By David M. Greenwald
Executive Editor
Davis, CA – The city of Davis has long faced a revenue shortfall that has largely been placed off budget in the form of deferred maintenance and unmet needs. Over the last decade however, the city’s efforts to attempt to shore up these problems have met with resistance from the voters—in 2016, the voters voted down Nishi with its modest R&D component, they also voted down in 2018 a parcel tax for roads, and in 2020, DISC.
Had the voters approved all three, much of the city’s funding deficit would be gone at this point.
However, it is a reminder that, at this point, one project will not solve the problem. Still, the contribution that DiSC 2022 would make is not insignificant. At a projected $3.88 million in revenue at build out, the project would definitely close the gap. Still, it is half the size of the 2020 project and about one-quarter of the original 400 acres that came forward in 2014.
While I understand there is a natural tendency to ask where the rest of the money comes from—but the ability to wipe out perhaps one-third or more of the city’s shortfall should not be 
sneezed at.
Here we are more than a decade into the discussion and Davis still has the same problems.
As Rob White put it back in 2014, “One major reason that innovation parks are being discussed is the recognition that there is a significant need to increase the amount of revenues coming into the city to pay for maintenance and upgrades of existing amenities—things like parks, bike paths, streets, swimming pools and public facilities.”
He notes, as we often have, “Our sales tax collection is about half of that in a comparable community. Davis also has a lower comparable citywide property tax total because the community has not experienced significant resetting of values over the past few decades and has not built new housing stock.”
Two years later, our analysis found that Davis continued to lack in per capita retail sales. In fact, Davis had about half the per capita retail sales as Woodland and less one third that of West Sacramento.
In 2021-22, the city’s general fund was just under $73 million. That’s not an absurdly high $1000 per person. However, the revenue from the city’s two largest sources of tax revenue—property and sales tax—is just under $42 million. $16.9 million of that is from sales tax.
If you want to understand the potential of economic development, note that for the last decade both major Second street projects—Mori Seiki and Target—are in the top 25 of sales tax generators for the city as well as in the top 12 of property tax generators.
In fact, combined, only Sutter Hospital generates more property tax than two Second Street businesses, at just under one percent of the city’s taxable value.
Even at $1 to $1.5 million in sales tax, those two properties are still a small drop in the bucket compared to the city’s overall sales tax take.
Mori Seiki gives us an idea of scale. DiSC 2022 contains about 1.34 million square feet of commercial space. Mori Seiki is currently using about 85,000 square feet. That means it could generate 15 Mori Seiki equivalent sized companies with its property and sales tax potential. If it did, it would dwarf the modest $3.88 million in revenue projections for DiSC.
That’s obviously not likely to occur, but it gives a sense for the potential even a 100-acre property has for commercial development if fully realized.
Neither Mori Seiki nor Target alone were ever going to save the city—and neither is DiSC 2022. The Studio 30 report projected the need at one to two peripheral properties plus Nishi. Right now, we are only proposing about 100 of those 400-plus acres.
One project isn’t going to save the city’s finances. What it will do is solve one big piece of the puzzle.
Dave Hart made an insightful comment on Sunday.
He wrote, “Why do I keep having the feeling that voting no on DISC because the city has been profligate in spending decisions in the past is like saying I won’t take that job that gives me an extra $10,000 a year because I’ll just fritter it away on beer and fried food?”
The city clearly is in need of additional revenue. Moreover, the city spending rate is really not out of line for a city of this size.
Am I concerned with some of the costs the city is adding, for instance Mace Blvd. and the ladder truck? Absolutely. Do I believe we need a more robust cost containment program and to tie more spending either paired with cuts or additional sources of revenue? Absolutely.
But overall, as I believed in 2014, I believe today that Davis at this point primarily has a revenue problem, not a spending problem. When you see those per capita sales numbers, you realize we would not be having this conversation if we even had Woodland’s per capita retail sales level.
Over the weekend, I noted some of the research occurring at UC Davis. Yesterday, Tim Keller speaking at a Measure H kick-off event, noted that Davis is losing a major company soon because it lacks the space to grow. It’s a company that started out at the incubator Inventopia—California Culture, which produces sustainable and ethical chocolate (chocolate is one of the most exploitative industries and they have developed the technology to grow chocolate in a lab, environmentally and labor friendly).
