Steve Pinkerton Argues CalPERS Optimistic Projections “Wrong” and “In Complete Denial”
At the Chamber of Commerce’s annual event, Davis City Manager Steve Pinkerton delivered his first State of the City Address. While Mr. Pinkerton would focus heavily on the burning issues, particularly the issue of the budget, he also highlighted some achievements.
Unlike past editions, this one was marked with straight talk, highlighting the positive aspects of the community, but being very honest about the crises that loom, namely in terms of pensions and retiree medical benefits.
While in the past leaders have ignored the warning sides, Steve Pinkerton derided California Public Employees’ Retirement System (CalPERS) for being overly-optimistic, calling their projection “wrong” and stating that they are in “complete denial.”
But not all was doom and gloom, and Mr. Pinkerton began with some of the successes of the past year.
The arrival of Mori Seiki to Davis, he argued, was “the winner in business attraction this year” and added, “I think that’s something to celebrate… I think it proves that businesses will come to Davis, major businesses will come to Davis.”
He said that they will be an asset going forward, and they had a very good experience going through the process with the city. They are not alone, he argued. “The portion of our non-university employment that’s knowledge-based has doubled during that time as a percentage of overall workforce. Frankly, there’re very few cities that can make that claim.”
He also talked about the fact that UC Davis brought in more than $700 million in research money, saying that dwarfed the money brought in by UC Berkeley.
In terms of retail highlight, Mr. Pinkerton noted that every community he has been involved in has either had a Trader Joe’s or wanted one. And Davis did well by filling the retail space vacated by Gottschalks. There are also seven new downtown restaurants, and the auto dealerships he described as either stable or improving.
While we do have a shortage of retail space, when we get holes, he said, they quickly fill up.
“Despite losing one more RV dealership,” he said “despite having a further shrinkage in the number of dealers that we have that are big sales tax generators, our car sales are up, they’re well above what they were a year ago.”
He said that’s a positive sign, as automobile sales are about 14% of the city’s overall sales tax.
The big continuing issue, of course, is the city’s budget and the need to provide similar levels of service with existing resources.
“At the city level… we continue to try to find ways to deliver services as cost-effectively as possible,” he said.
The city is operating on an all-funds budget of $161 million with around 400 regular employees, making it the third employer in the city.
“That’s certainly something that we’d love to change, we’d love to be the tenth or eleventh largest employer in town, that means we’d have a lot more large companies here,” the city manager said.
Revenue-wise, he said, “we’ve fared much better than most cities during this recession.”
For the most part, we have either been flat or increasing, he said. “As with a lot of businesses, I think flat is the new positive,” he said. He also noted that the property tax line we have “is probably the best-looking line that anybody has.”
We skipped the 15 to 20 percent drop in property tax revenues because, as he learned the hard way, real estate is very expensive in Davis.
“We’ve got flat revenues, the challenge of course is… expenses never stay flat,” he said. “The biggest ones for us are employee-related expenses, namely the ones you’ve heard about over and over again… pension and retiree medical.”
“The sort of good news on the pension side is that we’re getting projections from our friends at CalPERS… the folks at CalPERS claim that they have enough money at the moment and that they’re not going to increase our rates over the next two years,” he said.
However, he quickly added: “We think they’re wrong. We think they’re basically doing that so that they don’t have to give the state an increase in their rate this year so they don’t contribute to the state budget deficit.”
“But we think they’re in complete denial.” He said that they don’t anticipate any additional cost pressures from CalPERS at this point in time, but the city still plans to set additional money aside in case they change their mind, which he said happens “just about every year.”
“Long-term, what’s happening with CalPERS is completely unsustainable,” he continued. “There’s no way they can ever meet their obligations and so at some point in the next five years they’re going to come clean and there’s either going to be a ballot initiative or some legislative change and both future employees and existing employees are going to see some reduction in the accounting methods – it’s just not sustainable.”
He hopes this realization comes before they hit the city with a 30 to 40 percent increase in our contributions rates. “There is some point in time when the fiscal laws of nature are going to catch up with [Cal]PERS,” he said noting that non-PERS cities are having to increase their rates by as much as 70 percent.
He argued that the city has a bit more control on the retiree medical side of the equation.
The city is dealing with the combination of ever-increasing rates for retirees, while anticipating the rates in the future, thus the city “has set up a program where each year we’re setting aside money not only for our current retirees but our future retirees as well,” he said, calling it “a novel idea.”
With existing employees “there is either going to be less money for employee salaries because we’re setting it aside for their retiree medical, or they’re going to take less of the benefit in the future.”
“So, one way or another we’re going to get that under control,” he added.
All of the employee contracts expire on June 30, he said, “so we should have a lot of fun between now and then.”
Mr. Pinkerton estimates currently they need another $1 million for pensions and $2.4 million per year for OPEB (Retiree Medical).
“The way this council is, they said don’t put it off, let’s find a way to address it and we’ll get there one way or another through labor negotiations,” he said.
“The council has also made it clear that in order to have a balanced budget, we also want to have money for deferred maintenance and for other programs that the community needs,” he added, “So we’re not just going to take our budget, we’re not just going to cut so that we can pay salaries. We’re going to cut, but we’re also going to find a way to enhance our community at the same time.”
“We’ve got to stay within our fiscal constraints, but they’ve made it clear that we’ve got to [maintain current levels of services],” he said.
To maintain services with fewer resources, he argued, we need to look toward “managed competition,” public and private partnerships and, most importantly, volunteers.
“I think the only way we can continue to have a high level of service is to figure out which things you need a professional for, what are things we can do in collaboration with the community, what are things that somebody else can do instead of us,” Mr. Pinkerton said.
He talked about the parks tax that will be before the voters this spring.
