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One of the biggest criticisms of housing projects is the perception that they are fiscal losers for a city. What is fairly certain at this point is that the city staffers and the Finance and Budget Commission are working and refining fiscal models in order to make them more accurate.
This week the Finance and Budget Commission looked at a work up on the Nishi fiscal model. That is of course a bit tricky, given that we don’t have a firm project proposal as of yet and whatever findings we have are preliminary at best.
The city staff and ultimately the commission agreed that the project was modestly fiscally positive over a 15-year period. Over the last few months, one of the big questions that the Vanguard continues to raise is whether a 15-year time horizon is appropriate. A long time city employee who has held a variety of different positions in different cities told me recently that anything beyond a 10-year estimate is, at best, speculative.
To my point, however, I would argue that at some point you are no longer looking at fiscal impacts from development. Instead, you are looking at city fiscal conditions. How and when to draw that line is a question that has not been fully resolved.
My reasoning here is quite simple – how does a project go from positive in year five to negative in year 15 (if it does)? The answer here is not due to the development itself. Whatever additional
costs there may be have already been borne by the city in year five. No, what makes it go from positive to negative is the fact that our cost of labor is increasing at a citywide level faster than our stream of revenue.
In short, that leads me to the conclusion that our housing projects themselves are not net negative investments for the city. Rather, our city’s fiscal model itself needs to be refined. We either need to do a better job of containing costs or a better job of finding revenue.
Either way, this is a citywide issue, not a site-specific one.
During the time the Vanguard has existed, we see the city takes fiscal analyses far more seriously these days than it did back in 2008. While the city has not perfected the models for development fiscal impacts, they have taken care to make sure that direct impacts are mitigated through impact fees and that the numbers more or less pencil out.
In addition, the Finance and Budget Commission has worked hard to analyze the impact of projects on the city budget and worked to refine and improve on existing models.
The commission voted 5-2 to support the staff finding that the project is net fiscally positive. The commission in their motion declared, “We also generally concur with the estimate that annual ongoing revenues and costs for the city from the project would be modestly net positive over time.”
However, one commenter on the Vanguard, who apparently attended the meeting, has repeatedly posted a link to a commissioner’s alternative analysis and proclaimed that the truth is likely in the middle between the net fiscally positive findings by the commission and city staff, and the huge $11 million hole found by Commissioner Ray Salomon.
I reached out to Dan Carson, Chair of the Commission, to better understand Mr. Salomon’s analysis and I quickly have concluded that the commission is correct to have backed the city staff model – imperfect as it may be.
Here are some of the key differences.
First, he assumed lower amounts of taxable sales for students than in the city model. While that might make sense, the city model was already adjusted to assume a much lower sales tax per capita for students than the general population.
Second, Mr. Salomon assumed that assessed values of property, upon which the property taxes are levied, would grow more slowly for the first five years of the project than the city model. The city model assumed two percent growth in assessed value throughout the period, which is the maximum permitted under Prop. 13.
But those are fairly small compared to the expenditure estimate differences which, according to Mr. Carson, were significantly higher than those in the city model.
In year five, Ray Salomon assumes that the costs for the city to provide services to Nishi will be around $1.6 million. That’s nearly twice the amount the city model estimates.
“It is clear from an examination of the spreadsheets that he does not correct for a double-counting of some administrative costs that was corrected in the city staff model,” Dan Carson explained to the Vanguard in an email.
He continues: “As a result of this and other technical differences in the estimates, for example, Ray assumed the cost per DUE (dwelling unit equivalent) is $898 for police services and $472 for fire services. The city staff estimate is $475 for police services and $211 for fire services.”
In fact, the commission came to the conclusion that the city staff estimates for city service costs are not only reasonable, “but actually could be overstated.”
Here is a key example. Mr. Salomon assumes that costs for police would amount to $557,000 after buildout in five years. That means that at roughly $150,000 in total compensation per officer, the city would end up hiring 3.7 officers to account for a single apartment complex.
That doesn’t seem likely to occur, especially since the city police have been asking, as it is, for additional officers over the last few years and the city lacks the budget for those.
