by Doby Fleeman
Over the past decade, the city has largely ignored the need for additional revenues necessary to support expanded infrastructure and public service programs from the past several decades.
A combination of factors is responsible for revenues not having kept pace. For years, continuing growth in population and new construction was adding incremental new revenues – revenues based on growth – through increased fees, rising sales and property taxes. And then, in the early 2000’s, that era of sustained growth came to a screeching halt. What did not stop increasing, however, were the underlying costs to maintain the enhanced infrastructure – think greenbelts, parks, bikeways, schools, roadways and the like – all products of previous growth and expansion. Likewise, growth in staffing, which accompanied the earlier housing boom, together with subsequent compensation increases in the early 2000’s, combined to further exacerbate effects of the decline in revenue growth.
With this as background, we turn to the subject of today’s commentary – the need for sustainable new revenues to maintain and enhance essential municipal services. Everybody has their own idea of what could best foster additional revenues for the city – ranging from more retail, Downtown redevelopment, higher sales and parcel taxes, an arts and entertainment district, to construction of innovation centers – and the list goes on. Others offer examples from their favorite communities, ideas that would be a great fit and make a perfect addition to the community. Put it all in a hopper and it can become a bit overwhelming.
Whether it’s the example of parking in Old Town Pasadena, breadth of retail shopping options in Palo Alto, innovative new ventures coming out of Boulder, vibrant Downtown shopping in San Luis Obispo, or Ann Arbor, Charlottesville, Chico, Ithaca, Raleigh – examples are everywhere. The common thread is a group of charming communities, many anchored by a major research university.
In the context of this conversation, and its focus on the economic drivers available to our unique community, it is important to assess both the economic success of these various models and to select specific examples where we have a realistic chance of duplicating the strategies that have worked in these comparison communities. This process is what I refer to as “taking stock” of what we have, who we are, and how we might wish to evolve as a community.
For my own reference, I have designed a kind of matrix to serve as a backdrop as I try to begin comparing. I feel that knowing who we are and having a realistic understanding of our current standing in the regional economic pecking order are critical to making informed decisions about our better and best options going forward.
Keeping in mind that I am neither a planner or an economist, just somebody who likes to “keep it real” – I offer this simple, subjective matrix as a possible tool to aid in better understanding our core strengths and opportunities as we discuss possible development options for increasing our volume of economic activity within the community. It is important to understand that each of components of this matrix is intended to address the intrinsic and man-made attributes with the potential to influence economic activity within the community.
The more economic activity conducted within a community, the greater the economic multiplier effect, and the more revenue available (net of corresponding service costs) to finance essential and optional community services. Visitor footsteps play a tremendously powerful role in determining the level and degree of economic activity conducted within the host community. Whether it’s visiting to shop, to drink and dine, to see a major sporting event, to indulge a passion for sport or adventure, to learn, or to work – each of these activities brings with it a unique spending profile by both the businesses and their customers.
The bigger the ticket and the more frequent the transactions = the larger the take. Viewed on a per capita basis, these are all factors which contribute to the numerator. And, then there is the denominator – but that’s a topic for another article.
As we go about the process of taking stock and seeking context, I would encourage you to ask: “As new choices and opportunities are presented, how does each compare in terms its potential contribution to the city’s economy, quality of life and Davis’ strategic economic value proposition within the region?”
Doby Fleeman is a co-owner of Davis Ace Hardware. This editorial originally appeared in the Davis Enterprise and was submitted to the Vanguard by its author.
Doby
First I want to thank you for your efforts to bring some structure to this conversation. I found your matrix a really thoughtful and interesting way to frame a comparison.
“And then, in the early 2000’s, that era of sustained growth came to a screeching halt. What did not stop increasing, however, were the underlying costs to maintain the enhanced infrastructure – think greenbelts, parks, bikeways, schools, roadways and the like – all products of previous growth and expansion.”
I totally agree with this statement and see it in a way that you may not have intended…..as a cautionary note about the limitations of the benefits of growth. “Growth” now being couched in terms as if it were only economic, will bring with it demand for increased population as well. “Growth” in and of itself is not an exclusive benefit. If it were, we would all be on board. It comes with its own sets of costs just as has been demonstrated by the “bursting” of a number of growth “bubbles” during my lifetime. I think it is very important not to fall into the false dichotomy that growth = good, whether economic or population, and that lack of growth = bad or stagnation. There is the potential for a third way which acknowledges that some change is necessary without leaping onto the rapid growth bandwagon which frequently leads to imprudent over expansion with the inevitable burst or decline.