“We have to go back to the public periodically and say we want to continue to have this additional revenue, but we have to prove to you that we need this additional revenue,” he said, “So I think it’s incumbent on us to show that we’re operating in the city absolutely as efficiently as possible.”
We have $400 million in infrastructure assets and we need at least $3 to $4 million per year set aside to take care of that. In the past, the state and federal government sent money to the communities to deal with roads, but that has changed and the state is holding onto that money.
“We can wait around and hope that money is going to come or we can do something about it for ourselves,” he said. “The council has made it very clear that when we announce our budget this year it’s going to be a truly balanced budget and not just a budget that looks good on paper.”
Historically, we have had less than $1 million per year in the general fund going towards this kind of thing, now we’re going to have to put $3 to $4 million a year into those kinds of activities.
“We have our work cut out for us,” he said, to maintain the community at the level everyone wants.
—David M. Greenwald reporting
Nice job on this article David. It is a great recap for those of us that could not attend the Chamber meeting. I have to go back through it when I have more time, but our new city manager seems to be saying all the right things. Economic development should be the mantra for the city, state and country.
Finally, a city manager that gets it!
Adding Target to the sales tax graph:
[img]http://davismerchants.org/vanguard/citysalestaxwtarget.jpg[/img]
State sales tax revenues, same time period:
[img]http://davismerchants.org/vanguard/statesalestaxchart.jpg[/img]
[quote]While in the past leaders have ignored the warning sides, Steve Pinkerton derided California Public Employees’ Retirement System (CalPERS) for being overly-optimistic, calling their projection “wrong” and stating that they are in “complete denial.”—[b]David Greenwald[/b][/quote]David, most “leaders” were in complete denial, but with CalPers wasn’t really in denial; I believe that CalPers’ actions were political.
Shortly after I first got on the council in 2000, we gave the firefighters enhanced early retirement. We were told that CalPers said that the numbers worked. I was skeptical, but assumed that they were the experts.
At a meeting about six months later, our excellent finance director Karl Mohr looked shaken. He softly muttered that he had run the numbers and we would be broke in, I think it was seven years. Then he said that it was mostly because of the 3% at 50.
I immediately enrolled in a CALPERS seminar conference which was feared towards finance directors and city managers. For the most part, the speakers explained that everything would work out fine although, if you listened closely and looked at the graphs, you could see otherwise. But at dinner after a few glasses of wine, I pressed the CALPERS accountant sitting next to me about how the enhanced early retirement could possibly pencil out.
He opened up and told me that he was terrified but that the CALPERS board were political appointees and that they could all get fired if they didn’t toe the party line.
I tried to bring this message to council and the public without success. In the end, rising property values from the housing bubble bailed us out for a few years. It was apparent that we were merely being bailed out by housing bubble that would ultimately crash, as all bubbles do.
Yes Jeff, he seems to be saying what people want to hear and leaving out anything that people might not want to. So if the right things are the politically motivated sounding points that might appeal to many citizens, there are glaring omissions from his discussion. When we are talking about real economic improvements are businesses like Trader Joes really wonderful addition? Is the migration from a sales tax generating store like Borders to a low tax generating Whole Foods grocery store good for the long term financial strength of the city? When you throw statistics about “doubling our percentage of non-university” jobs without real facts important? Our auto dealers are stable or improving? Based on what, the worst years the auto industry has seen in many years?
Where is the substance? Where is the leadership? Revenue is flat but expenses never stay flat? Then why is he spending money on sprucing up his office while threatening to make cuts to employee expenses? The reason is simple. Politically it makes sense to talk about reducing employees and increasing volunteers. It’s a great sound bite. But how does “you should come down and see my new office, it only cost you taxpayers a couple of years of the of median average salary in the city”. “I didn’t have Public Works fill the pot holes on your street because I haven’t cut enough services and I really wanted the Parks people to have a different office, I didn’t think anyone would notice because I thought they would be listening to me talk about CalPERS is wrong”
I am concerned about what the future holds for this city if soothing talk can take the place of good planning. The more I listen to our new city manager the more I get worried that he is great a walking the political line while doing his own thing. As long as people listen to what he is saying and not paying attention to what he is doing this city could be in for a lot of unnecessary pain going forward.
To Ann_o: The previous city manager was responsible for shifting basic repairs into the unmet need category, and then waving his magic wand and declaring “We have a balanced budget!”. This city manager is not gaming the system through creative bookkeeping from what I can see. Only time will tell if he can translate talking the talk to walking the walk…
[quote]Only time will tell if he can translate talking the talk to walking the walk..[b].E.Roberts Musser[/b][/quote]What is walking the walk, Elaine and Ann_o? As Don Shor showed in his graph, there is not enough potential new revenue gain in non-auto retail to make a dent. There is no new net revenue to the city from high-tech or industrial development. The city has suffered a huge blow when the legislature took away our redevelopment funds. I suspect that our ability to raise much more in taxes will quashed if the surface water project goes forward and water rates are tripled or quadrupled in the next seven or eight years. The only thing left is to cut expenses dramatically.
If anyone can demonstrate that there are other solutions, I would be very grateful.
Thanks Dan for the sales tax comparisons. Really shows us that we are pretty lucky we go Target when we did considering how I hear we are so reliant on new car sales. Annual sales fell from over 16 million nationwide in 2007 to under 10.5 in 2009. Without Target’s boost to our local sales taxes that downward dip just before it opened would have continued instead of things leveling off for us at $8 million. If only we can continue to develop more hedges like that.
I am not sure what needed repairs are being done at city hall. It is really hard to figure out what is going on over there but from what anecdotal information I have gotten, It is not about repairs but moving around seats. Until someone is able to explain what that is and how much we are paying for it, I’m concerned. Someone said that the City Manager is building himself a new office in the old parks office space. I’m not sure I’d think that had anything to do with needed repairs. We haven’t had a chance to see what the current City Manager will do with the books so that situation is still open. He’s the city’s CEO and I am hoping we haven’t replaced Ken Lewis with “hacksaw” Al Dunlap. Both were failed CEO’s who drove companies to the brink. My instinct is telling me to be cautious about this guy. It feels to me like he loves to talk the talk but is a bit of an arrogant loose cannon who feel he knows more than the rest of us.
