On Sunday, the Vanguard supported the Davis City Council re-examining whether putting a permanent Agricultural Easement on Mace 391 was the best use of the city-owned land asset. While this was not support for putting a business park on the easement, the City’s Chief Innovation Officer reminded Vanguard readers that the idea of pausing the grant application process was originally floated at the June 11 meeting and that such a move would not be without consequences.
“I want to remind our own dialogue here on the Vanguard that the staff report (both original and modified) for the June 11th was to pause and take a harder look at more than just the one option for an easement,” Rob White wrote on Sunday.
The key point he raised, “Yes, it meant losing the NRCS grant funds of $1.25 million.”
“The reason that we had a June 15th deadline was because the NRCS gave staff (in writing) a deadline for making a decision to continue down the easement pathway with Yolo Land Trust or stop the easement process,” Mr. White wrote. “I believe that deadline was real and continues to present us problems if we negate the grant. The reason is because NRCS made it very clear to staff that by waiting on making decisions to execute the grant meant NRCS would have diminishing returns to be able to redeploy the funds. That is why the June 15th deadline was important… to let the agency have time to redeploy the funds.”
Mr. White continued, “The point is that city leadership was trying to quickly determine options for the Council so that we could provide them flexibility in decision-making. Sadly, none existed and it came down to a decision between abandoning the grant and take your chances on a future opportunity (regardless of what it was) OR take the grant and move forward.”
“I believe the council was asked to consider a no-win situation due to many culminating factors and they did the best they could,” he writes.
The question now as we move forward is can we still vacate the grant?
Rob White is blunt here, “Yes, but honestly it will create collateral damage to long-standing partnerships and relationships. As put to me by the NRCS assistant state conservationist, they don’t consider an easement a done deal until it is signed in ink at the courthouse steps. She shared candidly that others have negated a deal at the last minute, but realistically, this is not without consequences when you are a public agency like the city.”
“So, to be fair, the community needs to be very aware of what this discussion means,” Mr. White added.
As the Vanguard reported last week, council did make the determination to have an information-only item on the Mace 391 process to get an update on where things stand.
They did so at the urging of roughly twelve members of the business, tech, and start-up community.
As we noted in Sunday’s commentary, people who do not ordinarily come before the Davis City Council did so to push for the opportunity to develop land that could be used in a business park.
Schilling Robotics, for example, is a Davis business that might be the next AgraQuest and be forced to leave. As Tyler Schilling told the council, “We’re going to approach 300 employees here shortly and we’re going to need a bigger facility probably within two years.”
He moved here at four-years-old in 1963 and said, “I really enjoy the quality of life here and it helps us attract and retain the kinds of employees that we really want in our business. I must say that customers that visit us mainly from oversees really always comment on what a wonderful community it is that we have here.”
He wants to see Davis have options so that his company can stay in Davis and build a new and larger facility.
Bob Medearis founded the $4 billion Silicon Valley Bank where he served as Chairman from 1983 to 1989, and is now Director Emeritus. He is a retired Consulting Professor for Stanford University’s School of Engineering and, at the University of California Davis, the School of Management.
He told council, “You all know what to do on this east side, you know that we badly need business parks to develop ideas that are generated with this fine university that we’ve had and allow incubators, but more than just incubators, business to develop over in those areas.”
Ken Ouimet, Founder of Engage3, told the council that he started a Venture Capital backed company in the 1990s, and they had trouble getting funding in Sacramento County. Ultimately, they went to Arizona and became successful with one of the fastest growing companies.
“We decided to come back and headquarter our company here in Davis – we see a lot of opportunity for growth. We have already acquired a company in Sacramento and moved it here. We’re going through explosive growth,” he said, but they are already crowded in their facilities.
To move forward, he said they need additional space. “That’s one of the concerns we have,” he said. “As I talk to Venture Capitalists, I’m seeing a lot of excitement about Davis being the Silicon Valley of Agriculture. Looking forward, we’re going to need a lot of room for that growth and the technology companies that come out of that.”