Applying the brakes while still pressing on the gas will only lead to a broken car or a crash.
Tia, I agree with you. The way I read this is we get short term (less than 10 years) increased income from residential growth but an ongoing increased in cost of providing and maintaining infrastructure and services which means we are slaves to continued growth and the more peripheral the growth the higher the cost to the cities. The article says the era of sustained growth came to a halt in the 2000’s. We grew 8.8% that decade! That isn’t sustainable growth! Instead of looking at what other California cities are doing, which is growing to cover last decade’s increased expenses, we SHOULD look at how much each new project costs us over time and who much revenue it brings the city over time. If we are like a family who has to keep taking out more loans to make ends meet, we have a problems. And my understanding is that is the state of city financing in California. If it is a systemic problem (and I believe it is) growing will only postpone disaster.
That is the point. We grew in population while we curtailed development.
So what is it that you and Tia are trying to accomplish? Are you demanding that we stop allowing more people to move here and go to school here (UCD continues to expand), or are you just demanding that we do not develop and force higher and higher population density?
I frankly, because I am, don’t think either of you are in possession of a complete rational argument relative to this topic. At least I have not heard enough to understand how you would connect all the dots.
Please explain the city you would like Davis to be in 10-20 years.
DB: “We grew 8.8% that decade! That isn’t sustainable growth!”
We have mandated that our housing growth will be capped at no more than 1% per year, with some arguing for a cap of 0.5%. By most any analysis this is a slow rate of growth. 1% growth per year translates to 10% per decade, so the 8.8% number you quote is an example of slow growth.
I might agree with you however that the 8.8% growth per decade is likely not ‘sustainable.’ The regional population growth, not to mention the continued growth of the University, will prove that this growth rate is too slow to be truly sustainable.
That said, the topic of discussion is the need to economic growth, not that of housing or population.
Yes, there is a difference between residential growth and economic growth. The two are not one in the same.
Doby – Fantastic piece. Succinct and pointed.
I like the matrix. It provides a good backdrop for discussing Davis in context of other progressive communities.
One question – “Geographically Situated Magnet Hub”… I’m not sure what you mean by this. Please explain.
Related to this, I think there is another Matrix we can use… it is these things related to our opportunity. For example, Davis is actually very well situated geographically to attract tech business. Ever community that we would identify as a magnet hub was at one point not a magnet hub. And there are many communities that would love to become a magnet hub, but lack the opportunities to do so.
Davis is lucky in that we have the benefit of opportunity… unless we squander it…something that is an unfortunate probability.
To answer your question, I have identified “Geographically Situated Magnet Hub” as a community which, by virtue of its geographical circumstances, is located “at the trading crossroads” of a larger region, which result in a much larger effective “local community of demand”. Measured on a per capita basis, the increased volume of economic activity/retail sales is highly amplified by the presence of a regionally dominant trading or employment hub.
The examples I have included:
Boulder, CO – 40 minutes by auto from Downtown Denver. Boulder County, alone, has 300,000 residents, plus the fact that the native population of 102,000 versus our 66,000 sets a higher baseline shopper count for prospective retail outlets.
Chico, CA – 35-40 minutes from next largest communities and far from a city of 250K-500K (Sacramento) making it much more viable as a natural, regional draw and a logical location for the magnet retail development and investment.
San Luis Obispo, CA – Again 35 minutes from the next nearest comparable sized community (Santa Maria) and far, far from a major metroplex. In addition, they enjoy the natural bounty of their adjacency to the Pacific Ocean and serve as a true regional “Destination Resort Location” for the central coast and for residents of Fresno/Bakersfield. Lastly, they also serve as the County Seat which, of itself, offers a number of jobs plus forces everyone in the county to San Luis for Court appearances and other essential government services. It’s all about footstep drivers.
Davis, by comparison, is located 15 minutes from Downtown Sacramento (and has been since the advent of the automobile). In more recent years, our “comparable” adjacent neighbors have adopted strategic, Developed Retail Hub strategies to “increase economic activity and to increase visitor/shopping/spending footsteps”, thereby placing Davis at further competitive disadvantage.
While the University, the town, and the local economy have grown dramatically over the past several decades, how has this growth translated to significantly increased “per capita retail sales” which tends to be a proxy for the growth in overall economic activity which ultimately feeds into the revenue base supporting essential municipal services?
In the simplest of economic terms, it can be boiled down to one question: “What has our strategy been?”