Mr. Carson writes, “We concluded that a lower cost assumption of $300,000 was reasonable to use, while expressing concern that even this number is likely overstated. The EIR for the original Nishi project states that the costs of providing police coverage to a much larger project would be nominal.”
These are just basic examples. Likewise, particularly with boundary drop, the city is not going to need to add firefighters based on this development. The city at some point might add a fourth fire station, which would of course require a number of new firefighters, but that remains a long way off as the city cannot afford to add the millions to the city budget for additional fire service and would not be doing so in response to such a modest development in a location already close to both the central fire station and the UC Davis fire station.
The problems with Mr. Salomon’s analysis illustrate a larger issue. Even with the city projections, a good deal of these added costs are only theoretical costs. Unless the city actually adds staff as the result of the development, the city is not really adding costs. Moreover, even if you account for the theoretical incremental increase in cost of service as the result of new residents, the project is still fiscally positive at build out.
Where projects move toward the negative is not in year five when they are assumed to be built out, but year 15, when the increased costs of labor have outstripped the projected increases to revenue.
There is a solution for that and it has nothing to do with development.
What the city needs is to have accurate impact fees to cover actual costs and then, at the city level, they need a cost containment plan to keep costs for all city services from escalating out of control.
—David M. Greenwald reporting
How much more viable would Nishi be if on about 1/4 of the space there was a commercial activity that was operating relatively successfully? (I realize that this is vague but just trying to get a basic idea of how it compares to housing — what were the 10 to 15 year projections for Nishi 1.0?).
It appears to be viable as it is. About $3 million in the black over 15 years. Would commerical space improve on that? Perhaps, but the developers decided after losing last time to go with the university-campus only access which I guess they believe eliminate commercial viability.
It’s possible to have commercial activity there with reasonable automobile access – not via Old Davis Road – not to mention direct bus and connected rail service – that if done right does not significantly impact the 80-Richards area, and reduces impacts to the intersection from Lincoln40.
I’ve mentioned it in this space many times.
Perhaps the city could contract with UC to provide fire services for Nishi.
In effect, boundary drop will mean that UCD is often the first responder into Nishi.
I could almost “feel” that David would create an article like this, due to his frustration in discussing this yesterday (and many other times). I couldn’t even get halfway through the article, until this jumped out:
This is factually incorrect. Additional costs to the city created by a new development increase every year thereafter, generally faster than revenue increases allowed by Proposition 13.
This sentence then inappropriately “blends” the increased amount and cost of services into the entire city budget. Thereby allocating those increased costs to the entire city.
Again, existing development within the city is already not raising sufficient revenue to offset the rising costs of city services. When there’s a structural problem such as this, adding to it only makes it worse.
Residential development is not intended to be a source of increasing revenue, it is a service provided by the City to create shelter for residents of the region. The goal is for residential development to be net neutral from a fiscal perspective, and the analysis here suggests that Nishi will be just that.
It is the commercial development that provides the source of sustainable revenues that will pay for City services beyond those needed for the development itself. We should build housing to meet the needs of area residents, but if we want to start paying our bills with sustainable revenues we need to increase commercial activity by expanding commercial development.
Mark: I think the other point is that the city has to do better at cost containment across the bard to insure that new development and existing development don’t create a fiscal hole.
David –
I seem to recall that I have been talking about cost containment for some time, but there doesn’t seem to be much interest in the topic. The CC majority and the CM would rather raise taxes on everyone (making the City a more expensive place to live) or cut services, instead of looking for more cost-effective ways to provide those services. Until the CC majority accepts responsibility for our fiscal crisis and starts responding appropriately, we will continue on this status quo path of ever-increasing taxes and costs.
Mark… “cost containment” is a good and needed concept… but there are dozens of views what that means… some of which I strongly support, others I strongly oppose.
Concreteness, with possible $ saved, and ‘avoided costs’ is what really hasn’t been articulated…
I agree, Howard. The problem is that we are not in the position to come up with that information sitting on the outside. It takes the CC majority directing the CM to carry out the necessary assessments and come back up with alternatives. Our current CC majority won’t even ask the questions so real cost containment isn’t possible until they take responsibility.