That’s a perpetual problem that we keep seeing—Davis develops great companies, but can’t keep them in order to reap the benefits of their sales and property tax in the future. That’s a problem that DiSC is attempting to solve.
There are so many points to address in this article, but let’s start with this one:
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The 2018 Parcel Tax for roads absolutely would be generating revenue now … an estimated $2.8 million for 10 years before expiring.
2016 Nishi more than likely would be in the same situation that 2018 Nishi currently is … waiting for Union Pacific, UCD and the City to successfully negotiate an agreement for the tunnel from Nishi to Campus. Under Proposition 13 Property Taxes for land do not increase when the land is put to new use by an existing owner. So the City does not receive any additional revenue until construction has commenced. It may not be until construction of individual buildings has been completed. Bill Marshall can clarify that for us. So, more likely than not, no additional revenue to the City from 2016 Nishi at this time.
If 2020 DISC had been approved, it would currently be in the midst of its entitlements paperwork stage. Phase 1 with all its pre-work on the capital infrastructure of the site would not have started, and as noted in the most recent EPS financial analysis, the best case scenario for Phase 1 net revenue is less than 10% of the Full Buildout net revenue ($0.33 million per year versus $3.88 million per year in the case of DiSC 2022).
So, other than the Roadways Tax revenue, the $14.55 million per year Shortfall would not be reduced if the voters had decided differently in 2016 or 2020.
It is worth noting that :
— a few months after the 2016 Nishi vote was announced the City published its first estimate of the Shortfall in the Forecast section of the FY 2017-18 Budget. That shortfall over 20-years was $7.8 million.
— In the FY 2018-19 Budget the City reported that the Shortfall had grown to $8.6 million.
— In the FY 2019-20 Budget the Shortfall had grown again to $10.0 million.
— Then in January 2020 the City’s consultant told the FBC it was up to $12.9 Million.
— And in May 2020 in a report to Council about where we stood at the beginning of the COVID pandemic it had reached $14.5 million.
If the City had shared with the voting public just how massive the size of the deferred maintenance of roads had become … $59 million over 20 years in the May 2020 report to Council … then the voters would have understood why the Roadways Tax of $99 per parcel per year was so necessary and important. The moral of the story is that if you are going to ask for taxes you need to do a good job of educating the public on (1) why the taxes are needed, and (2) how the tax money will be used. Davis did neither in 2016.
That’s not true. Land and improvements are reassessed when new development exceeds a set percentage of property value. Land that is rezoned also is reassessed. The Nishi parcel will be reassessed to a much higher value when its completed.
Richard, you need to go talk to the County Assessor’s Office. They will tell you that other than the annual inflation adjustment allowed by Prop 13, property assessments do not change until there is a change of ownership or on completion of new construction. That assessment is allowed to increase for CPI or 2% annually, whichever is lower.
When construction takes place, whatever portion is complete as of January 1st is placed as an addition on the tax roll. The raw land value is unchanged by the construction. So the total assessment is the sum of the original Prop 13 land value plus the cost of the incremental construction. Once the construction is complete, the new combined value is indexed each year to inflation or 2% whichever is less. So in the case of DiSC, where the land ownership is not changing, the land assessment does not change.
If the land is sold at any time, the legacy Prop 13 land value is replaced on the assessment rolls by the sale price of the land. If the new construction is sold at the same time, the assessment based on the cost of the new construction is replaced by the sale price of the constructed improvements.
So what is the current assessed value of the land? What is the value added by the construction at build out? The difference divided by 100 will be the tax base added to the community coffers. That is a number worth knowing in my humble opinion.
Ron Glick – see at the bottom
Ron, I agree with you, and screenshot of Table B-9 of the EPS fiscal analysis that David posted below shows different Assessed Value amounts for each of the four distinct Phases of the project. Those amounts tell a very clear story that addresses the point that Richard McCann made in his comment above which says “That’s not true. Land and improvements are reassessed when new development exceeds a set percentage of property value. Land that is rezoned also is reassessed.”
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David, the Mori Seiki and Target examples illuminate an interesting property tax generation situation. What you are saying appears to be that property tax generation is a logical bi-product of economic development, and since both Mori Seiki and Target have both been in Davis for over a decade, there is considerable data/evidence to clearly support that.