I don’t know. I guess we will all wait and see.
@ Ann_o: the city’s sales tax trend almost exactly mirrors the state’s. The downward dip that you see in the city’s sales tax is the same as the downward dip in the state’s. The leveling in the city’s sales tax is the same as the state’s.
Target had no beneficial effect on sales tax that I can discern. As far as I can see, Target just shifted sales in the city, it didn’t increase or sustain them.
At one point we were looking at the need to cut or bridge $7 million in additional spending on PERS, OPEB, and roads. If you look at the estimates for Target, they projected about $600,000 in annual revenue. That’s less than ten percent. Adding retail to Davis is going to have to diminishing returns. And that’s with the overly rosy projections from 2006. The reality is probably closer to what Don argues – that Target has shifted tax revenue but not produced a lot of net revenue. Economic development sounds good, but most of the kinds of places aren’t going to produce a lot of revenue. So the big thrust has to be cuts. There is no way around that. We are not in the short-term going to grow our way out of this.
I would posit that state sales tax is more diversified than our local sales tax which although I don’t have exact numbers is heavily reliant on auto sales, much more so than the state as a whole. If that is the case, there would be a much greater negative effect from decreased auto sales on our sales tax numbers than those of the state as a whole. Without properly evaluating the real numbers behind the graphs it is hard to say how closely they mirror one another. There needs to be a lot more analysis done before any conclusion can be drawn from the information you presented. Both our conclusions lack proper evidence.
However I would again point to the anecdotal conclusion that if auto sales decrease by approximately 34% and they account for the lions share of our revenues, we should have seen a greater drop than the state overall. Target coming in at just that time therefore muted that larger drop and helped the city maintain a revenue stream closer to the state as a whole.
According to the City manager, “automobile sales are about 14% of the city’s overall sales tax” – is that the lions share of the sales tax? I would disagree with that, though it is the largest share, it’s still a relatively small amount of the overall revenue.
Closed since Target opened:
Mengali’s
Naturalist
James Anthony
Game Stop
Borders
Sweet Briar
Alphabet Moon
I am not stating a causal relationship for all of these, since some closed almost coincidentally with Target’s opening. I am just saying many probably represent a sales tax shift.
It’s hard to imagine Target hasn’t had significant impact on CVS, Office Max, Davis Ace, and myriad small businesses.
Looking to big box retail or retail chains to buffer Davis sales tax revenue is probably not productive.
As for future business opportunities, most large retail chains are contracting. The types that might open at, say, the pads near Target are very unlikely to look at those sites any time soon. Most of the peripheral sites in the south Davis shopping center remain vacant, and I am dubious about the prospects of two other neighborhood centers. Non-retail business brings much less revenue to the city. So opportunities for business development and increased revenue are very slim in the next few years.
Unlike Sue Greenwald, I fully expect Davis voters to continue supporting their schools and parks, regardless of the water rates. But the city is going to have to reduce expenses.
David and Don, I can appreciate your position on Target and I really don’t expect to change your opinion. I did not know what the percentage of tax is derived from auto sales. Now I know that at some point it was 14%. Yes, that would not rise to the level of a lion’s share but it is significant. It’s all about numbers and nothing I have seen in this discussion gives a lot of credence to the argument that Target has shifted sales tax as opposed to increased base. Charts and numbers can be fickle bed fellows. You can make the same ones tell you very different stories. It’s all in the narrative.
For example. “the city’s sales tax measures almost exactly mirror the states”
Conclusion:
“Target had no beneficial impact…just shifted sales in the city”
Or
Owing to the fact that 14% of the city’s sales tax comes from a source that saw a 34% decrease in its sales, Target had a positive effect of muting a greater degradation of revenue that would have been expected while at the same time not dramatically shifting sales within the city.
My estimate (which I have posted a few times on this blog) was that Target brings in net revenue (after sales diversions) of around $200-$250k which seems consistent with the data which David posted and Don amended. It should also be noted that the firm that conducted the analysis projecting $600k in sales tax revenues for Target, CBRE, has prepared numerous reports for Wal-Mart Home Depot and Target stores throughout the State. They’ve never found a big box store they didn’t like and never see much downside. They also typically claim employment gains, ignoring the job losses.
Target puts pressure on a number of downtown businesses as well as drug and even grocery stores in Davis. I agree Davis cannot solve its problems by going to big bix stores. Indeed and number of such stores, notable Best Buy, are probably in trouble right now.
WE are lucky that taxes are stable and that the restaurant business is thriving. And I congratulate our new City manager for his honesty, particularly in relations to CALPERS.
I don’t know if future tax increases will be past by Davis voters. We’ll see.
Speaking of new retail, where is Panera going to locate? They are hiring for Davis.
I have no problem with the differing analyses here, and Dr. Wu’s numbers seem very plausible. In fact, Paul Navazio could answer whether Davis auto sales mirrored the state’s figures, and can even provide more detail about the changes in different retail sectors. They get very detailed information from the State Board of Equalization about that.
The problem, Ann, is when you say “If only we can continue to develop more hedges like that.” What did you have in mind?
[quote]Unlike Sue Greenwald, I fully expect Davis voters to continue supporting their schools and parks, regardless of the water rates. But the city is going to have to reduce expenses.–[b]Don Shor[/b][/quote]Don, I didn’t say that Davis voters would cease to support their schools and parks.
