If the Del Monte warehouse development is built as planned, will the project end up costing the City more each year for municipal services than it generates in revenue?
One might think – the Merry-Go-Round surely does – that this is a question to which it is worth knowing the answer before Council approves a development agreement for the project with Tim Lewis Communities, as it is scheduled to do Tuesday.
But, as far as we can tell, nobody knows the answer.
The public doesn’t know.
Council doesn’t know.
And City staff doesn’t really know, either.
The staff report presented to Council does not contain any details about the annual impact of a fully built-out Del Monte project on the General Fund (or other City funds). All it says on the subject is that, “Approval of the environmental documents, Master Plan and Development Agreement will not result in a negative financial impact on the City’s General Fund.”
Not any financial analysis done by or for the City.
About a year ago, the City’s economic consultants, Willdan Financial Services, prepared a detailed “fiscal impact analysis” of the revenues and costs associated with a fully built out Alameda Point.
Willdan looked at annual revenue sources: property taxes, transfer taxes, utility user taxes, sales taxes, business license taxes, and franchise fees. It also looked at the annual costs of providing City services such as fire, police, and road and building maintenance (as well as recreation, parks, library, and “general government”). Comparing the two enabled Willdan to “estimate the net fiscal change to the various funds of the City of Alameda upon full build out of” Alameda Point.
(For those who missed the report, the conclusion was that the annual net impact of the development was a positive $2,789,000).
In September, after the Planning Board approved the Del Monte master plan and development agreement – two of the documents Council will be asked to approve Tuesday – we asked City Manager John Russo whether staff had prepared a “fiscal impact analysis” for the Del Monte warehouse project similar the one done for Alameda Point.
Mr. Russo referred us to City Planner Andrew Thomas, who replied:
Typically we do not require Fiscal Impact Studies for private development projects, like Del Monte, but in this case we thought it might be a good idea, so we have been working on a study, because we thought the City Council might want to know if the project would have a negative impact on the GF. We hope to have it done in time for the City Council meeting.
Mr. Thomas added that,
Although, the study is not finalized (we are still making sure all the assumptions are accurate, etc.) the initial findings are that the project would generate a net increase in revenues to the General Fund. This is a NET increase in revenues to the General Fund after you take into consideration the additional police, fire, PW and other additional public service costs of serving the project.
Given this exchange, we were surprised that the staff report for Tuesday’s Council meeting did not attach any “fiscal impact analysis” or explain the basis for its assurance about the lack of “a negative impact.” So we followed up with Mr. Thomas.
His initial response was to repeat his earlier statement that a fiscal impact analysis wasn’t required. Yes, we responded, but what about the “study” underway in September? Mr. Thomas replied:
The City did not request or prepare a report. The Developer did one for their own purposes. They hired their consultant. We had nothing to do with the document.
So, unless Mr. Thomas was distinguishing between a “study” and a “report,” we guess we must have misunderstood his September email. In any event, no financial analysis/study/report on the estimated annual costs and revenues associated with the Del Monte project is going to be made public or presented to Council Tuesday.
But if there is no financial analysis/study/report, what’s the basis for the statement in the staff report disclaiming “a negative financial impact”? Mr. Thomas again:
The Fiscal Impact Section of the report is based upon the following :
- The site is zoned for residential mixed use.
- The project will be paying all of the required development impact fees that were recently updated to ensure that new development pays for its impacts.
- The project will be building a number of major public facilities that the City does not have money to build on its own.
With all due respect to Mr. Thomas, whom we regard as a hard-working public servant, this ain’t gonna cut it.
Mr. Thomas refers to “development impact fees” (whose amount, incidentally, he had yet to compute as of Monday morning). But those fees are intended to pay for capital improvements, not ongoing operating and maintenance costs. (As the staff presentation to Council put it, DIFs are “used to fund facilities needed to serve new development”) (italics and underline in original) Yet it is the latter category of costs with which a “fiscal impact analysis” like the one done by Willdan for Alameda Point is concerned.
Similarly, Mr. Thomas cites the “major public facilities” the Del Monte project will provide funds to build. (The staff report clarifies that the reference is to the Jean Sweeney Open Space Park – for which Tim Lewis is providing partial funding in cash and “construction related services” — and the Clement Avenue extension). It should be noted that Tim Lewis is not funding these projects from eleemosynary motives. For example, the payment for the Jean Sweeney park is an in-lieu fee to get around the Municipal Code requirement that the new construction itself contain 300 square feet of open space per housing unit. In any event, these items, too, constitute one-time payments, not annual sources of revenue.
Which leads us to the larger point we want to make. It is certainly possible to argue the merits of the Del Monte warehouse project without a fiscal impact analysis having been done. But why should we limit ourselves in that way? If it makes sense to consider whether, on an ongoing basis, development at Alameda Point is going to cost the City more than it takes in, why doesn’t it make equal sense to do the same for the proposed Del Monte warehouse project? After all, for both projects, Council – and the public – ought to know what we’re getting ourselves into.