Doby
“Davis, by comparison, is located 15 minutes from Downtown Sacramento (and has been since the advent of the automobile). In more recent years, our “comparable” adjacent neighbors have adopted strategic, Developed Retail Hub strategies to “increase economic activity and to increase visitor/shopping/spending footsteps”, thereby placing Davis at further competitive disadvantage.”
This for me is a very critical point. The most important thing for me is not to consider what our strategy has been, but what our strategy should be going forward. Doby has also provided a critical phrase, “competitive disadvantage”. I think that it is safe to say that most of us would not favor attempting to turn Davis into a city of similar size to Sacramento and competing as a “destination hub” for large city scale activities, a competition we could not possibly ‘win” in any event due to the physical presence of the capitol in Sacramento. Instead of our old and current model of “competition” what I would like to see is for Davis to frame our strategy going forward in terms of how we can best collaborate with and contribute to the region. I would like us to give equal consideration to how we function collaboratively within the region and how we meet our own financial needs. I do not believe that competition need always drive our decision making. I believe that a truly sustainable future will depend as much upon how well we collaborate as on how we compete.
Tia,
By my use of the word “comparable” I was hoping to clarify that this particular observation was in reference to our near neighboring communities of similar size – not Sacramento.
But now that you bring it up, the subject of collaborating with other communities within the region, the university has been more than generous in sharing the bounty of its resources within the region. Whether we look to the example of the UC Davis Med Center and the 10,000 jobs its supports in Sacramento, the more recently completed GSM campus in San Ramon, the UC Davis Bodega Marine Laboratory, or the more recent discussions of a World Food Institute – it would be difficult to assert that the broadly defined Davis “employer community” has not been collaborative in the sharing of “its” resources (keeping in mind all the while that the university is “its” own entity and we cannot presume to speak for its policies).
But the main point of this discussion continues to focus on “going forward” – “Who is going to be picking up the tab for our ongoing ‘cost of operations’? By your comments, you appear to be a very generous and compassionate participant. There are others, many others, in the community who – while also generous and compassionate – do not understand why they are likely to be confronted a new round of “bills” for deferred city maintenance tasks. Many are of the mind that that’s why we all pay taxes – already.
So, this conversation about who is going to be picking up the tab will be coming back around in the near future. While we all value collaboration and teamwork, there does seem to be a general sentiment that Davis does need to look out for its own finances – first and foremost – and then we can talk about collaboration.
Just saying, there is a great variety of opinions on this issue and only time will tell how best to balance the books.
Here is Davis growth from Wikipedia. Who can explain these numbers as slow growth?
Historical population
Census Pop. %±
1870 500
—
1880 441 −11.8%
1890 547 24.0%
1900 700 28.0%
1910 800 14.3%
1920 939 17.4%
1930 1,243 32.4%
1940 1,672 34.5%
1950 3,554 112.6%
1960 8,910 150.7%
1970 23,488 163.6%
1980 36,640 56.0%
1990 46,209 26.1%
2000 60,308 30.5%
2010 65,622 8.8%
If we add 4 innovation parks and assuming they are successful we build houses for some of the people who work there how many will we have in 2020 and 2030? And if each addition isn’t self sustaining how much deeper I. Debt will we be?
There is no reason to assume we will build houses for the people who work in the business parks. Measure J/R has completely curtailed residential growth in Davis, and given the margins of the votes I’d say it’s likely to continue to do so. But here is a graphic illustration of the growth of Yolo County cities. At one time, Davis was the fastest growing city in the county.
Basically, peripheral business parks would provide:
— jobs for some people in Davis.
— jobs for a fair number of people in nearby communities.
— revenues from development fees and various negotiated fees and payments from the developer.
— revenues to the city from property tax value increases, unsecured property taxes, and sales taxes.
— possible revenues to the city from special tax assessment districts.
— some possible revenues to the county, still to be negotiated.
— sites for expansion of some local businesses such as Schilling and Marrone.
They would have some costs:
— added infrastructure for utilities, water, etc.; presumably self-financed.
— added service costs for police and fire protection.
Residential development has some of the upfront fees and generates the ongoing increase in assessed property values, but little else. Thus the cost of providing city services gradually erodes the benefits from residential development. But the income generated from business parks continues and comes from more sources than does the income from residential development. So it is less likely that a peripheral business park will eventually become a net cost to the taxpayers, whereas it is very likely that a residential development will. The risk is slow build-out and periods of vacancy.
Good post Don. Another succinct explanation.
It would be interesting to graph housing development growth. I would expect a lower slope for Davis. Basically, we have caused more single family residences to be converted into multi-room rentals.
Don,
Excellent observations. Spot on!