As a number of people noted, this is not a push to create a Mace 391 business park, but instead a movement that the city of Davis needs to have a community discussion.
Clearly, the fallout consequences that Rob White noted yesterday need to play a role in that discussion.
As staff explained on June 11, “The Yolo Land Trust, in partnership with the City, received authorization for a $1,125,000 NRCS grant on April 18, 2011 that would be used to fund approximately 50% of the easement costs to place a permanent conservation easement on the property. The remaining portion of the easement would be credited from the Measure O funding used to purchase the property.”
They note, “Utilization of the NRCS grant would require that the escrow for the Mace Curve 391 Property undergo the following simultaneous closings to meet the legal requirements of the NRCS grant.”
“In order for the land sale using the NRCS grant to be financially whole, the City would need to receive a minimum of $1,350,000. (plus interest) to pay back the Road Impact Fee loan. The sale would also need to include enough excess so that a broker fee could be paid and the YLT would receive an endowment for ongoing easement enforcement.”
On Saturday, Rob White also laid out some of the critical financial calculations for a business park. He wrote, “Should an innovation park be approved at some future date by the city council and then the voters (because it will likely be on lands that require a Measure R vote), the city leadership are already working out shared revenue models that may be applied to capture several different lines of funding, both one-time and on-going.”
To caveat his calculation he noted: “The potential for any development of an innovation park is significant, and we have the demonstrated demand from local companies and those that would like to move to Davis. All of my examples are just that, examples, and they may (not) reflect the actual situation at any future time if an innovation park is determined to be right for the community.”
Property tax – changes to the land valuation will result in a property tax increase and will allow the city to capture a percentage (about 20 to 25%) of every dollar of property tax. The property tax rate in California is about 1% of total assessed value (though it is higher in many cities due to additional bonds and assessments for schools, levees, etc.). As a simple example, a $50 million commercial/research building can generate $500,000 in property tax, and Davis would get 20-25% of that (or about $125,000). One note: Commercial property is treated slightly differently that residential in that its assessed valuation is dependent on improvements AND leased space. And empty commercial building is therefore worth less than a full one if it stays empty for long.
Unsecured property tax – this tax is on major equipment, like in manufacturing. As an example, many current day manufacturers use equipment that can range in the $100s of millions, and we get the same property tax rate on that equipment (though it gets devalued yearly as part of the usage). The good news is that equipment technology is changing so rapidly that many manufacturers upgrade frequently.
Sales tax – equipment and retail goods purchased by commercial users gets charged sales tax and we currently get 1.5% on each $1 of sales in Davis. The extra 0.5% is due to the city measure that assessed the extra on each taxable sales and goes directly to the city (but ends in the near future, unless reenacted by a follow-on measure). Additionally, sales that are recorded in other locations by Davis residents (like cars, some things on Amazon, etc.) means that of the 1.5%, the 1% portion records to the other jurisdiction, but the 0.5% still comes to Davis.
Fees – most construction and renovation in the city has a set of fees associated with the activity. These fees are meant primarily to pay for the cost of delivering the service, so they are meant to create a net zero financial burden on the city for staff time. However, part of our fee structure contains some impact fees that go to current and future impacts created by the project. Again, I am way oversimplifying, but you get the idea.
Trade-offs as part of a development agreement – these are typically negotiated on large projects and include things like traffic and bike-way improvements. They are part of the current development environment across California (and nationally) and are based on a negotiation of what makes the project acceptable to the community. These are a fine balancing act for a city as you want to ask for as much in a development agreement as you can to ensure that a project truly enhances the community, but asking for too much can cause the developers to give up and walk away (think Lewis Homes and the previous
Cannery proposal – after spending $10 million in pre-development costs, they decided it was too much costs balanced against the requirements). We are having these discussions with the current Cannery development applicant, and there is a team of two council members, the city manager, and city leadership working on what is the right balance of asks to make the project a truly Davis project and valuable to the community, while balancing the point at which the developer no longer believes the project in their best interest.
