bond issuances. One is a 25 year tax-free note which pays 7.25%. It will mature in 2036. The other is an 11-year taxable bond which expires in 2022. It pays 8.65%. Both bonds are rated as A+, which is not really a sign of confidence in our RDA. The highest rating is AAA, followed by AA. I think A+ is in between A and AA.
[i]”Did all these business owners investigate other loan sources or are they simply going after funding from the city simply because it’s cheap money?”[/i]
That is the right question to ask. I don’t know the answer, but according to Hanlee’s, which borrowed $1 million last year from the DRDA, they claimed that no banks were making such commercial loans.
That is entirely possible, here, and it suggests: If the banks think this is bad business, it probably is.
Default risks aside, the Hanlee’s project did provide a good tax return for the DRDA. I would imagine that the hotel/conference center projects will as well, due to our stiff transient occupancy tax.
I recognize that this creates a dubious precedent. On the other hand, it should be understood that not making these loans and not getting these hotel projects done comes with an opportunity cost–that the City will lose out on a lot of tax revenues, if local hotel space is built on campus or elsewhere nearby but out of our fair city.
If the citizens of Davis are going to be the lenders of last resort shouldn’t they be demanding a high but yet reasonable interest rate? The type of lending the city gave Hanlee’s is really scary. I wonder what the interest rate would be if they found funding in the private sector compared to the interest rate they secured through the RDA?
This sounds like a train wreck waiting to happen. I am beginning to think the lending practices by the City of Davis could be considered to be border line criminal. The City of Davis is putting at risk public funds that any reputable lending institution would NEVER consider doing.
Hmmm. I wonder if the Yolo County District Attorney reads this blog?
An article in Sunday’s Enterprise stated
[quote]Hallmark Inn at First and F streets downtown requested a $10 million loan to add 48 rooms, [b]six to [b]eight luxury apartments[/b][/b] and 50 parking spaces in addition to a 16,000-square-foot conference center[/quote]
It looks likes there might finally be some decent affordable luxury housing in Davis. What will the income requirements be? Must be making no more than $500,000/yr to qualify?
Don is absolutely correct. If these are all projects that will pencil out, they should easily be able to find financing without resorting to sticking their nose in the RDA trough.
[i]” I wonder what the interest rate would be if they found funding in the private sector compared to the interest rate they secured through the RDA?”[/i]
Another good question. Before I wrote my column on the Hanlee’s deal, I posed it to Jeff Adamski of First Northern Bank. (I asked some others, as well, but didn’t use their similar replies in my column.) Here is what I found and wrote: [quote] The interest rate on the note is just 3.5 percent, and we are in second position. The property collateralizing the loan already has an outstanding mortgage lien of $1.1 million.
Jeff Adamski, Senior Vice President of First Northern Bank, told me in an email that is half the rate a private lender would charge.
“A loan of this size in a second position for a special purpose property would likely carry a rate of close to 7 percent in today’s market,” Mr. Adamski said. [/quote] For the purposes of our public coffers, it’s important to understand that the DRDA and the City of Davis have future added tax revenue considerations which makes their calculation very different from a private bank.
Perhaps you are convinced that without the government involvement, the investments (in the hotels or in the VW dealership) would take place regardless. That’s a defensible position. Or perhaps you think the net tax revenue assumptions are overly optimistic*. That’s another possibly valid concern. And further, you might think that it’s beyond the scope of why we have our local government to have it playing banker. (That is my view in general.)
But just finding that a private lender like First Northern would charge a lot more in interest than a public lender like the DRDA does not demonstrate that the taxpayers are being taken for a ride.
*In the Hanlee’s deal, I found, based on what I learned about regional car sales, that the city’s consultant was wildly optimistic about how many VW’s Hanlee’s is going to sell in the next 10 years. Oddly though, the fewer cars sold (assuming no default) the better off the DRDA’s ROI would be, based on the way the repayment schedule is structured and based on the way the car sales tax is directed to the city’s coffers.