I have no problem supporting the expansion of existing businesses. I think they are both on relatively small sites, around 5 acres, does anyone know how much land they are hoping to use in expansion? It seems like developing ONE of the four sites with two existing tenants would be a good place to start. You have to start somewhere and presenting four (plus Nishi) upfront seems like overkill. Start with one. Surely they can’t all be built, developed and populated simultaneously.
I remain suspicious of corporate money that funds research for the private sector using university facilities, personnel and takes the resultant research and provides more money for developing commercial products. Call me a skeptic but I doubt the innovations will be in the public interest but will make more money for mega corporations. However, there seems to be an overwhelming push for this sort of project and mostly I have read comments that support additional housing to meet anticipated increased demand from new employees. IF we can agree that new housing does not generate a net increase in revenue and is therefore uneconomical for the city. AND we can focus on ONE business park, we are more likely to have public support.
“IF we can agree that new housing does not generate a net increase in revenue and is therefore uneconomical for the city.”
The analysis on the economic impact of new housing at the Cannery showed that it was the continued unfettered growth in public employee’s compensation that was responsible for the cost of services outstripping the increased revenues in the out years. If we control the growth in employee compensation costs, then new housing will also create a net positive economic impact for the City. This issue points to a spending problem, not a revenue generation one.
Thanks Don,
The risks are slow build out and periods of vacancy. We have those same risks with the commercial property we have currently. I think it is realistic to assume it is less likely that a peripheral business park will be a net loss to the taxpayer. That is very different than ‘it can bring in $12 million a year plus sales tax’. The really really rosy picture that gets painted makes me nervous and cautious.
Yes, I think it’s important to be honest about the time frame and not overstate the income. On the other hand, this is what is being put out there:
From the comments to a Davis Enterprise article about Rob White:
I have seen Sue make this statement before.
Don
I do think that you have provided a fair succinct summary. I also think that you left out a couple of items of concern for me.
So on your costs side I would add
– increased automobile congestion with time spent in traffic, more exhaust, more frustration, less healthful activities
– more need for additional businesses to support the new workers and population
– possibly more need for schools and all the support personnel for them
I know that I am swimming upstream here because our culture is one that hinges on the idea that “more is better”. We see this in almost every aspect of our lives. Larger portions have become the mantra of all but the most upscale restaurants. Two for one sales..
Wow, that must be a real bargain. Never mind that you may not have needed even one…..but you can’t pass up a two for one sale.
“The more you spend, the more you save”….whether you need the “stuff” or not.
Supersize me ! Vibrant has become a charming buzz word for more people doing more things in a given space. This concept of more people out and about is very seductive to me. I love living near the downtown precisely because it is vibrant. But at what point does increased “vibrancy” become an impediment to other desirable features of a community, peace, tranquility, safety, familiarity ?
We can see this in the varied reactions of our community members to our annual migration of students. While some of us love the excitement of the arrival of the students every year, others long for the summer months when most will be gone and things “calm down”. Our “more is better” philosophy does not allow for the preferences of those who prefer the “slow down” times.
Unfortunately this idea of growth and “more” as unquestionable ideals while very seductive, so much so that they drive our consumer culture, they also have spilled over into the idea that more is always better in all areas of our lives.
Frankly made a very honest statement when he sad “I think it is fair to say that we have a current deficit of housing even in consideration of a slow-growth Davis DNA. So pressure to increase housing does exist. And by building and populating new innovation parks, that pressure is likely to increase. We can be honest and frank about this.”
And then he goes on to imply that because we already have pressures for growth, we can essentially dismiss this as a concern.
To me, if one already has pressure, choosing to add additional pressure in the same area is probably not a good solution.
If anything, this would be an argument to attempt to alleviate the pressure, not to add to it.
As I have posted previously, it is possible to add jobs without adding houses. As example, Palo Alto purports to host 120,00+ daytime workforce, yet has only 66,000 residents – exactly the same population as Davis with our 32,000 jobs.
As regards the growth trajectory, and as highlighted in the article, it is the growth rate from the past decade which has much to do with our drop off in development related revenues (not that they are repeatable or sustainable, but they did cover a multitude of expenses in the heyday).
And, for the record, I am not an advocate of “growing our way out of the current structural fiscal deficit simply by building more houses.” This is not the issue, but the absence of a “strategic business plan” for how to backfill for the loss of that building-related “economic activity”. In many respects, “that was our industry – the homebuilding industry” and I believe that topic of “What Comes Next?” is a valid topic for discussion.