I said: I suspect that our ability to[b][b][i] raise more in taxes[/i][/b][/b] will quashed if the surface water project goes forward and water rates are tripled or quadrupled in the next seven or eight years. I am assuming that the existing taxes remain, but that they will not be sufficient and that we will have trouble bridging the gap with with additional new tax dollars, especially if water rates are tripled or quadrupled. It’s hard for me to believe that you don’t agree with this assessment.
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According to the Board of Equalization (http://www.boe.ca.gov/news/pdf/t1_a09.pdf) new car sales were 7% of total taxable sales in the state of California. So we are twice as dependent as the state but since we don’t have the city’s real numbers we can’t know the real impact of that on our revenues.
But to hopefully resolve the “problem of what I mean but creating hedges I am talking about diversifying our retail footprint. I’m only talking about sales tax here. The city of Davis has not been particularly keen to attract retail development to the city outside of the core area. This has many positive qualities but it has also effected us negatively in that out base is not very diverse. We have restaurants and an auto center. Most of the rest of the retail in the city caters to our local audience. Even our restaurants most likely are not a draw to outside money. We are therefore heavily reliant on native consumption which fills in the blanks in neighboring communities. There is no magic bullet. Big companies fail (Borders). But my point is that our fear of embracing greater retail diversity on our perimeter does not help the city and if we really want to look at history our downtown has been a revolving door of small businesses. That is not going to change if we start to bring sophisticated national retailers to the city. Businesses fail regardless of size or history (Woolworths). Our fear has handicapped us because we have clung to unworkable ideas like neighborhood retail centers and a protected core area. Sensible development does not mean sprawl but protectionism does foster isolation.
We can hedge against revenue fluctuations by not backing ourselves into niche businesses because there the only ones we let into our community.
Don, I think Marc Jacobs is begging you to zap his post.
“Our fear has handicapped us because we have clung to unworkable ideas like neighborhood retail centers and a protected core area. “
Is there anyone else who doesn’t understand what the heck this means? I sure don’t. Downtown, Marketplace, the Nugget centers…all vibrant neighborhood retail centers. Unworkable?????
What would be the alternative?
Vibrant retail centers? I see you left off Westlake Plaza, another “vibrant retail center” and Davis Manor center. Each driving huge sales tax benefits to the city. All due respect but your lack of understanding is exactly what I’m talking about. The neighborhood centers are alive but not vibrant. They serve the local community well but do not bring in additional dollars. They are functional but not dynamic. We are happy with our local restaurants and stores but wonder why the city isn’t attracting more positive revenue streams. It’s because we are insular in our thinking. Again. We fear thinking outside our little community. There are risks to that but there are consequences to trying to remain an island.
So why isn’t Folsom in as bad financial shape? We don’t need to reinvent the wheel do we?
I think our low growth attitudes in this city are a big part of why our schools struggle more with funding challenges. We say “no” to an aweful lot of growth potential and are substantially more change-averse.
The good news is that we have our quaint little village-style city to be proud of. I just wonder if have considered the difficulty we face affording that type of ongoing limited economic vision.
Folsom has regional centers as well as neighborhood centers. That is the workable model. The Folsom premium outlets and the Hwy 50 shops are regional. They bring money in from outside the city. Low population growth is not synonymous with low economic growth. Did Folsom’s downtown die because they have those shopping centers?
@ jrberg: it’s all code for peripheral big box retail.
[i]Did Folsom’s downtown die because they have those shopping centers?[/i]
Yes, just as did Fairfield’s, Vacaville’s, Woodland’s, and Dixon’s.
Haven’t been to Folsom lately?
Seriously, folks, the regional mall/big box peripheral development model is not only a disaster for downtowns everywhere, it is becoming obsolete. The retail vacancy rates along the I-50 and I-80 corridors are very high. Retail is saturated in Northern California. The only people who benefit from it are the developers who build those centers. And in the case of Woodland, it’s the same developer who is proposing the redevelopment plans for the downtown that was killed by the peripheral centers.
By my take if Folsom’s downtown is dead, so is Davis’. Want to compare us to Dixon and Woodland? I’m talking about a smart approach to development. It can be done. It’s not just “big box”. Outlet stores are by and large not big box. National chains, yes, but not big box. By they way does no one here shop at Costco in Woodland? Of course many do. Let’s come up with better, smarter ideas than just peripheral big box retail. Im talking about expanding a sales tax base not just bringing in big category killers like Borders. (Oops. Bad example. They went out of business while Avid Reader remained and Sweet Briar closed AFTER them.) Don, why are you so concerned about greater retail choices in Davis?
In reply to JRBerg: I believe Panera’s is moving into the former Blockbuster location on 3rd St.
I have lived here long enough to watch the downtown of every nearby city die when peripheral shopping was developed. Every one. Davis has far more retail options downtown than does Folsom. Dixon has no downtown. Woodland’s downtown is a disaster. Vacaville has far fewer retail options downtown than Davis.
Ann, peripheral development doesn’t lead to greater retail choices. It leads to the same chains and big box stores you see everywhere, and downtowns (and neighborhood shopping centers) that get so moribund they have to be redeveloped.
Folsom downtown: 44 retail stores. Population 65,000.
Davis (DDBA directory): 86 retail stores. Population 65,000.
@Don Shor. It’s all code for sprawl.
DT Businessman aka (Michael Bisch DDBA Co-Prez)
Ann, seriously? Your model community is Folsom? I believe you overlooked our vision of a compact, sustainable community with greenbelts surrounded by open space. Where we are struggling is in the sustainability department. One cannot be a sustainable community in the absence of a robust economy. But Folsom? Is that your idea of a sustainable community? Have you not traveled anywhere or lived outside the Sacramento region? There are plenty of sustainable, compact communities around the globe. If your intention is to emulate another community, surely you can do better than Folsom.
