Mayor’s Take on Economic Development

(This article was originally published back on May 1, 2016.  In light of recent discussions on the on budget and the need for economic development, we are republishing this).

by Robb Davis

For nearly two years we, as a community, have failed to advance a coherent vision for economic development in Davis. Instead we have advanced a peripheral real estate development strategy that has run into an inevitable dead end.  We have not articulated the ends we wish to achieve with an economic development plan, and have thus limited the discussion to revenue generation alone.

Land use and the creation and maintenance of a supply of commercial space is an important element of economic development. And certainly revenue generation that flows from economic development is an important outcome.  However, by not critically analyzing the ends of economic development and failing to strategically put forth a vision for the means that will help us arrive at these ends, we have had a very narrow and, often times, counterproductive conversation about this issue.

The Vanguard has been complicit in this narrow framing, having chosen to highlight the charged politics of peripheral land development rather than the more pedestrian realities of what it takes to have a thriving and diversified local economy.  These include things that make for a fully formed economic development system such as

• fostering deeper University/City strategic engagement;
• reducing business costs by providing lower priced and reliable electricity;
• increasing productivity by developing outstanding broadband service across the City;
• developing a more robust hospitality sector by encouraging the development of branded hotels to capture revenue leaking to other communities
• continuing to provide high quality public safety and good schools;
• enhancing an already thriving entertainment and retail sector; and
• developing a more diversified housing stock built to provide walkable and bikeable access to city amenities and transit

Together these things—as well as high quality, adaptable commercial space—attract companies that want to make their home in the region. Scan the “economic development” brochures of cities in the region (that have them) and all of these issues will be highlighted as critical to their economic development plans.  Land use is just one factor among several others.

By failing to engage in a broader discussion the conversation has devolved into unhelpful rhetoric about whether Davis will “play its role in the region,” with the answer hinging on whether it will vote to entitle peripheral business or mixed-use parks. Every departure of a local company for a nearby or more distant community is met with handwringing but there is little critical analysis of the variety of reasons they chose to leave.

But since we have gone down this path, perhaps we cannot “start over” in discussing the true ends and means of local economic development without retracing our steps on the whole notion of “innovation parks.”

The companies leaving Davis are not moving into glittering new “innovation parks,” with LEED-certified facilities built to their specifications.  Rather they are moving into existing buildings in other communities.  They repurpose these existing and empty facilities rather than incur the cost of constructing to specifically suit their needs.

They occupy buildings that were either built to suit a prior occupant or were built speculatively at a time when financing for such buildings was more available and/or the certainty of filling them was greater.  The buildings are of relatively low quality construction (tilt up concrete walls), with little to no attention paid to environmental sustainability.  They were cheap to build partially because they were not required to meet Cal Green standards and were built at a time when financing was easier than today.  Arguably, they are not the kind of buildings we have in mind when we think of an “innovation center.” There is an excess supply of such buildings in the region, and for growing companies they offer an inexpensive option.

The uncertainty about absorption rates for the commercial element, constrained financing options and (reasonable) expectations about building truly green projects, make it increasingly difficult for such projects to move forward unless they can be built with more certain revenue generators such as hotel space, significant ancillary retail, and mixed-used or otherwise dense housing on site.

The MRIC and DIC developers knew from the outset that the investment potential of the properties in question was contingent on them being able to have mixed use housing, retail and hotels on their sites.  Further, in the case of the MRIC, even these elements were not sufficient to make this investment competitive with other options available to them.  They also sought preferential land mitigation options, and an Enhanced Infrastructure Finance District (an RDA-like mechanism that keeps tax increments in the project) as well as a CFD. Without these things the investment was not going to be attractive to them.

These are the realities of trying to develop speculative commercial space on the edge of our city but in the stunted discourse that equated innovation centers (as mere revenue generators) with economic development, they were not forthrightly discussed. The point is, to the extent that we determine that our economic development strategy requires peripheral commercial growth opportunities, we must enter the entitlement process with these realities transparently laid out before us.  Up until now they have not been.

But now, with both the DIC and MRIC on hold, we have a renewed opportunity to step back and ask

• What are the ends we want to achieve with economic development?
• What is the full set of tools we need to utilize (and invest in) to achieve the ends?

The “ends” of economic development are a more diversified and resilient local economy; a variety of jobs that provide meaningful work for people with a variety of gifts; and adaptable work spaces that accommodate start-ups, research and lab space and corporate offices.  Fundamentally, the ends should be about identifying our particular local strengths and focus on actions that build on them.

In terms of means to achieve these ends, all the elements in the list I laid out above are necessary but I highlight the following: 1) We must act aggressively to capture the benefits of the many people who visit our community.  One of the most efficient means to secure revenue is in the hospitality industry and we are far underdeveloped in this domain. 2) We must more intentionally remove barriers to redevelopment and densification across our city to achieve more efficient land use. 3) We must assure we are maximizing the revenue potential of existing neighborhood shopping centers; 4) We must lay out a clear set of strategic objectives to move forward with the University and use all means to press leadership at UCD to engage with us on them. 5) Business leaders in our community must abandon the all too frequent practice of seeking political “protection” for their particular businesses from competition.

And if we are truly committed to economic development we will more aggressively pursue a full gamut of cost containment activities so that the fruits of our economic development activities are not eaten by rapid city service cost escalation.  I have laid out the skeleton of such activities but have received virtually no support from the business community to date.  I expect all supporters of a robust local economy to join me in moving this agenda forward.

And what of commercial development?  It remains an important means to achieve the ends, and I would suggest that some peripheral growth is necessary.  However, given Measure R, it will never happen unless we are honest with the community about exactly what it requires.  Hopefully this article has contributed to naming that reality.

In the months ahead I believe we must join together to develop a renewed economic development strategy that is comprehensive and starts NOT with vague notions of innovation as an end in itself, but with how to foster development given the already existing strengths of this community—which are substantial. I hope the Vanguard articles on the subject help launch the discussion.

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