Per our City of Davis Annual Financial Reports:
2003 64,259
2013 66,471 3.44%
Thought this additional information might be of interest to the discussion.
One of the basic problems in this ongoing discussion is the continued effort by some to equate economic development with population growth, and then to use the fear of uncontrolled population growth (and concomitant ‘sprawl,’) to argue against growing our economy. While the two forms of growth are certainly related, they do not have to occur at the same time, or at the same rate. In fact I believe that what Doby is pointing out is that we allowed our population to grow, but failed to expand our economy in a balanced way to help pay for the increased costs of services associated with that increased population and housing growth.
We have a shortage of jobs in Davis, and a shortage of business development. We need to expand our economy so that we re-balance the growth of our economy with the population growth that has already occurred (not to mention the future growth that we have committed to as part of our regional responsibility). Yes, expanding job opportunities in Davis will increase the demand for housing here as people want to live and work in the same place. In reality however, there is already an extremely high demand for housing in Davis, so using the fear of high housing demand as a reason to block economic development is a nonsense argument as any incremental increase in demand due to economic development will be negligible compared to the situation that already exists.
Great points Mark. I completely agree.
I think it is fair to say that we have a current deficit of housing even in consideration of a slow-growth Davis DNA. So pressure to increase housing does exist. And by building and populating new innovation parks, that pressure is likely to increase. We can be honest and frank about this.
But we are already in the midst of pressure to build more housing and the population is very selective about what it will accept. The employees of these new companies will not be able to vote on Davis’s Measure R proposals. They can certainly make their case and appeal to the community senses for building more housing, but ultimately that decision will be controlled then as it is today.. but the existing resident voters.
So you are absolutely correct that the attempts to connect business innovation parks to housing is either a disingenuous or ignorant tactic by those that oppose the business innovation parks.
Growth hasn’t helped San Jose
• San Jose. Being home to much of Silicon Valley’s tech riches has not spared the nation’s 10th-largest city from financial stress. The city has run 11 consecutive general fund deficits, and though it still has reserves, Standard & Poor’s downgraded San Jose’s credit rating in 2012 and branded it with a negative outlook, saying it still faces “long-term structural pressures.” The city has cut workers’ pay 10% and outsourced jobs but still foresees a $5.5 million deficit next year and nearly $14 million the year after. City officials say their biggest problem is retirement costs, which soared from $73 million in 2001 to $245 million last year. Cuts in public pensions approved by voters last fall are being challenged in court by unions. “Long-term budget obligations have outgrown the current revenue structure,” Standard & Poor’s said in January.
Your example is not an argument against growth, but rather an argument against over spending, specifically against over spending on public employees’ total compensation. Davis has the same problem.
Davis has the same problem, but the Davis no and slow growthers have actually done us a favor. Davis now sits in the enviable position of having a deficit of economic development, and a bounty of economic development opportunity. San Jose does not because San Jose allowed pretty much unfettered development while they committed 125% of all their tax receipts.
Over the last several decades, especially the mid 1990s through the mid 2000s, state and local politicians spent and committed well over 100% of all receipts. The largest over-commitments have been government employee retirement benefits and employer-paid healthcare benefits. The latter is being dialed back a bit, but the former was legally locked into contracts that cannot be easily broken.
So if not economic development, what are we going to do?
We can certainly attempt to raise property taxes, but we would need $800 per parcel in additional tax to completely fund our shortfalls in general operations and infrastructure maintenance.
Or we can let the city slide to fiscal insolvency where we can declare a fiscal emergency and use that to allow us to go back to adjust pensions and previously committed retirement benefits. But while we wait for that to happen, we will cut programs and allow our infrastructure to crumble even more.
Anon
“Yes, there is a difference between residential growth and economic growth. The two are not one in the same.”
Agreed. And I do not believe that anyone is making the argument that they are the same. However, Frankly ( since he is) honestly acknowledged that they are linked. To me this means that we cannot honestly and frankly discuss one without also discussing the other.
“there is a difference between residential growth and economic growth.”
There is also a difference between economic development (creation of a product or service that then benefits the city tax base) and stealing mass quantities of money from US taxpayers for an vastly overpriced and unneeded infrastructure project (so-called rail relocation). Not arguing the flood control isn’t needed, rather arguing that flood control can be accomplished without so-called rail relocation, at a fraction of the cost, and the rest is stealing from US taxpayers. We made get infused with hundreds of millions of dollars, but those dollars are not created nor necessary for critical infrastructure, therefore they are “stolen” from taxpayers nationally for Yolo County. Immoral and wrong.