DT Businessman (aka Michael Bisch DDBA Co-Prez)
“Vibrant retail centers? I see you left off Westlake Plaza, another “vibrant retail center” and Davis Manor center. Each driving huge sales tax benefits to the city. All due respect but your lack of understanding is exactly what I’m talking about.”
Ann, with all due respect, I think you fundamentally misunderstand our downtown and neighborhood shopping center system and the role they were intended to play in fostering a sustainable community. Also, there are numerous reasons why a shopping center might struggle, ownership for instance, refusal to reinvest/upgrade, tenant mix, etc. And there are plenty of struggling suburban shopping centers with national chains. You might consider that in your advocacy position.
Robust economy “yes”, sprawl “no”.
DT Businessman (aka Michael Bisch DDBA Co-Prez)
My gut instinct is that Target, after accounting for robbing sales from already existing retailers, has resulted in a net increase in sales tax to the city, possibly on the order of what Ann claims. But at what cost? Has Target added to sprawl and vehicle miles driven. Has it resulted in stronger social interaction and and a stronger cultural center? Has it resulted in more business donation to worthy causes? Has it resulted in a more walkable/bikeable community? Has it spurred further redevelopment? Has it resulted in a reduction in land available for high-tech start-ups and service companies? Etc., etc. In short, has it resulted in a stronger community? Each urban planning action comes with costs and benefits, I don’t think the impact of Target has been comprehensively analyzed. Why not?
DT Businessman (aka Michael Bisch DDBA Co-Prez)
[i]”There are plenty of sustainable, compact communities around the globe. If your intention is to emulate another community, surely you can do better than Folsom.”[/i]
Michael, can you provide some examples? I am REALLY interested in other cities that we should model. I have written before that we act like we think we are Carmel.
I think Folsom is a reasonable model for us to look at to think about what we are doing right and what we are doing wrong. Our downtown is a gem, but a somewhat shabby and under-utilized one. That and the lack of peripheral options make Davis seem like a shopping wasteland (except for groceries). What I think we need is a refocus on downtown servicing specialty goods and entertainment, but with a lot of revitalization. Then complement that with more preipheral retail including some big box. The Richards underpass is a constraint. So is parking downtown.
However, my thinking is that Internet retail is the bigger threat to all bricks an mortar retail… both small and large footprint stores. Music and books are going electronic. The Internet wins for all appliances and electronics. Have you ordered shoes from Zappos yet?
With respect to retaiul, I think we should be thinking about this and developing a strategy for Internet-resistant business. These would be businesses that sell specialty products and services. Maybe offering tax incentives for these types of businesses downtown. The probable loss of RDA is a real bummer because G Street could be stamped as blighted and redeveloped.
However, my focus on economic development is not so much retail. We need to up our game attracting industry to this city. We are terribly unsophisticated leveraging the benefit of UCD attracting business to this town. We need to ROMANCE business opportubities from around the world to locate here. We need a SACTO type organization in Davis.
Re: Slide entitled “Status of Municipal Corporation”
Is the city population (65,622) and government classified as some kind of corporation?
Or is this just MBA-speak? As a Davis resident; am I the president of this corporation, a minion, or fired? (I didn’t sign up for this)
You guys don’t get it. There isn’t going to be any more peripheral retail. Target had done enough harm as it is. What Folsom did is a sign of desperation, not forward-thinking. Davis doesn’t need a “streetscape revitalization” like Folsom, or a gaslight district like San Diego, because Davis hasn’t yet killed off its downtown with developer-driven retail planning. Davis has preserved the downtown and neighborhood shopping centers by developing a community-consensus general plan and adopting policies that enforce that. The key policies that you are seeking to undermine are store-size limits, and constraints on peripheral growth.
Perhaps we should cut to the chase. Exactly where, Jeff and Ann, do you think peripheral retail should be developed?
mea culpa–just googled ‘municipal corporation’ and found out this is an accurate term for certain forms of municipal government. Funny I don’t recall seeing that term before; even on this blog (the only blog on politics that I follow). I wonder if many people not engaged in governmental operations, like myself, tend to associate the term ‘corporation’ with private sector businesses.
Given our home-grown occupy movement at UCD, listing the population of Davis under the title “Status of Municipal Corporation” might be viewed askance by those involved in the Occupy movement; for a lot of people the term ‘corporation’ has taken on an increasingly negative connotation (I associate the term with pointy-haired bosses). Wish the terminology was less suggestive and more palatable!
Don, let’s cut to another chase (because the answer to your question is simply “the periphery”). How do you describe the benefits of this unkilled Davis downtown? As a citizen of this city, I get lower sales tax revenue, fewer shopping options, less product choice, less shopping convenience than other cities that you claim have a killed downtown. I am all for making sure we don’t let developers run amuck, but I think you and others have gone way overboard on this… we are a LONG way from having that concern in this city. Downtown business owners are not entitled to 100% protection from ALL competition are they?
jimt: Most charities are “corporations”. I think you might be getting caught up in Obama’s class warfare. It is astounding that a president would do that, don’t you think? I am thinking we might be heading to a future where officers of corporations must sit in the back of the bus.
[i] the answer to your question is simply “the periphery”)[/i]
Mace? Russell? Seriously, where’s the site for this retail you have in mind? The best land for any kind of freeway retail is owned by UC Davis.
[i]As a citizen of this city, I get lower sales tax revenue,[/i]
You shop elsewhere, by your own description. Try shopping here more.
[i]fewer shopping options, [/i]
Big box retail doesn’t increase shopping options, it kills them and reduces product choice.
[i]less shopping convenience than other cities that you claim have a killed downtown.[/i]
It isn’t a claim. It is provable. I have counted, for you, more than once, the number of retail stores in downtown Davis vs. Vacaville and Folsom. Davis has more.
Peripheral retail leads to fewer downtown and neighborhood stores. The only thing you gain is easier parking and longer hours. Those apparently are the major factors in your shopping decisions.