[quote]Perhaps you are convinced that without the government involvement, the investments (in the hotels or in the VW dealership) would take place regardless. That’s a defensible position. Or perhaps you think the net tax revenue assumptions are overly optimistic*. That’s another possibly valid concern. And further, you might think that it’s beyond the scope of why we have our local government to have it playing banker. (That is my view in general.)[/quote]
If the general public deems it OK to give loans to business owners, great, BUT it should come with not only a very high interest rate but also with security. This way the profits could be reinvested in other similar ventures. We should always be in first position on all notes. The city should never loan money by pulling out their Ouija board to determine how much money the city might conceivably receive through some tax revenue. When the City of Davis assumes, the only thing they do is make an ass out of YOU and ME. Then, WE are left holding the bag, not them.
[quote]”Since we, the citizens of Davis floated these bonds and are assuming large financial risks, what is the return on the publics money?”
— Craised[/quote]The city is going to make huge net revenue from the RDA for the hotel. It is an incredibly good deal for the public.
Correction: from the RDA loan for the hotel
Sue,
When you say net revenue, I ASSUME you are talking about estimated tax revenue.
In my opinion, this translates into profits for the owner of the hotel. My question is, if this is such a great win-win proposition, why don’t they secure a loan with a cheaper interest rate somewhere else?
After you combine the amount of money that is currently owed on the building with millions the city wants to loan these business owners, could the property be resold to recoup the publics investment?
[quote]”When you say net revenue, I ASSUME you are talking about estimated tax revenue. In my opinion, this translates into profits for the owner of the hotel. My question is, if this is such a great win-win proposition, why don’t they secure a loan with a cheaper interest rate somewhere else?”[/quote]Good luck on getting a straight answer, [b]craised[/b]. I [u]think[/u] Sue actually was more accurate in her original response to you –that “the city is going to make huge net revenue [u]from the RDA[/u] for the hotel.”
Her conclusion–“It is an incredibly good deal for the public.”–depends, again I think, on which “public” she means. These are extremely complicated transactions (at least to my mind). I’ve wondered ever since council members Sue and Rochelle raised excellent questions when city staff brought the Hanlees scheme to them:[quote]”The terms of the subsidy were twofold, as Council member Greenwald described it: 1) a below-market rate, and 2) forgiveness of the loan, depending on the amount of sales tax revenue generated. However, the parameters of the loan forgiveness were not clear to Ms. Greenwald….”
“…Ken Hiatt elucidated further, ‘So the way the loan repayment is structured is performance-based. So, if the dealer meets certain performance criteria in terms of sales tax generation to the city, then the loan in that threshold is $100,000. If they made $100,000 annually in sales tax payment to the city, every dollar over that $100,000 gets taken off of the principle and interest payments owed to the RDA. So depending on how much sales tax is generated over that $100,000 the equivalent is reduced in their loan repayment to the RDA….If the dealer does extremely well, then the entire loan amount would be forgiven.”*[/quote]It appears to me that such “loans” are structured in a way that looks like a money-laundering operation to move more than $1-million from the RDA willynilly pot into our city’s general fund, at least in the Hanlees case.
[u]Questions for Sue and Rich[/u]:
1. Is the RDA or the city the source of the $1-million-plus-interest that will end up in Hanlees pockets if their loan is forgiven via “sales tax performance” into the city’s general fund?
2. Is “loan forgiveness” an element of any of the new, proposed projects?
3. How did the RDA “important and desirable mission creep” happen? If it isn’t “codified,” it sounds as though it’s been an overlooked and/or happily tolerated fraud by local RDA’s. What kind of city infrastructure, Olive Drive, downtown parking, etc. (and, not to ignore, schools) might we have had today if the RDA/Council had been more true to the legislation’s purpose?
4. Has anyone approached the [u]Enterprise[/u] about de-blighting its operations. Many newspapers have donated or sold off their downtown properties and set up new operations near the edges of towns.
5. One of the most successful recent, intersection-blight improvements has been the 5th & G area. Was RDA funding used in these projects?
6. Which of Davis’s “affordable housing” attempts would you hold up as success, or at least ones that have been successful for longer than the time it takes first owners to reap their bonanzas through selling or pulling money out of some cooperative-type fund? Should we pursue successful models in the future with RDA funds?
Thank you.