Mr. White noted, “In the framework of a new innovation park (regardless of size or location), several tools can also be used to create additional funding sources: “
Mitigation – most areas identified in the work of the Innovation Park Task Force and adopted by Council in November 2012 include areas that are currently outside the city boundary. In order for any of this acreage to be used for an innovation park, it would require two things: a vote of the community to support annexation, and an entitlement process that would identify what and how the development could occur. Part of that process also includes the designation of at least 2 acres of conserved land for every 1 acre of developed land. Conserved land is typically qualified as that that is open space, habitat or agricultural. The city currently owns some lands that would be appropriate to have easements placed as part of that mitigation requirement and the city could get paid for that action or even barter in trade. This has many details that would need to be worked out on where, how, when, but it is a revenue potential.
Equity partner – since the city has some lands that may be used for mitigation, etc., we could require any new development proposal include the city as a type of equity partner to garner upside potentials from development. As the land gets more valuable from entitlement and development, we garner some part of that increased equity. This type of transaction would need to be extremely well understood, as it does include some risks and it needs to follow federal and state laws. But there are examples of cities doing this in places like Redwood City and Mountain View.
Leasehold – the city could possibly retain the rights to some lands it owns in fee title that would be used for development and become part of the equity stakeholders through a leasehold arrangement. This would be long term leasing, but would potentially create annual and long-term revenue streams. As any development does well, we get more upside, so our interest become aligned. We could also potentially mitigate risks because under at least one scenario, we could just lease the land and not participate in the development costs. Our share is smaller, but we mitigate our risks.
Development agreement – my early post about revenue sources highlighted that there are usually other requirements financially for the approval of a development. These are typically infrastructure and are tied to the nexus of the projects impacts on a community. But one area that city leadership are exploring is could we have an annual charge on a square footage basis for development in an innovation park? As a VERY rough example – if commercial and research space in a new innovation park is being leased at $1.50/square foot per month, could we add a 10% assessment that is revenue to the city for the opportunity to build? In this example, 1 million square feet of leased space would generate $150,000 monthly, or $1.8 million annually. Some have opined that there is enough demand in the tech world that as much as 5 to 8 million square feet could be realized over the next 15 to 20 years. To run this out a little further, that could be $9 to $14.4 million annually at full buildout and would be a percentage of the lease amount, so it would grow as values grow. And the typical commercial/research park has a lifespan of about 40 to 60 years (depending on construction). Such an assessment could legitimately generate about $360 million (low end) to over $864 million (very high end) in city revenue over the lifetime of the project. But before anyone runs out and spends this money, this type of assessment is very tricky from a land use consideration because it likely needs to be done under a development agreement and again needs to meet the federal and state legal requirements.
Construction/Tenant improvements – Something that is often overlooked in the revenue discussions is the construction, tenant improvement and then refurbishment of existing spaces over time. The materials used in this activity often come with a sales tax component. And there is state precedence that we can require most of the sales tax to record in Davis as the end user, regardless of where the materials are purchased. And no matter what, we will collect 0.5% sales tax when it is taxed at the Davis rate. Again, this is a complex situation, but it is revenue and on something of this scale, we are talking millions of dollars over the life of a project.
The Vanguard at this time is only seeking further discussion. The willingness for a city official to engage in community dialogue is important and the fact that Mr. White seems willing to lay out the good with the bad should increase community confidence in this process.
Time, however, is short and the council needs to make a critical decision in just over a week that may well heavily impact our future economic development potential.
—David M. Greenwald reporting
someone explain to me what’s the different between the land being put into an easement and the city owning the land?
If the land was in an easement, we wouldn’t even be having this discussion because it prevents any non-ag uses in perpetuity. City-owned land can be developed at the discretion of a majority vote of the city council, subject in some cases to a public vote.
[quote]City-owned land can be developed at the discretion of a majority vote of the city council, subject in some cases to a public vote. [/quote]
And this would be one of thoses cases. Correct?