Regarding cost containment, I recall (at the same finance and budget committee meeting) a suggestion from Mr. Salomon that new taxes (if enacted) be focused on “paying down” unfunded pension costs. (To save money, in the long run.) However, I also recall that Mr. Salomon (and some of the others) did not support new taxes, presumably due to inadequate cost containment.
I feel somewhat uncomfortable in relaying information based solely upon what I recall (and which may be bordering off-topic), so if anyone wants to clarify/correct this information, I would welcome it. (Perhaps another topic that David can clarify, if he chooses to contact Mr. Salomon or others on the commission.)
In any case, I understand that the commission was asked to provide input to the council, regarding new taxes. There were several different motions regarding this subject, with varying outcomes.
Eventually, the minutes of the January 8th meeting should be posted on the finance and budget commission webpage (which should allow anyone to view the motions and results, including how individual commissioners voted). It does not appear to be posted, yet.
Ron… you mentioned “paying down” underfunded pension and PREB… makes sense… a strategy on mortgages, particularly in early years, is to add an extra ‘principal’ payment each month… accelerates the paydown big-time. With mortgages (particularly 25-30 year ones), are predominately “interest” in the first years… not sure how similar that would be for the existing pension/PERB obligations…
Thanks, Howard. It is (at least) an interesting suggestion, which was not fully explored.
Well, one of the analyses suggests that. The other, not so much. 🙂
Seems like we had such a proposal (at Nishi), at one time. Not to mention the commercial/industrial sites within town that are proposed for conversion to residential. (One of which was already approved.)
“Unless the city actually adds staff as the result of the development, the city is not really adding costs.”
Wow. Did you just say that if additional city staff are needed on the basis of increased population, even if concentrated in only one area, and that said staff are not hired, we are ok because it is not adding cost? Are we really alright with not meeting the anticipated needs of all of our citizens in order to keep costs down ?
Tia: Glad that you pointed this out. Yes, David really did say that, and has done so multiple times in previous articles. It assumes that staff currently have “unused” down time, in which they have no duties to perform. In addition, it ignores overtime (e.g., police/fire) which can be created by adding more work.
Perhaps most importantly, it does not account for the “tipping point”, in which additional staff are needed as more developments are approved. David has yet to state how the costs of that “tipping point” should then be allocated, in his view. (For example, should that cost be allocated entirely to the last development approved? Or, to the entire city?)
So, as I was saying yesterday, the Vanguard and others are pushing for adding more and more housing without thinking about the consequences. Here, the consequences are either added expense for staff or having insufficient numbers of police/fire (and other staff) to deal with the added residents. Are those consequences that are good for the City — good for anyone?
What do you see as the consequences and how are they reflected here?
Your statement was false yesterday and it remains false today. The F&B commission is tasked with thinking about the consequences. It has done so. That is how the process works. And the numbers of housing proposed are within the voter-approved 1% growth policy.
You are welcome to debate the policy implications, but continuing to assert that people are not considering the consequences is false.
No, the F&B commission is tasked with looking at the finances. Not all consequences are purely financial.
And other commissions review the projects for other consequences.
Your assertion, repeated and now doubled down, is false. The community has a process for “thinking about the consequences.”
Don: It’s “arguable” (to say the least) to suggest that the Vanguard is not constantly pushing for more housing/development, or objectively reporting the consequences.
In reality, I suspect that most readers, even those who agree with the Vanguard’s agenda, recognize this.
Please oh please let us understand these non-financial consequences.
And in anticipation of what I can only guess they might be, can I help pay for the needed therapy? Maybe we can do it in group form with all those so afflicted.
And I am well familiar with that process, since, as you may recall, I am part of it. So I will say again that I don’t see anyone talking about the cumulative consequences of different projects, nor the particular consequences of not adding police and fire and other staff, if that is what the financial projections assume.
To add to Don’s point, I spent a good deal of time going through the fiscal model here, talking to various people, etc. What I get in response to spending a lot of time is what I call a lot of side talk, no one wants to address the numbers, they have other points to make. I get it, but can’t we agree that the project here will reasonably pencil out and that you have concerns about the impact of growth that extend well beyond the fiscal analysis? That’s certainly fair.