P.S.–I basically cannot see how it makes much sense to spend tax money to lure companies from other California cities and encourage businesses expand in a manner that doesn’t make business sense to do on their own. How can it be worth the risk, time, money and other resources we devote to these projects?
The losing cities lose completely; the state doesn’t gain in such zero-sum games; the gaining cities gain businesses with proven histories of moving wherever there’s a better deal offered and/or businesses that we may have helped expand beyond their capabilities (and possibly would take down our “investment” with them).
____________________
*from Elaine’s August 3, 2010, [u]Vanguard[/u] report.
Craised: It is reasonable to ask why we can’t achieve desirable development without RDA help. In some cases we can. The hope behind redevelopment is that, with some help, areas will develop enough value and synergy that people will start investing investing on their own.
Hotels are frequent recipients of RDA support because the tax revenue to cities is an order of magnitude higher than any other use of the land and because the initial investment is huge and there is likely to be a period before the demand catches up enough to cover payments on the loan.
Also, sometimes off-site improvements have to be made in order to make the site viable. In the case of the entrance to downtown, we have not yet made the improvements required to attract development that will bring significant tax revenue.
Last night, we discussed another redevelopment proposal that would intensify the site around Ace Hardware and the associated city-owned parking lot. I made it clear that I was not interested in significant RDA subsidy to that project unless it brought major public benefits, such as a much larger downtown parking facility. I said I was not interested in spending RDA dollars just to build a larger privately owned business.
[quote]”The interest rate on the (Hanlees) note is just 3.5 percent, and we are in second position.”
“….it’s worth noting that the Davis RDA got its (new) money in two bond issuances. One is a 25 year tax-free note which pays 7.25%. It will mature in 2036. The other is an 11-year taxable bond which expires in 2022. It pays 8.65%.”[/quote]Rich, what is the connection between these types of transactions? Realizing that the Hanlees cash came from, possibly, another note/bond, does this mean that we loan money for 10 years at, say, 3.5% that we’ve borrowed ourselves for a longer period at, say, 8%?
If so, are these arbitrage-like profits for the benefitting businesses–and the interest-difference costs for the city–taken into account.
Finally, how important are the city’s projections in making a proposal acceptable to the council? And, what’s our record on these estimates?
craised: “If the general public deems it OK to give loans to business owners, great, BUT it should come with not only a very high interest rate but also with security. This way the profits could be reinvested in other similar ventures. We should always be in first position on all notes. The city should never loan money by pulling out their Ouija board to determine how much money the city might conceivably receive through some tax revenue. When the City of Davis assumes, the only thing they do is make an ass out of YOU and ME. Then, WE are left holding the bag, not them.”
In the Hanlee’s deal, Hanlee’s is obligated to pay back the RDA loan w interest – until they generate sales tax revenue over approximately $130,000. For every dollar that goes into the city’s general fund in sales tax revenue generated by Hanlee’s over $130,000, Hanlee’s is granted $1 in loan forgiveness. In essence, if I understand this mechanism correctly, the RDA money will essentially be turned into general fund money once the approx $130,000 sales tax revenue threshold has been met. So explain to me how the city has “lost” any money on this deal?
In the hotel/conference center being proposed, it will generate not only sales tax revenue itself (an estimated $400,000 or $200,000 – it was not clear from the CC discussion which figure is correct), but spin off sales tax revenue from businesses that benefit from the added customer traffic that will come to town bc of the hotel/conference center.
Rifkin: “*In the Hanlee’s deal, I found, based on what I learned about regional car sales, that the city’s consultant was wildly optimistic about how many VW’s Hanlee’s is going to sell in the next 10 years. Oddly though, the fewer cars sold (assuming no default) the better off the DRDA’s ROI would be, based on the way the repayment schedule is structured and based on the way the car sales tax is directed to the city’s coffers.”
That is how I understand it works too…
BW: “There are tons of second/third generation Davis locals who drink at G street pub, and just aren’t involved in the Davis process. It would be a shame to see their bar get torn down and social circle damaged because they lack power. Especially after it re-opens.”