DP: I found this definition useful when wondering the same question:
An agricultural conservation easement is a voluntary, legally recorded deed restriction that is placed on a specific property used for agricultural production. The goal of an agricultural conservation easement is to maintain agricultural land in active production by removing the development pressures from the land. Such an easement prohibits practices which would damage or interfere with the agricultural use of the land. Because the easement is a restriction on the deed of the property, the easement remains in effect even when the land changes ownership.
As I understand easements the city doesn’t own the land, but the owner of the land is compensated (I’m not exactly sure how) for putting a use restriction on the land.
These are rolls over questions from yesterdays article relating to this:
.[quote].idea of pausing the grant application process was originally floated at the June 11 meeting and that such a move would not be without consequences.[/quote]
[b]1. Is is still an option for the city to use $1,125,000 NRCS grant to buy easements on property’s beside the Mace 391.
[/b]
This statement may answer my question but I’m not entirely sure what it means:
[quote]”I believe that deadline was real and continues to present us problems if we negate the grant. The reason is because NRCS made it very clear to staff that by waiting on making decisions to execute the grant meant NRCS would have diminishing returns to be able to redeploy the funds. That is why the June 15th deadline was important… to let the agency have time to redeploy the funds.[/quote]”
[b]2. If question 1 is not possible and we decide to turn down the grant will it effect our ability to receive future NRCS grants?[/b]
See all these revenue generating ideas?
All of them go away if we convert the property to ag easement.
There is great irony in this NRCS grant money argument. The “use it or lose it” fear argument when the city is heading toward insolvency is almost laughable from my perspective.
The analogy is that family living in a nice house funded by 20 credit cards all nearly maxed out and with no ability to service the payment debt adding another credit card getting an offer to be given a new 700 series BMW if they also agree to not pursue ideas to increase their income.
One more thing… I work with grant-giving federal and state agencies all the time. Their memories are short. They tend to see each new program funding appropriation as another challenge to deploy that round of funding. What gets measured gets done… and what gets measured for these government programs is how much money they deploy or spend, because that then helps cement political attention and validates the existence of the programs and the bureaucrats that run them.
If this grant goes away, there will always be opportunity for another, and another, and another… as long as the program lives.
Mace 391 is not the only potential source of revenue to help with the city’s budget problems.
Rob White has said there would be consequences; you say memories are short and imply there would be no impact on future relationships with those agencies. He has no agenda. You do.
[i]Mace 391 is not the only potential source of revenue to help with the city’s budget problems.[/i]
It is the only one on the table. Are you aware of any other proposed development projects that provide this level of revenue-generating potential?
[i]Rob White has said there would be consequences; you say memories are short and imply there would be no impact on future relationships with those agencies.[/i]
There might be weighted “reliability” criteria for future grants that might have some negligible impact on Davis. However, look around and you will note that most communities in CA and the rest of the country are trying to attract innovation parks on their periphery. There is not a flood of communities applying for these grants. Davis can apply again and again and again, and each one will be evaluated on its merits, not with any “hurt feelings” problems because we didn’t use one we had been granted.
I don’t have the stats handy, but I think I remembered reading that a large percentage of NRCS grants never get implemented due to the dynamics of politics, development and community interests.
[i]He has no agenda. You do. [/i]
Interesting. Maybe you can tell my what my agenda is different than Robb, because I am not aware of it.
Sorry – “Rob” not “Robb”
[quote]Mace 391 is not the only potential source of revenue to help with the city’s budget problems.[/quote]
From Matt’s article’s is appears it also not the only property that an ag. easement can be placed on. Again I’m new to this, so I’m sure it’s been discussed, but it is there some reason, this land was initially chosen over the others Matt identified to use the grant money for? (the wording is really bad, hopefully you get my point).
Let’s assume for the moment that we could never get another USDA grant for a conservation easement b/c the CC negates the easement, and the Mace 391 is developed into a business park:
1. Approximately 800 acres will have to be conserved b/c of the 2 for 1 mitigation requirement (please read carefully – twice as many acres are conserved, at the expense of the developer, not the city)
2. The City can recoup all of its purchase price, and much, much more than the 1.25MM from a conservation easement by selling the land to a developer or participating in a public private venture.