So, my question to you (and anyone else that cares to weigh in) is “Given the existence of that clear evidence, why hasn’t the City made any effort to put together a professional Economic Development Plan and share that plan with the city’s residents and businesses? By being unwilling to take that simple planning step, the City (both Council and staff leadership) appear to be saying that such a plan has no value. Being unwilling to commit the effort to have and share a plan seems to say that they don’t believe in the end result.”
Because it would be a complete and total waste of time.
I asked that question three or so years ago and the answer was that the city spent a considerable amount of time and engagement when it developed the dispersed model through Studio 30 and felt that the circumstances didn’t warrant a revision. Given how long it has taken to update the downtown specific plan and do the general plan update, it seemed a wise course. Personally I think we need a dedicated economic development staff, but that would take resources that we don’t currently have. One way to ensure that there won’t be either a plan or staff is to defeat DiSC. That will probably set back economic development efforts by at least a decade, maybe longer.
Don
Wrong. The City should be putting together a vision plan. The problem is a lack of vision coming out of City leadership to date. In part, this has arisen due to the increasing reliance on direct democracy, as Robb Davis wrote about in 2013. Elected officials have little true accountability because they can just point to Measure J results as what the the voters want. There are better solutions such as preapproval of required baseline conditions and development agreement parameters that return accountability to elected officials.
Richard.
Wrong.
Been there, done that.
This has been proposed before. Good luck.
And, why would you, if that’s what you’ve repeatedly done in the past? And are still doing so now, even without getting the $10,000 per year?
Isn’t that exactly what drug addicts/alcoholics, and those addicted to fast food do?
It would be interesting to see how the fiscal situation is (now) in cities that have already committed the money that they had been receiving from retail, given the impacts of the pandemic (and the rise of the Internet).
No doubt, the government receives a lot more property tax (per parcel) in Davis, then they do for similar parcels in other nearby cities.
So far, no one has been able to explain why the existing commercial development (e.g., along Second Street) hasn’t been sufficient.
Didn’t make it into the article, but I did a quick comparative look at Roseville v. Davis
Roseville: 135,000
Davis: 70,000
Roseville General Plan $176 million
Davis: $72 million
So per capita, Roseville spends about $1300 per person while Davis spends just about $1000 per person, which means that per capita their spending is 30% higher.
I’d like to see a comparison of the projected fiscal deficit of all California cities, rather than just cherry-picking statistics.
As I recall, Davis does not stand out regarding that.
Here’s one report, though not the one I saw previously. I see that Davis is not ranking very well regarding pension funding, and future pension costs. However, it’s overall ranking is right in the middle of the pack.
https://www.auditor.ca.gov/local_high_risk/dashboard-csa.html
Here’s some other (general) information:
https://www.mercurynews.com/2021/02/02/report-most-big-cities-were-in-bad-fiscal-shape-before-the-pandemic-expect-it-to-get-worse/
https://calmatters.org/projects/california-cities-deficits-recession-bailouts/
Why isn’t the current amount of development adequately supporting these cities?
And in the case of Davis, why isn’t all of the relatively-new development along Second Street “sufficient”? Including a brand-new hotel, right across the street from where DiSC wants to build yet another one?
And what will the fiscal impact be, when DiSC is used to justify Shriner’s, Palomino Place, the space inside of Mace Curve, and the “other half” of DiSC (most likely as a residential development)?
What will the impact on traffic be, from that? How much money do you suppose will be received (or taken from) each citizen, regarding each of these developments (on a personal level)?
What, exactly will be “different” this time, when all of the previous developments haven’t saved Davis (or many other cities) from themselves?
Comparing Davis to Roseville for economic development is about as useful as comparing Davis to Elk Grove for housing.
We would be better served by comparing Davis to Woodland.
That probably would be a better comparison, especially since both cities have been pursuing an “innovation center” but have no commercial tenants to show for it.
Though one thing that Roseville, Elk Grove and Woodland share is full participation in the development Ponzi scheme. No doubt, relying upon the one-time fees that those developments temporarily create.
David, a couple of things regarding your statistics.
Roseville serves a regional economy, which Davis does not. As a result the costs of services for all the people who come to for their jobs or to transact commerce is significant.