We can think of only one reason for any potential reluctance to take this step. Suppose Council instructed staff to get Willdan to perform a “fiscal impact analysis” for the Del Monte project. And then suppose that, unlike the result for Alameda Point, they came back with a negative number. Under that scenario, Council would have a decision to make: Are the public benefits created by the Del Monte project worth the net drain on the municipal fisc?
This is the kind of decision the current Council has spent two years assiduously trying to avoid. But to us, a public discussion of this issue would be enlightening. We suspect there are some who would say that the City should encourage building more housing units regardless of the impact on the General Fund. We suspect there are others who would say that the City should not authorize any development whatsoever unless it generates net revenue for the General Fund. Let’s ring the bell and let the debate begin.
Of course, it may be that the Del Monte project in fact would put cash into the City’s coffers on an ongoing basis. But we don’t know unless and until a fiscal impact analysis gets done. Shouldn’t Council at least take that step before it locks the City into a 15-year development agreement?
Editor’s note: The Merry-Go-Round asked Mr. Russo to comment on the policy issues discussed in this column. Specifically, we asked:
Should an analysis of the financial impact of a development project on the General Fund be performed, made public, and presented to Council when it is asked to approve the Development Agreement for a project? If not, why not?
Or, to put the question more argumentatively: Mr. Russo, you have stated that one reason for encouraging development – in particular, at Alameda Point – is to generate sales tax revenue for the General Fund that will redress the “leakage” problem. How can anyone know whether a particular project furthers that goal unless staff prepares, or hires consultants to prepare, a fiscal impact analysis for the project similar the one done by Willdan for Alameda Point?
Mr. Russo replied as follows:
Dear Mr. Sullwold:
Andrew beat me to the punch in responding to you (although he and I spoke about your question yesterday). Andrew has correctly drawn the distinction between property the City owns and property for which the City serves only as a regulator. He also properly highlights the importance of consistency in the application of zoning regulations.
Accordingly, I will adopt his answer as my own with one important addition:
You mentioned my concern about the lagging nature of sales tax in Alameda’s basket of revenues. That is really not specifically implicated in a housing development such as this one. However, the City is always looking for ways to put projects to our residents’ financial advantage; therefore, we have required this developer to contribute $2M to the Jean Sweeney project. This payment to the City is founded upon the premise that the Del Monte project will benefit mightily as a consequence of the proximity of this huge passive green space. While I cannot quantify the impact, City management believes firmly that this sizable payment ($2M out of a needed $8.5M) will greatly improve the City’s ability to obtain public and private grants for the park. This is a major benefit for Alameda as the City does not have other means to fund this widely desired and long awaited amenity.
Hope that helps.
[Editor’s note: Mr. Russo’s message included the following message from Mr. Thomas, which we had not yet received]
On Dec 2, 2014, at 8:41 AM, “Andrew THOMAS” <ATHOMAS@alamedaca.gov> wrote:
Dear Mr. Sullwold:
The City of Alameda did not require, nor did it request, that TLC prepare a Fiscal Analysis of the Del Monte Plan. As you know, TLC did hire a consultant to prepare an analysis. Although staff did read the analysis, and the analysis concluded that the project would have a positive effect on the General Fund, staff did not choose to publish or present the report for several reasons.
- The zoning ordinance establishes the requirements for development of private property in Alameda. It also establishes the requirements for a Development Agreement. Under State and local law, the City staff should be consistently implementing these regulations and submital requirements for each project fairly and consistently. Preparation of a Financial Impact Study is not a requirement under the law for a Development Plan or a Development Agreement.
- Staff chose not to present the findings of the developers report because staff felt that the findings were not relevant to the very real issues that are relevant and appropriate for the community to be discussing and debating: project design, parking, traffic, etc. These are the issues that are relevant and important to the Planning Board and City Council’s ability to make the findings for either approval or denial of a private development project that is consistent with the Zoning and General Plan designations of the property.
In regards to Alameda Point, the City’s approach to decision making for Alameda Point is appropriately different. Alameda Point is not private land, it is land owned by the City and the City has every right to require of itself that the development of that land have a positive fiscal impact. In fact, the City Council in the late 1990’s adopted a Fiscal Neutrality Policy for the redevelopment of the former Naval Air Station that requires that all development of the land have a positive or at least neutral impact on the General Plan. This policy essentially requires that the City perform these studies for these lands.
Willdan Alameda Point fiscal impact analysis: 2013-12-17 Ex. 1 to staff report – Draft Fiscal Impact Analysis of Alameda Point
Staff report to Council re Del Monte project: 2014-12-02 staff report re Del Monte DA