3. Over time, city tax revenue increases significantly.
Even if USDA puts Davis on the Never Do This Again List, so what? At best, we would lose access to a relatively small amount of money (no more than a few million) over a period of many years. Has anyone asked how much money USDA allocates nationwide to conservation easements? How much does CA receive of the national allocation?
So, what happens if we scuttle the easement but don’t develop the 391? Ag land values have increased significantly since the City purchased the land. The City should be able to recover all of its investment, and probably more by selling the land. Alternatively, the city could place the easement on the land without the USDA grant, then resell. It is likely that the city could recover much of its investment, but probably not all. No big deal.
All together, given the potentially very lucrative opportunity for the city, entering into the conservation easement b/c we might lose access to USDA funds seems very, very shortsighted.
Don: [i]Rob White has said there would be consequences; you say memories are short and imply there would be no impact on future relationships with those agencies. He has no agenda. You do. [/i]
Actually, I thought Rob and Frankly both have an agenda to see the City develop economically? Are you saying that Frankly has some other agenda? Is he involved in the transaction personally somehow?
[quote]Davis can apply again and again and again, and each one will be evaluated on its merits, not with any “hurt feelings” problems because we didn’t use one we had been granted. [/quote]
I’m concerned that while they shouldn’t hurt feelings could come and would into play. I’m also worried that our “merits” might be damaged if we back out at the last minute. Not sure if either of these are legitimate concerns though…
[quote]It is the only one on the table. Are you aware of any other proposed development projects that provide this level of revenue-generating potential? [/quote]
The Innovation Park Task Force identified multiple sites, as well as a dispersed-site approach. In choosing how Davis should grow, the city council and voters will be selecting from among those sites. Whether there is a specific development proposal “on the table” is irrelevant to making the best land-use decision. And if one site is taken off the table, it probably increases the likelihood of a development proposal coming forth for another site.
So: up to this point there were three specific sites that I can remember proposed for a business park: Cannery, Northwest Quadrant, and Mace. If Cannery is approved for housing, and Mace is put into ag easement, then the likelihood of development in NW Quadrant increases.
[i] It is likely that the city could recover much of its investment, but probably not all. No big deal. [/i]
Great points Adam.
[i]If Cannery is approved for housing, and Mace is put into ag easement, then the likelihood of development in NW Quadrant increases.[/i]
Not necessarily. There are too many variables and uncontrollable for you to be able to make that claim. I don’t have a problem with developing the NW Quadrant, but we don’t know what the neighbors will say. We don’t know about the drainage problems with that land. We don’t know if there will be sufficient interest by businesses.
B. Nice – Don’t worry about hurt feelings of USDA officials responsible to distribute grant money… they simply are not like a wife that remembers everything her husband ever said and did to hold it over him for the rest of his life. For them, each year is a new year where they have a primary responsibility to move the funds to meet the program objectives. If Davis comes in with a new grant request that helps them meet their objectives, it would not matter that a previous grant went stale.
[quote]There are too many variables and uncontrollable for you to be able to make that claim. I don’t have a problem with developing the NW Quadrant, but we don’t know what the neighbors will say. We don’t know about the drainage problems with that land. We don’t know if there will be sufficient interest by businesses. [/quote]
We don’t know what the neighbors in East Davis will say about developing Mace 391. We do know what those who favor conserving ag land will say when it goes to a Measure R vote.
What don’t we know about “drainage problems with that land” in NW Quadrant? I am unaware of insurmountable problems in that regard. Do you have some other knowledge about that? (Genuine question, not rhetorical).
We seem to have sufficient interest by businesses to fill any business park developed anywhere.
[quote]B. Nice – Don’t worry about hurt feelings of USDA officials responsible to distribute grant money… they simply are not like a wife that remembers everything her husband ever said and did to hold it over him for the rest of his life.[/quote]
Two things, one have you been talking to my husband, and two, that is kinds of a sexist remark, are you baiting me?