The project to redo the parcel upon which G Street Pub and Ace Hardware sits is by no means a done deal. If you listened to Tuesday night’s CC meeting, it was clear the owners of Ace and G St. Pub would have to agree to this project. There is great concern out there about any use of RDA funding ruining already existing businesses. In fact that very issue came up in regard to the proposed hotel/conference center which would displace Cafe Italia. Always, as Sue pointed out at the CC meeting, when using RDA dollars it should be remembered that the RDA funding is to be used for projects that will provide for the PUBLIC GOOD. This could be more parking; increases sales tax revenue for the city; increased property values and the like. But always into consideration must be taken existing businesses.
Just as a reminder, when all the flap about Trader Joes occurred, a strictly private enterprise in which the city IMHO had no business interfering, there was no hesitation on the mall owner Centro Watt’s part to displace an existing medical imaging business nor destroying the business of a small chinese food restaurant. At least with RDA funding, more consideration can be taken by the city to ensure existing businesses have a better shot at surviving by being incorporated into the existing project (as in the case of G St. Pub/Ace Hardware) or successfully relocated (which is the suggestion for Cafe Italia).
[quote][b]David sez:[/b] “…in fact, most studies suggest that redevelopment simply shifts the location of where the development occurs, but does not increase or improve blight overall.”
[b]Sue sez:[/b] “The methodologies for these ‘studies’ employ meaningless indicators. In the case of Davis, South Davis would be isolated from the rest of Davis….:”[/quote]Exactly which studies are you two arguing about here?
And, with respect to South Davis, what RDA projects have brought it out of isolation? The only one that comes to mind is the Pole Line overpass.
Although I kinda’ like the I-80 bike overpass, its limited use and capability keeps it from having much impact in un-isolating South Davis from the rest of our city. The ZipCars also could help, but to such a limited extent. The Hanlees South Davis expansion involved a lot of RDA money, but improved the quality of the auto-row wall separating us.
Don Shor: “I have no reason to doubt that the owner of Davis Ace has agreed to the simple proposal that an exclusive negotiator be contracted. Whether she has a strong interest in the specific proposal, or was just willing to consider it, is immaterial at this stage.
The questions I have are:
–to whose advantage, other than the developer, is it that there be an exclusive negotiator? Is it in the city’s best interest?
–are all property owners on board for this proposal?
–why does a sound development proposal even need any RDA consideration? If it pencils out and is within current zoning, they can finance it on their own. Why is this even on your agenda?”
If you listened to the CC mtg on this issue, it is being rushed through bc of the chance that RDA funding will go away. However, refurbishing of this block has been on the city’s radar screen for a number of years. The owner of Ace and G St. Pub have not yet really weighed in on the issue as of yet. Sue Greenwald made the point that should be the first step rather than the second one. But bc the parking lot in between these properties is public and owned by the city, the developer had to obtain city permission to even start the negotiations with adjoining property owners for this project. Steve Souza raised the question of why this project had to be exclusively negotiated with only one developer, but voted for the project despite his pointed objection. So I think there were many questions about the viability/desirability/acceptability of this project – but there is a push to approve as many projects in the city’s pipeline of ideas before July 1 – the magic date when RDAs as we know them may disappear…
DT: “Given the over $200,000 of RDA funds that City staff funnelled to DACHA (so they could defend themslves against breaking the law)I am certainly interested in the emphasis on abuse in the proposed legislation.”
First, there is a lot of controversy swirling around the failed affordable housing cooperative DACHA, and whether it was ever a viable model for affordable housing as it was structured. There is no proof as of yet the city was guilty of any malfeasance in regard to its involvement, only allegations not yet proved. Second, one could argue the city funding funneled to make Rancho Yolo a cooperative when the owner has clearly stated no interest in selling is a questionable use of city monies (don’t know if this was RDA funding – but the principle still applies).