One indicator of that regional draw is to compare the City of Roseville’s 135,000 person population to the population of the Roseville School District, which is over 193,000. If you make a similar comparison of Davis the City population is 66,850 and the DJUSD population is 74,400.
What commercial development along 2nd street? There’s a couple companies that have been there for a while and a handful of class C office space.
The problem is that the people/voters (the unwashed masses) care about tangible things. So the city’s deficit sounds concerning but really doesn’t connect with voters. What connects with voters are poor roads, traffic, parking. Better management of the homeless situation (more cops, more social workers). For me (I’m also part of the masses), I’d like to see more kid’s summer camps and swim lessons offered by the city. It seems they reduced the availability of rec services this year.
I have seen no comprehensive plan for city improvement. It seems to me that if a (simply explained) plan was put forth that was contingent on revenue from DISC (and possibly future commercial developments) that these taxes and the city’s need for revenue would resonate with the hoi polloi. Because that funding of city maintenance and improvements is the upside to developments like DISC. Otherwise it’s just money for the city (so what), increasing traffic and paving over farm land (boo!).
Are you kidding? The entire corridor, from downtown out to Mace boulevard. Including David’s beloved Mori Seiki, Target, the brand-new Residence Inn, etc.
Yeah, because that model has worked “so well” regarding city finances. As evidenced by the results.
https://www.youtube.com/watch?app=desktop&v=7IsMeKl-Sv0
Again, DiSC is not the only development being proposed in that area. And yet, none of the others have been included regarding any fiscal, traffic, or any other analysis (let alone mitigations).
Mori Seiki is one of the handful of companies I acknowledged. I didn’t really consider Target as part of the 2nd street corridor of companies there…..I guess it and the new hotel technically qualify. But that’s all been financially accounted for. When you say developments; I’m assuming you mean something that’s under development or has recently been developed. There’s not much going on there right now.
So now you’ve tried my patience. We’ve previously discussed this ad nauseum. You’re minuscule understanding of the subject continues to persist with an ignorant opinion. Yes, many cities engage in the “ponzi scheme” for immediate development fees revenue for cities and need further development to pay for the long term costs of the current development. That is the case for RESIDENTIAL DEVELOPMENT. COMMERCIAL DEVELOPMENT IS GENERALLY NET POSTIVE REVENUE. Why? Because cities provide a fraction of the services to commercial property they do for residential properties while collecting sales tax and business tax revenue. So if you plan out your economic and residential growth properly, then you can generate revenue for the city while providing the necessary residential units to support the commercial growth.
The extreme case is the city of Vernon; which in 2006 had about 90 voters (there’s now about 112 people there) who mostly worked for the city. But had approximately 46,000 direct and 54,000 indirect mostly skilled workers employed by business within the City of Vernon. Vernon has a $4.5 billion private employer payroll. Vernon produces a $250,000,000 flow of revenue every year, much of it from city-owned utilities. Now Vernon got in trouble for corruption and not allowing or making it difficult for others to move into the city and run for office. But the principle remains that as an industrial city with few residential properties (and people) to service; the city of Vernon is extremely profitable.
No, you didn’t.
Regarding Mori Seiki, I’m reminded of Jim Morrison’s comment when he was banned from future Ed Sullivan shows:
“We already did Sullivan, man”. (Paraphrasing, no doubt.)
They are, indeed.
Exactly. So, who screwed-up, in regard to the existing development not supporting the city?
The entire corridor has “recently” been developed.
Yes, we have.
Your mama. 🙂
Again, why hasn’t this already occurred, with the existing development pattern?
Why is the city planning additional residential development in that same area, without accounting for it regarding any type of analysis? Isn’t this the exact same pattern that created this situation?
You also seem to have some kind of fantasy going, regarding statements like this:
Dream on. You’re paying for a ladder truck and unfunded pensions that previous developments haven’t paid for.
And you’ll be paying further, by being stuck in traffic and surrounded by high-rises in the middle of what used to be a nice agricultural field. With no Ikedas fruit/vegetable stand at some point, either.
Why do you assume they screwed up? Are you assuming that a couple developments from 10+ years ago would magically solve all of the city’s financial problems? That’s like saying: why didn’t that one stock in my portfolio of 100 stocks solve all of my financial problems.
Has a better understanding of city economics than you do.