[quote]For them, each year is a new year where they have a primary responsibility to move the funds to meet the program objectives. If Davis comes in with a new grant request that helps them meet their objectives, it would not matter that a previous grant went stale.[/quote]
I would hope this to the case. My husband works with public agencies a lot and he has a different opinion on this.
[quote]Even if USDA puts Davis on the Never Do This Again List, so what? At best, we would lose access to a relatively small amount of money (no more than a few million) over a period of many years. Has anyone asked how much money USDA allocates nationwide to conservation easements? How much does CA receive of the national allocation?
[/quote]
So I guess this would be my 3rd question: How significant to our community is the potential lose of future NRCS grants?
[quote]How significant to our community is the potential lose of future NRCS grants?[/quote]
NRCS grants are an important part of developing a network of conservation easements. Conservation easements are an important tool for the process of establishing an urban growth limit and greenbelt. So my answer would be: very significant.
“So my answer would be: very significant.”
yes but you think every inch of class I farmland should be preserved so what is significant to you may not be representative of the current needs of the community I live in.
As I have said before on other threads, this is not about “hurt feelings” from the NRCS. It’s about an actual criterion of closing effiency that we would be judged negatively on. The Yolo Land trust made that quite clear.
As for why this piece of land “instead” of others — correct me I’m wrong, but this was the land that was available. I am sure if the other properties under discussion had been available, the Council would have sought to buy those as well. [i]After all, that is what Measure O is for.[/i]
Don: [i]”We seem to have sufficient interest by businesses to fill any business park developed anywhere.”[/i]
except Cannery???
[i]Two things, one have you been talking to my husband, and two, that is kinds of a sexist remark, are you baiting me?[/i]
I cleared it with my wife first!
[i]NRCS grants are an important part of developing a network of conservation easements. Conservation easements are an important tool for the process of establishing an urban growth limit and greenbelt. So my answer would be: very significant. [/i]
One does not really need to think deeply about this to understand the motivations and concerns of those pushing it. Davis has some of the strongest direct democracy processes compared to almost any other small city. This has been strengthened with measure J. We have aoutstanding community participation. The Vanguard has added value there.
We have hit a major economic speed bump that ripped the wheels and transmission out of our forward progress. It is not business as usual.
But then there are those pushing the fear factor that if we don’t spend that granted USDA money we will lose it.
Why are they doing this?
Because they are worried about the vote.
Previously they have relied on Davis’s direct democracy processes to block development and support their NIMBYism and change aversion.
But, today they are worried. They are worried that Davis voters might value an innovation park at Mace 391 for all of the financial and other benefits that it would provide.
So, they want the city to pull the trigger on the easement so they can sleep better at night knowing that their little hamlet is safe from change… even as it heads towards a plunge off a fiscal cliff, and young families and young professionals still feel unwelcome here.
As already mentioned, the value of this parcel will continue to increase to exceed the amount of the NRCS grant. The city owns it. We have a well-functioning political process to ensure that it will not be used for anything that the majority of the residents do not want it to be used for.
Moving to put this land in a permanent ag easement at this point would be politically and fiscally irresponsible.
NRCS money will be available again if this is the direction that Davis wants to go.
[quote]But, today they are worried. They are worried that Davis voters might value an innovation park at Mace 391 for all of the financial and other benefits that it would provide. [/quote]
No, not worried, at least not in the way that you say. If the Council does become convinced to forgo the grant and go forward with the Innovation Park, it will lose the Measure J/R vote. Then we will have lost the NRCS grant money and wasted more time and money in a costly and divisive campaign, instead of putting an innovation park in a less controversial area.
What motivates me to keep bringing up the NRCS problem is your repeated unsubstantiated assertions — assertions that I have shown to be false in the past — that our past behavior won’t prevent our future success. It would be better for you to be honest and just say that you don’t care about future NRCS grants.
[quote]As I have said before on other threads, this is not about “hurt feelings” from the NRCS. It’s about an actual criterion of closing effiency that we would be judged negatively on. The Yolo Land trust made that quite clear. [/quote]
This is what I was wondering, would we actually get an official strike against us, that isn’t subjective. (something akin to a negative report on a credit score).