However, in other cities/communities, it is my understanding there have been RDA abuses. So I think most would agree w your point that some reform in the state RDA methodology is long past due…
[quote]”…Hanlee’s is obligated to pay back the RDA loan w interest – until they generate sales tax revenue over approximately $130,000. For every dollar that goes into the city’s general fund in sales tax revenue generated by Hanlee’s over $130,000, Hanlee’s is granted $1 in loan forgiveness. In essence, if I understand this mechanism correctly, the RDA money will essentially be turned into general fund money once the approx $130,000 sales tax revenue threshold has been met. So explain to me how the city has “lost” any money on this deal?”[/quote] Let’s say, in a wildly optimistic way, that Hanlees has an exceptionally good decade. Every dollar in loan forgiveness has to from somewhere. [u]Every dollar in loan forgiveness means one dollar in reduced tax income to the city, unless the money is coming from somewhere else.[/u]
My guess is that, somehow, the RDA doesn’t get paid back in this situation and, therefore, won’t have the $1-million+ to support the next project. If so, this is a situation that only could be dreamed up where the city council and local RDA board are one in the same.
I very well could be wrong on who is “losing”; I’ve never been able to get this issue clarified. [u] Some entity has to be losing money in order provide the cash for Hanlees to be forgiven repaying its loan.[/u] Either someone is saying “we’ll pay it off for you” or the city is giving up (or returning) legally collected sales taxes to pay off the loan.
[b]Elaine,[/b] if the city hasn’t lost, has the Davis RDA? If so, what’s the difference? The business gets a huge gain; the taxpayer pays off the loan, courtesy of the Davis city council/RDA board. (Or, maybe the Mondavi Foundation is picking up the costs of moving the business to Davis.)
JS: “Elaine, if the city hasn’t lost, has the Davis RDA? If so, what’s the difference? The business gets a huge gain; the taxpayer pays off the loan, courtesy of the Davis city council/RDA board. (Or, maybe the Mondavi Foundation is picking up the costs of moving the business to Davis.)”
From what I can tell on the Hanlee’s deal, for every $1 the city loses from the RDA, it gains for the general fund. So I am not seeing your contention that the city is “losing money”. And Hanlee’s is being given a huge incentive to do well, so it will generate the maximum sales tax revenue possible for the city. I’m just not seeing a downside here for taxpayers… unless Hanlee’s did so poorly it defaulted on its loan, which is not very likely.
[b]Elaine[/b], sorry I’m having difficulty explaining my point/question. Maybe that’s why I haven’t been able to get an answer in all these months. Let me try again:
1. What would happen to the sales tax from Hanlees if the company didn’t get $1-to-$1 loan forgiveness for every dollar of tax over $130,000? Answer: If they paid $230,000 in tax, the city general fund would keep $130,000 plus $100,000 (the entire $230,000 paid in), and Hanlees would be happy about a great sales year.
2. On the other hand, under the current loan-forgivness plan, does the city keep the entire $230,000? Or has the city agreed give up $100,000 to pay off the loan on Hanlees’ behalf?
3. On the other-other hand, has the Davis RDA itself agreed to forgive Hanlees loan if the company gives the city enough taxes, thereby allowing the city to keep the entire $230,000? In which case, wouldn’t the RDA end up short by $100,000 each year this happens?
4. Is there some other source of funding I haven’t considered here that’s agreed to provide $1-million+ to subsidize Hanlees via loan forgiveness?
As I’ve said, it seems that the money has to be coming from somewhere. If this scheme is partly designed to take RDA money and channel it to projects not authorized by the RDA legislation (i.e., Davis general fund purposes), I can understand–but not approve of–the practice. To suggest that Hanlees hasn’t been given the potential for a million-dollar tax giveaway seems strange. To claim that no government body (city or RDA) is losing a like amount of money seems unbelievable. I just can’t figure out which pocket is being picked!
JUST: You posed 6 questions to me. I will give each a stab, but I probably don’t have all the answers (and due to a deadline project I am working on for my job, I apologize for my lack of depth):
[b]1.[b] [i]”Is the RDA or the city the source of the $1-million-plus-interest that will end up in Hanlees pockets if their loan is forgiven via “sales tax performance” into the city’s general fund?”[/i]
It’s the Davis RDA.
For the loan to be completely forgiven, Hanlees will have to sell approximately 872 new VWs each year from 2012-2023. I don’t believe that number of sales is realistic. I think a much more reasonable assumption is 349 new vehicles sold per year on average over the period. In the latter scenario, we will be forgiving just $1,451 in interest + principle repayments; and that amount will be recouped in marginal sales taxes.