David
No. My point is not about the numbers at all. It is about exactly what I said. At what point do we consider it ok to not hire to meet anticipated needs and then consider that a win since we are not adding to cost? This point would be the same regardless of the target number. I did not make this up. I quoted you and am sincerely interested in your response, or Don’s.
Tia: I was referencing Ron, not you in that post.
“Did you just say that if additional city staff are needed on the basis of increased population, even if concentrated in only one area, and that said staff are not hired, we are ok because it is not adding cost? Are we really alright with not meeting the anticipated needs of all of our citizens in order to keep costs down ?”
What I said is that a good deal of those costs are estimates on police and fire cost increases. The reality is that the result of Nishi will not be to trigger additional hires in either area and so the cost estimates are theoretical.
I’m not taking a stand on the financial analysis because I haven’t looked it over. What I am responding to is the exchange that you and Tia are having. And it does seem to me that you have to choose between added expense for staff or having insufficient numbers of police/fire (and other staff) to deal with the added residents. And you are choosing the latter. That is disturbing.
But it is also true that I have concerns about growth that extend beyond the fiscal analysis — in particular, I am not seeing people taking into account the cumulative impacts of all the developments that are being proposed.
David: Here’s exactly what you said (above). And, you’ve made similar statements many times in previous articles.
And, this was my response (to Tia):
It’s (once again) becoming rather humorous. I have to do some other things today, so I’m not sure if (or when) I might respond further.
Roberta – calling you out on this. It is either NIMBY BS, or you should be able to quantify it.
I did not say that the “truth is likely in the middle”. However, the Vanguard did not even report on this analysis (which actually shows an ever-increasing, $13 million dollar deficit by year 15, if NPV is considered). I also pointed out that the commissioner offered to provide additional analysis, which could impact the conclusion (in either direction). That’s the bulk of what I said in yesterday’s article, yet David seemed to become quite defensive in his comments, after that. (Making statements such as “I like the number” in Salomon’s analysis.)
I was simply pointing out the existence of the analysis, which one would never know of, if you rely solely upon the Vanguard.
Have you “reached out” to Ray Salomon (or the other commissioner who opposed the staff’s findings) for a response? Also, have you reached out to a third commissioner (Matt Williams), who also raised some concerns at the December meeting? (Matt did not attend the January meeting, discussed above.)
Readers please note that I have posted specific problems with the alternative model, and Ron has not addressed any of them and instead has focused on peripheral issues
Again, I have not attempted to defend either of the two analyses. David has chose to defend the one that was created by staff, and has only sought input to support it. (And, only after failing to even report on the existence of the other analysis.)
You Still haven’t. I’m not going to say anything more here until you address the problems that I specifically cited in the Ray Salomon analysis.
I’d suggest that you reach out to Ray Salomon, regarding that. He would be in a much better position to respond.
Have you attempted to reach out to Ray? Or, to the other commissioner who had concerns? Or, to Matt? (Ray would probably be the best person to ask, since he created the analysis.)
David, how many times does Ron have to say that he isn’t defending the Salomon analysis? But it seems you’d rather criticize it without actually contacting Salomon himself.
It’s a weird thing Roberta, he’s “not defending it” and yet he’s putting in out there as a viable alternative. So he’s basically having his cake and eating it to.
I disagree. I think it’s reasonable to say that there is another option out there that we should examine before coming to a conclusion.
And I examined it – I spent a lot of time doing so and believe it is flawed. My frustration is that Ron won’t engage on this.
What I hear Ron suggesting is that you haven’t done a full examination without talking to Salomon. I would think that that would be standard journalistic practices — to hear all sides thoroughly.
Do you really expect Ron and Roberta to respond to problems with their positions? They will keep repeating their discredited points while working hard behind the scenes to invent the next fake concern that will scare reactionary Davis voters back to the polls to vote no.
You can already see it building with Roberta in her pivot to nebulous non-financial concerns… concerns she has yet to itemize. Timing is everything in the NIMBY exploitation of Measure R FUD campaign.