And I would point out that bigger retailers, especially discount ones, produce less sales tax per square foot than specialty stores. For revenues, Davis would have done better with a Best Buy, a Ross, and a cluster of small retailers in the same area occupied by Target.
[i]Downtown business owners are not entitled to 100% protection from ALL competition are they?[/i]
You can have a strong downtown and neighborhood shopping, with a good mix of retail, grocery, and food service businesses. Or you can have peripheral big box. You won’t have both.
Jeff,
I pay no attention to Obama. I instantly recognized him as a corporatized wall street boy, like Georgy-boy before him. Populist noises come out of his lips, but you can be assured nothing substantive will be done to clean up Wall Street and the big money boys, whom the government works for.
Rest easy Jeff, the consolidation of money into the hands of a few at the top of the pyramid continues apace, there is no serious challenge to this. They have successfully bamboozled the public into putting most of the blame on big government; however notice to whom most of the really big payoff goes. Would you buy the notion that the lender is in a bit of a more powerful position than the borrower? The poor will continue to get poorer and the mega-rich to get richer. Most of the middle class can look forward to a near-term future of pointy-haired bosses and fairly secure jobs if they pledge fealty to the technocrats.
This is a really interesting thread on a topic which I think is critical for Davis and one where I do have some expertise. I am most in agreement with Don Shor here, which surprises me, since we are often on opposite sides.
A few points:
1. Even if Davis wanted to develop big box stores I think the time has past. The great expansion was 5-6 years ago when everyone was building. Now there is a glut of retail in this country and in this area is already saturated (even if Davis is not). Also, Davis’ population at around 60k is on the lower end for a big box store. Woodland got the Costco and Home Depot stores–so we’re not getting one. Other big box stores are struggling, notably Best Buy which I think will be bankrupt in 3-5 years. Michaels and many other such stores are being hurt. Amazon is eating their lunch. There was a superb article on Best Buy in Forbes last week:
http://www.forbes.com/sites/larrydownes/2012/01/02/why-best-buy-is-going-out-of-business-gradually/
I suggest anyone interested in this debate read it.
2. Davis’ downtown is in much better shape than most. I’ve examined over 40 downtowns in central California for legal work. Once you get away from the affluent areas near the coast (including Walnut Creek) you’d be hard pressed to find a better downtown. Hanford’s downtown used to be nice but had struggled as Wal-Mart and other big box stores have moved in; ditto for Chico. Many downtowns are a disaster despite millions spent in RDA and federal money–e.g., Tracy. So lets be happy we have the downtown we do, but not be complacent.
3. I agree with Ann that we need to be more open to new retail, though my suggestion has always been retail that would draw people to the downtown. I pointed out on this blog that Borders was in trouble years ago and was rebuffed by a number of people. Now Borders is gone. Whole Foods will bring people to downtown. It will also generate more sales tax than some people think. We need to attract some chain stores. Speciality retailers like Victoria’s Secret would do well in a college town. The GAP in Davis appears to do ok but GAP is struggling right now.
4. If Internet sales are taxed and redistributed to local communities (the .75% we’re supposed to get) that would help Davis a huge amount. Will it happen? I don’t know.
5. We have many neighborhood centers struggling but our vacancy rate at around 10-13% is far lower than most ares nearby. We have to be creative about these centers but the old neighborhood model with a grocery store and drug store as an anchor is being rewritten. Many smaller centers will continue to struggle.
Jeff
“How do you describe the benefits of this unkilled Davis downtown”
I would like to address this question by adding a personal experience and point of view to Dr. Wu’s excellent post.
Two weeks before Chtistmas,my son and I were coming back from Berkekey ( around 1 pm ) and decided to do a little shopping in Vacaville.
We had a GPS error and ended up in downtown so decided to check it out. There were four other people in downtown Vacaville.
I don’t mean four people with whom we interacted. I mean four people as far as the eye could see, both sides of the street.
Compare that with the outlets about 10 minutes later where we could hardly park or even walk. Now compare to downtown Davis where we were within the hour ( having decided against fighting the outlet crowds). There were people walking around, moving in and out of stores, people having drinks at Mishkas , browsing at the Avid reader. There were folks getting ice cream, checking out the current movies, hustling home with take out pizza, traveling cross town on their bikes…..I could not have asked for a more graphic description of what I see as the benefits of an ‘unkilled ” downtown.
This, like virtually all else comes down to a matter of values. I feel very strongly about supporting our downtown where one can still find shops, restaurants and small service providers who one knows by name, where you can walk in with your dog and have them offer your pet a treat rather than shoo you out, and where they genuinely care whether or not you are satisfied with your purchase or service. I like it when the barista knows my order before I say it and asks after my kids by name. These are the kinds of businesses I want to nurture. Target does not need my support and this area already had nine within easy access before we decided we had to have our very own. I personally value very highly the small town, warm, safe ( enough to walk home by myself after a late movie ), ambience of our downtown and will take it any day over the deserted ( so empty as to feel abandoned downtown of Vacaville) that I saw on what should have been one of their busiest shopping days just one month ago. I value the benefits of our choice not to accept that thriving is synonymous with growth and homogenization of our shopping choices and our culture. And, I value it enough to be assertive in the defense of my values.
This was a very good discussion. There are a lot of good points put forward here. Dr. Wu seems to understand what I am trying to put forward as an idea. I love the feel of our downtown but there could be more done to shore up the strength of our local economy. Big box retail is an old idea. I am not advocating for that. Best Buy, in my opinion, will not be bankrupt in 3-5 years but you will see more and more of their small Best Buy Mobile stores as retailers begin to embrace a more targeted (no pun intended) retail model. Davis is a great place to live and it is largely because of the people we have here who do get involved and voice their vision, so thank you Don, Jeff, Sue, Dr. Wu, everyone. It’s intelligent, thoughtful expression like we have had here that will continue to keep Davis our home.