Again…why do you assume past COMMERCIAL development is sufficient to magically solve all of the city’s financial problems?
The reason….as I’ve said MANY TIMES BEFORE. Is because likely for the sake of the project’s financing you’re going to need the near slam dunk projected revenue from the housing component in order for the project to get off the ground. Please this time let it sink in this time….that companies (and banks) are not going to commit to an idea drawn up on a napkin that is subject to voter approval where there’s little to no track record of approval happening. So without the commercial assured revenue projections because of the idiotic Measure H vote, then you need some financial foundation to rely on that has to come from the residential component.
Oh – and you’re also paying to put the “Mace Mess” back the way it was, with this development. The mess that the city created in the first place, using SACOG funds.
Yes – they apparently can use funds from this to do so.
Has a better understanding of city economics than you do.
LOLOLOLOL…. Keith you made MY ENTIRE DAY…. lol
EVERYONE ELSE: Keith wins today… you can all go home now.
Keith, I both agree with you and don’t agree with you. Where I don’t agree it is because when I ran for City Council in 2016, my campaign slogan was “We have to pay our bills!” Over 7,200 Davis voters cared enough about that fiscally responsible approach that they voted in favor of it. Part of the reason they did so was that I connected the dots between the deficit and the excellent points you make below.
Those are indeed quality of life measurements, and the deficit is the principle reason that our roads are deteriorating.
Services like you describe are also quality of life measurements, and here too the deficit is the principle reason that those services are disappearing.
You are not alone.
I agree 100% conceptually, although I would not restrict the revenue as you have done. What you are describing is (1) basic education of the members of the community, (2) greater transparency, and probably (3) some falling on the sword by our leadership. In the Mace Mess public meetings at the East Davis fire station Brett Lee fell on his sword a number of different times at several meetings. It can be done. We would also benefit from some proactive thinking, a clear Community Vision, an up to date General Plan, and a publicly shared Economic Development Plan that includes well thought out information about not only the supply of building space, but also the demand for that space that might come from various segments of the national economy.
It is worth noting that the 2016 Roadways Tax did not pass because the City did no education of the voting public.
There are also other ways to fund city maintenance and improvements.
Not to be rude, but 7,200 wasn’t enough. There’s always some in any group that are policy wonks. But the majority of people vote with their feelings. Who and what they associate good and bad with.
Connecting the project to tangible benefits is the whole point. Yes a greater breadth of planning needs to be done. And maybe this project’s benefits can be part of the greater plan. But the the specific economic development plan involving this project is the point…it’s the upside….the reason to vote for the project.
Yes, you can raise taxes, borrow money and cut costs from other areas of the budget. Raising taxes is not popular. We’re already taxed fairly heavily. I think people are (rightfully cautious about borrowing money). If you know where to find money in the budget to slash to fund things people want; I’m all ears.
Probably worth pointing out that all of the existing stuff on 2nd Street makes up the $72 million in revenue for this fiscal year.
In order to meet our current needs, that number probably has to increase at least to $90 and probably $100 million (given that gross revenue will get offset by some additional costs). Thus Second Street counts for what we have now, not what we need.
And, why is that? Who screwed up?
And, how will the additional residential developments being pursued for that same area impact the city’s fiscal (and traffic) situation? (Including Shriner’s, Palomino Place, the space inside of the Mace curve, and no doubt – the “other half” of DiSC.)
Isn’t all of this the EXACT SAME PATTERN which created the situation? (Not just in Davis.)
There’s your multi-million dollar questions. NONE OF WHICH the development activists ever address.
Ponzi scheme – always focused on the one-time fees, rather than ongoing costs.
This is a good question. The other half of the question. The cost half to the revenue half.
Thanks.
It won’t be answered, though.
Full-speed ahead, captain! This time, we’ll miss the iceberg – I promise. Besides which, we won’t encounter it for awhile, yet.
And by that time, you’ll forget what happened with the other ship. We’ll make sure that you do.
I can feel a comment-limit coming on the horizon, before that point. Ron’s personal iceberg. 🙂
Man, I do have to laugh at the way you twisted that back. Didn’t see that coming, though I do see and understand fiscal icebergs.
Again, though – no commercial tenants in Woodland (or Davis). They ain’t there, nor are they interested in saving a city. Nor are most of the development activists on here.
They’re interested in building houses.