[b]2.[/b] [i]”Is “loan forgiveness” an element of any of the new, proposed projects?”[/i]
I don’t know, but I would guess not. I don’t think any of these proposals is that detailed, yet.
It appears to me that the idea behind playing the banker role with the hotel project(s) is threefold:
1. That they City (or DRDA) believes private lenders won’t fund such projects; and
2. That the hotelier’s payments back to the DRDA (or successor) will cover the principal + interest payments which the DRDA now owes on its new bonds; and
3. That, once the project is built, the higher net revenues from property tax to the city (about $100,000 per year) plus the higher net revenues from the transient occupancy tax (T.o.T.) to the city ($280,000) will essentially represent “found money.”
I don’t know if any of these assumptions is justified. However, I think this approach by the city raises an important point: due mostly to labor costs, our City as a corporation is either going to have to make some serious cuts or it will have to generate greater city revenues. The hotel approach is ultimately a stab at the latter. That does not mean it’s necessarily the best idea or the right idea. But it should be seen largely as an effort at generating more public revenues.
[b]3.[/b] [i]”How did the RDA “important and desirable mission creep” happen? If it isn’t “codified,” it sounds as though it’s been an overlooked and/or happily tolerated fraud by local RDA’s. What kind of city infrastructure, Olive Drive, downtown parking, etc. (and, not to ignore, schools) might we have had today if the RDA/Council had been more true to the legislation’s purpose?”[/i]
I don’t have good answers to these questions. I would just note that many of the largest projects funded by RDA dollars in our state have funded private stadium and arena projects ([url]http://www.highbeam.com/doc/1G1-248841044.html[/url]) for pro sports teams. Even AT&T Park in San Francisco, which was advertised as “privately funded,” benefitted from more than $100 million in public infrastructure upgrades around that stadium from the SFRDA.
[b]4.[/b] [i]”Has anyone approached the Enterprise about de-blighting its operations. Many newspapers have donated or sold off their downtown properties and set up new operations near the edges of towns.”[/i]
I have no idea. In my opinion, the Enterprise printing building at the northeast corner of 3rd & G is a turd. … Speaking of that intersection, I think the old Yolo Bank building (which used to house Noodle Express) looks great with its new awning and paint job.
[b]5.[/b] [i]”One of the most successful recent, intersection-blight improvements has been the 5th & G area. Was RDA funding used in these projects?”[/i]
I don’t know. However, I am not a fan of the vanilla, uninspired bleh architecture of the USDA building. It’s a shame the city council approved that bad design. The building does not engage with the street; and it’s disconnected from all of the other designs in its neighborhood. … By contrast, the Roe Building is very nice looking and works very well with the street. I also think the design for the new Yolo Federal Credit Union (or at least the version of it we saw come through the HRMC) looks good.
[b]6.[/b] [i]”Which of Davis’s “affordable housing” attempts would you hold up as success, or at least ones that have been successful for longer than the time it takes first owners to reap their bonanzas through selling or pulling money out of some cooperative-type fund? Should we pursue successful models in the future with RDA funds?”[/i]
I can’t think of any I would call a success in terms of helping poor people as a class. I would say, though, from what I know about the people who run the Solar Community Housing Association ([url]http://schadavis.org/[/url]), they appear to be less interested in ripping off the taxpayers and less interested in enriching themselves and less interested in screwing their tenants and less interested in solving their disputes with lawsuits than some other middlemen in Davis who run low-income housing scams*.
*In the interest of not being sued for slander, I should say I am not thinking of any one group or neighborhood partnership when I say this.
Don Saylor: if you can, please fix my [b]BOLD[/b] problem above and then junk this post. Thanks, Rich.
[quote]And, with respect to South Davis, what RDA projects have brought it out of isolation? The only one that comes to mind is the Pole Line[/quote]The RDA helped fund the Richards interchange expansion, the Pole Line overpass, the Mace interchange expansion and the South Davis bike underpass near Borders Books.
Concerning large sports stadiums and other abuses of RDA: That is why reform is needed. Sports stadiums should be disallowed.