[quote]Is the city population (65,622) and government classified as some kind of corporation? [/quote]
There are basically two types of “city”‘s in California (SF is an interesting “weird” one):
Charter Cities (under CA law they have more flexibility in elections, taxes, fees, etc.)
General Law cities (Davis is one of these). They are generally Municipal Corporations. I’ve never had cause to research how a ‘municipal corporation’ differs from other California corporations.
[quote]Sue Greenwald: What is walking the walk, Elaine and Ann_o?[/quote]
I should have thought that was obvious: doing what is right for the city…
On a different tangent –
In reference to the discussion of Target: I believe Target was a unique situation. I am not necessarily an advocate of big box retail, as I, like Don Shor, believe it does have a tendency to destroy existing downtowns, e.g. Woodland. However, in the case of Target, many Davisites were shopping in Woodland at Target, which represented sales tax leakage. Davis really had no big box retail to speak of, and needed to keep those sales tax dollars in town. I believe Dr. Wu’s assessment of a $200K to $250K increase in net sales tax revenue is likely the result of having a Target in town, which is a definite positive, not to mention it hopefully will be an anchor store for more small retail.
So in hindsight, I think Target was a good fit for Davis, but that does not necessarily mean more big box retail would be a good idea. It probably wouldn’t. But a mix is good, and would include SOME big box retail. And by the way, I consider Ace Hardware big box retail, even if it technically is supposedly not bc the store was split in two. To me, it is a distinction w/o a difference.
What I do think we need is more industry that produces jobs, preferably in conjunction with UCD, particularly startup companies. My hope is that is the direction the city is headed for in terms of economic development. And of course keeping our downtown vibrant should always be on the city’s radar screen…
Elaine
“I should have thought that was obvious: doing what is right for the city”
Of course the problem is that there is not agreement about what is “right for the city”. I very much understand, for example, your position that Target was an overall gain for the city presumably because it brings back revenue from purchases made in Woodland. However, I see this in a different light. The very presence of the Woodland Target, and the Vacaville Target, and the Sacramento Targets, made the Davis Target an unnecessary bit of unattractive, and very ungreen ( throwing away excess shelving and supplies which it cost more to remove than to simply throw away as witnessed by a former employee) peripheral big box development. I do not think that this represents a constructive addition to our community, especially since it did not even bring in close to the projected amount of sales tax and as has already been pointed out, diminishes the available space and potentially detracts from the sales of smaller, more vulnerable businesses. As I remember the vote was nearly equally split on whether or not this was “right for the city”.
To medwoman: If in fact Target brings in $200K to $250K to the city coffers in sales tax revenue, is that not an asset to the city? Especially if it acts as an anchor store for more successful small retail in an undeveloped part of town? Secondly Target has only been here for a relatively short time, much of it during an economic downturn. So in all fairness, I think you have to give it some time to see what that area of town develops into. This town had no store like Target, and citizens were going to Woodland and spending their tax dollars there, which represented significant sales tax leakage. Target also provides local jobs. We many have to agree to disagree on this one…
Is tax revenue the end of story or are there other important considerations?
For instance, what if that tax revenue (if it is a net revenue) comes at the expense of existing business and makes it more difficult to get future retail to come? Also, the studies on big boxes suggest that the tax revenue might be captured at some cost, but that a lot of other money leaves because of the financial structure of the big box.
As Sue liked to point out, we liked to compare target’s revenue to a vacant field rather than what we should compare it to which is VAR (value above replacement).
[quote]Is tax revenue the end of story or are there other important considerations?
For instance, what if that tax revenue (if it is a net revenue) comes at the expense of existing business and makes it more difficult to get future retail to come? [/quote]
What business has folded and left town as a result of Target coming to town? Name one…
[quote]Also, the studies on big boxes suggest that the tax revenue might be captured at some cost, but that a lot of other money leaves because of the financial structure of the big box. [/quote]
In this particular case, tax revenue was leaking to Woodland, period. That is a fact…
[quote]As Sue liked to point out, we liked to compare target’s revenue to a vacant field rather than what we should compare it to which is VAR (value above replacement).[/quote]
But is it fair to compare Target’s revenue to a vacant set of clouds indicating there may have been trouble but who can see clearly through the mist? I agree that all aspects need to be looked at, that is a given, but I think on the whole you will find Target will be a plus for the community. That does not necessarily mean we need more big box retail, or that all big box retail is good. It just means Target was a good fit for this community under the circumstances of tax dollars leaking to the Target in Woodland because of the absence of any Target like store in Davis…
[i]What business has folded and left town as a result of Target coming to town? [b]Name one[/b]…
[/i]
Alphabet Moon.
Rather than worry about tax revenue leaking to nearby communities, which is an insurmountable problem, the best bet is to try to get tax revenue to lead into Davis.
I say bring a light rail line in from Sac.
As to the Folsom model, I think the thing that people like about what they’ve done is a unified architectural theme. It helps that they actually have an historic district, which Davis doesn’t. So it would take some real creative thinking — and financing — to develop a downtown Davis theme and implement it.
Elaine: you don’t believe some of the businesses that were operating the margins already given the recession might have been done in by Target?
The problem is that by going after Target, we didn’t do what we should have done which was invest redevelopment money into the kind of indigenous retail that could have met our retail needs while keeping more money in the community. To me big boxism is laziness on the part of planners who are looking for a quick fix and not anticipating problems down the line.
Christine Hildebrand said that there were two big hits that led to Alphabet Moon’s closing; the economy tanked and Target opened. But there was also a loss of business due to Internet sales. I really liked Alphabet Moon but businesses come and go all the time. To say one business or another was a major cause is ignoring the fact that successful businesses have to adapt to survive. There are many examples where old and admired businesses fail to adjust to the changing world and run into trouble (Kodak) and others that thrive by changing (IBM).