Jeff: As noted several times, I have not taken a “position”, regarding the analyses. I’ve simply pointed out the existence of an analysis from a member of the finance and budget commission, which arrives at a very different conclusion (vs. the staff analysis). (Something that you might not have even known about, had you simply relied upon the Vanguard.) I would think that anyone interested in objectivity would appreciate knowing about it.
And again, the commissioner offered to provide additional/updated analysis, which might impact the conclusion (in either direction).
Will the commissioner also, in detail, explain, and answer questions about, the differences between the earlier version of his work, and the additional/updated analysis? For full public scrutiny? And respond to any “what if” questions that may arise?
I would think that anyone interested in objectivity would appreciate knowing about the answers to those questions, or any additional questions raised, when it is presented…
Howard: The commission hearings are open to the public. I witnessed some of the debate, last time. It is sometimes difficult to follow, since there aren’t always visual presentations to see and understand exactly what is being discussed, or its source. (One of the reasons that I don’t feel qualified to debate it, at this point.)
From what I can tell, there aren’t opportunities at the commission to engage in a “question-and-answer” session, with members of the public. However, you can speak, in much the same way as at any other commission or council meeting.
Again, commissioner Salomon has offered to provide additional/updated analysis to the other commissioners. However, I do not know if there will be another meeting, prior to the council’s deadline (in early February?) to ensure that it can be placed on the June ballot. Some on the commissioners appeared to be concerned about that deadline.
I do not know if commissioner Salomon (or any other commissioner who had ongoing concerns) is willing to communicate with David, or to participate in the “comments” section on the Vanguard. I also do not know if David is willing to reach out to commissioner Salomon, as he apparently did with commissioner Carson.
Well, the commissioner should be prepared at the next meeting to answer my questions (whoever asks them)… who knows… I may be there… no, “I’ll get back to you”… that equals intentional delay…
Regarding “delays”, some on the commission appeared to be ready to “move it along”, apparently before the proposal was even adequately defined (back in December). I recall that a third commissioner (Matt) had concerns about that.
It seems that two of the commissioners opposed the motion, at the January meeting. (Matt did not attend the January meeting.)
Correction: the following was ultimately “unanimous”, at the December meeting. However, I recall that there was some debate before arriving at this conclusion:
The Salomon analysis was not even presented, until the January 8th meeting.
Since Nishi 2.0 is essentially the same as Nishi 1.0 (but without an innovation center component), perhaps we should also review the EPS consultant analysis for Nishi 1.0.
I recall a significant discrepancy between that analysis, vs. the one from the commission.
Below is a partial excerpt from EPS’s response to the city’s finance and budget commission from Nishi 1.0, dated February 4th, 2016. I believe that part of the discrepancy between the city’s analysis, vs. the EPS analysis involved costs allocated for police/fire:
Looks like there were other discrepancies between the commission and EPS, as well. I will try to find and post the link to the document above. (Yes, I realize that the lack of an innovation center component in Nishi 2.0, and lack of access to Olive would likley impact an updated analysis from EPS. I also understand that there are no plans to obtain an updated external analysis.)
No discrepancies there.
Jeff: There were indeed discrepancies/differences, between the finance and budget commission (vs. EPS analysis) for Nishi 1.0.. The text above shows that EPS subsequently defended their analysis. One would have to look elsewhere (perhaps on the city’s finance and budget commission webpage) to see the actual difference regarding amounts.
Probably should also dig into all Nishi 1.0 analyses (from the city’s finance and budget commission, as well as EPS), to “remove” the positive fiscal impact of the innovation center component, and then see how those analyses pencil out. (Again, making other adjustments as needed.)
David
Thanks for the clarification.
Tia: I’m assuming that you’re referring to David’s clarification that he’s frustrated because I suggested that he check with Ray Salomon regarding the analysis (and his offer made during the meeting to perform additional analysis, which might impact the conclusion in either direction), rather than me.
Tia, can you send me your email address so I can send you the things I talked about yesterday? If you don’t have mine, it’s easily googleable.