I return to the Borders example. When they arrived many panicked. Some moved their book stores out of town others worried they were going to bled to death. But Newsbeat and Avid Reader are still here and Borders is gone. Sweet Briar left and said that the market just wasn’t there even after Borders closed the door. It is easy to say Target or Some other new business caused the end of another business but for me that is just too much of a easy excuse. Retail businesses cycled through this town long before Target arrived and they will continue to. That’s what businesses do. Remember Discoveries? What big bag corporate outsider forced that 30+ year old Davis store to close its doors?
I originally thought Delanos would do well at the Westlake location. I was thinking back to my past where neighborhood markets filled a niche. My grandparents had one and before, during and after the war. Their Hillcrest store in McCook Nebraska is still talked about by the old folks that live in the town. However, it is long gone… replaced by a Hinky Dinky which was then later replaced by a giant Walmart at the edge of town. There is no question that Walmart caused the downtown of McCook to decline. However, the other contributing reason was a complete lack of vision for how to exploit the charm and potential of the downtown.
Growing up later in Dixon, there was a Parde Market downtown. That existed until the mid-1980s and then closed due to the age of the owners as I recall. There was a private-owned grocery store called Jumbo Market, and later than closed when Safeway opened at the periphery.
But getting back to the Westlake point… Some good friends of ours that live out by Davis Municiple Golf Course were originally thrilled to have a new local grocery shopping option other than Safeway at the Marketplace shopping center. However, later when I asked them what they thought about this new market, they said they stopped shopping there because it did not carry the products they wanted. This was an ephipany for me.
Back when my grandparents had their store there was probably five brands of breakfast cereal. When Parde Market was open, there might have been 20-30. Today there are hundreds if not thousands.
This was my ephiany… the number of brands, options, flavors, colors, sizes, shapes, functions of almost every product are almost endless. On top of that, we are spolied expecting to find just what we are looking for. Otherwise we are spoiled to shop were we can discover great new things from a set of diverse options. The challenge for small-footprint stores is to be sophisitcated at their wholesale buying. They need to know what specific products are in highest demand and then be very vigalent at managing inventory, product placement, and turn-over/churn.
I think small stores are screwed caring the type of products that are mass-produced and do not require much service and support. They are also screwed carrying the product categories that have exploded in brands, choices and options… because they simply do not have the floorspace to carry that much inventory. Unless they are experts at understanding and carrying only the most popular brands, sizes and options, they will suffer the fate of the missing spoiled shoppers that expect it. Even then, as people experience not finding what they are looking for, out of the need to convenience, they will start shopping at the larger store that gives them the better odds for finding everything they need/want. Now, add the Internet to this. Best Buy is struggling because there is even a larger selection of products at Amazon.com and with a click of a button it will show up on a doorstep next day. No driving, no parking… open 24×7.
The Internet is the ultimate “Big Box” and despite our feelings that we Davistes can control everyhting about our retail environment, Amazon just laughs all the way to the bank.
The key for small store survival is to carry a lot of one-off specialty products and products that are complemented well with great personal service. Nursery businesses and music stores are good examples. In addition, service business that cannot be aggregated makes a more stable platform. For example, restaurants and personal entertainment.
I think we need to give up the losing battle preventing big box. Instead we should enbrace the changes that are happening around our village bubble and impacting us regardless of wether we like it or not. Denial is a loosing game.
[i]I think we need to give up the losing battle preventing big box.[/i]
What makes it a losing battle? Where retail locates, and what size it can be, are basic growth management practices. Hundreds of communities nationwide have adopted them. No city has to let a retailer build a 200,000 square foot store. If that retailer wants that market, they will build smaller stores. The problem is, most cities just roll over when the big retailers come to town. You have Target. What more do you want? And you still haven’t told me where you plan to locate the next behemoth that wants to build a superstore here.
[i]To say one business or another was a major cause is ignoring the fact that successful businesses have to adapt to survive. [/i]
Absolutely. So level the playing field. Make a general plan and stick to it. If Target wanted to build a 40,000 sq ft store in Oeste Manor or Westlake, they wouldn’t have even needed a variance. They do build smaller stores. They just prefer not to.
The impact of Borders on the existing bookstores was severe. Each that remained took a 30% hit to sales. Alphabet Moon took a 30% hit to sales. That is textbook for what consultants tell us we should plan for when a big box retailer opens, if we are in direct competition with them. Some small businesses can survive that, so long as the owners don’t mind also taking a 30%+ hit in income. Of course, leases don’t go down, insurance costs don’t go down….
[quote]ERM: What business has folded and left town as a result of Target coming to town? Name one…
Don Shor: Alphabet Moon.[/quote]
I disagree. Alphabet Moon sold high end expensive toys, for a very niche market that could not sustain itself as the town loses its young children. The toys in Target are completely different from those sold at Alphabet Moon. I’ve been in both.
[quote]I say bring a light rail line in from Sac. [/quote]
According to SACOG, they have already looked at this possibility and it is not going to happen – too expensive; not enough ridership.
[quote]Elaine: you don’t believe some of the businesses that were operating the margins already given the recession might have been done in by Target?
The problem is that by going after Target, we didn’t do what we should have done which was invest redevelopment money into the kind of indigenous retail that could have met our retail needs while keeping more money in the community. To me big boxism is laziness on the part of planners who are looking for a quick fix and not anticipating problems down the line.[/quote]
You have not named any store that went out of business just bc Target came to town. Thinking it is so is not the same thing as proving it is so.
Indigenous retail? Such as what is available at West Lake? That has certainly done really well – NOT! Betcha Target provides an anchor store for lots of small retail that ends up doing well. Only time will tell…