Can the City afford the Del Monte project? Who knows?

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.”

Sez who?

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 :

  1. The site is zoned for residential mixed use.
  2. 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.
  3. 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.

Best wishes,

John Russo

[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.

  1. 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.
  2. 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.

Sources: 

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

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
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17 Responses to Can the City afford the Del Monte project? Who knows?

  1. Paul Foreman says:

    You are right on target, as usual, but there is yet another government body that will experience a financial impact which is in no way mitigated by a developer contribution. That is the Alameda Unified School District. It is worth noting that the CA Govt. Code Sec. 65091requires that the School District get mail notice of tomorrow’s public hearing. The purpose of that notice is allow the District to comment on any impact of the development. On Wednesday I emailed Mr. Russo inquiring as to whether the District had been noticed. I am still waiting for a reply.

  2. It’s nice that the developer will spend the money to build a brand new section of Clement Avenue alongside the north side of the Del Monte property. But Pennzoil is not a party to the agreement, and if Pennzoil decides to hold onto their property on Grand Street at Clement for who knows how long, then there won’t be any Clement Avenue extension from Grand St. to Sherman/Atlantic, and all that traffic will be on Buena Vista. Is it possible Pennzoil could cause the project to stall? If yes, is that in the agreement? If not, and Pennzoil does not sell their property to the city for a new street right of way, are we stuck with the consequences?

    On the fiscal impacts, one motivating factor for the Alameda Point analysis was to make sure the project(s) would be able to hew to the ordinance the requires that there be no negative impact to the General Fund. But even there, if I’m not mistaken, the firewall ordinance is only for the “life of the project,” which is 25 years. There is no ordinance mandating such a report for other projects, but as you point out, it would be good to know, given the size.

    • At least two Planning Board members – Kristoffer Koster and Dania Alvarez-Morroni – raised similar concerns about the Pennzoil (and Wind River) portions of the “Clement extension.” City Planner Andrew Thomas assured the Board that “we’re in active discussions” with both firms. That didn’t satisfy Ms. Alvarez-Morroni, who asked, “How can we approve something if we don’t know that certain parcels of land are going to be transferred or sold?” But it apparently was good enough for the Board majority.
      The Development Agreement does not condition the developer’s obligation to build its portion of the extension on the Wind River or Pennzoil portions getting built. So Tim Lewis must build its chunk of road in any event. But the Agreement does not obligate either the developer or the City to obtain any property rights from Wind River or Pennzoil. (Tim Lewis must “use commercially reasonable efforts” to acquire the Wind River parcel; it has no obligations as to the Pennzoil parcel). So if Wind River or Pennzoil balks, it is entirely possible that we’ll end up with a “road to nowhere.”

      • Completion of the Clement Avenue Extension should be a condition of approval. That means Tim Lewis should be required to do whatever it takes to get the Pennzoil property into city hands, otherwise, no deal. He’s getting around the shortage of open space by giving money to Jean Sweeney Park. He’s getting around the uncertain future of the Pennzoil property, and thus the fate of the Clement Avenue Extension, by handing the city council a rabbit’s foot. After the meeting, everyone over to the Lucky Mojo for a drink.

      • Dan says:

        I continue to wonder if the new truck route was just a red herring to get more of the community on board. Nick Cabral in particular, has no other motivation for attending the meetings and supporting this project. And the developer puts that out as one of the big benefits. Will it actually get built? I have to also wonder if 74-year-old Nick Cabral may pass away before he gets to experience his dream coming true!

        Road to nowhere? Most Certainly! Even if Wind River comes through as the devious Andrew suggests, the Pennziol portion will be years away.

  3. Dan says:

    Can the city afford the project? That and other questions have been skillfully avoided by the staff for sure. Now that we see how the meeting actually went on Dec. 2, it simply becomes more clear that the only real goal was to do ‘something’ with the old warehouse. The story we keep hearing is how it is falling into disrepair and we almost never get any interest from developers, so we have to jumpt at this (and forget all the rules – but they never say this part out loud). Gilmore, Russo, and everyone else on down was on board. BS your way past the Historical Advisory board, twist a bunch of numbers around to make the Planning Board happy, sweet talk legal so they make some pronouncements, and finally tell the Council how absolutely wonderful this will be for city. Sometimes I feel like jumping up and saying “Andrew, please go back to selling used cars! We’ve got a real city here!”

    And hey, did anyone else notice the look of defiance on Gilmore’s face? I hadn’t seen that attitude before, but her words and actions last night told me she had here mind made up a long time ago, and now since she has been fired, she also wants to get even with those of us that pushed the button.

    • Paul Foreman says:

      As someone who spoke at the meeting (twice), I sensed the same bitterness. Did you notice the way she blew off Tony Daysong when he attempted to move the Dell Monte issue to an earlier position in the agenda?

      What I do not understand is how the historical people approved this project. Last night, for the first time, I realized that they are not restoring the building. They are disassembling the center, raising the roof, inserting a modern building inside and extending it two stories above the original roof. The new structure has absolutely no aesthetic congruity with the old building. I would think that the original architects are probably turning over in their graves!

  4. Ultimately, the driving factor in how this development project evolved into its final form was historical preservation. The TLC representative said during the meeting that if they did not have to upgrade an aging brick warehouse, but instead were planning a similar project on bare land, the cost for them would have been in the $50 million range and not the current cost of over $100 million. They said the increase in housing was necessary to offset the costs of developing this property within and around a brick facade and concrete slabs. In other words, they could have made their customary profit with a smaller project that razed the building. And in theory at least, demolishing the building and starting fresh could have placed them in a position to offer (or concede to) more public benefits.

    Maybe if the project was more accurately characterized as adding traffic in return for historic preservation, the outcome would have been the same. Maybe historic preservation is worth the extra pressure to the neighbors. But the only theme I could observe coming from the neighbors was “put an end to the truck traffic and blight.” That could have been accomplished with a different project design.

    • Paul Foreman says:

      Richard-Read my just posted reply comment to Dan. This is not historical preservation. It is, instead, an insult to the building. So there is no trade off and, if there is no practical way to truly restore the building and make it profitable for a developer, it is time to make the hard choice of raising the building and constructing an economically feasible smaller density mixed-use structure on the premises

      Dell Monte is of historical value and some find is beautiful. However it is not the Taj Mahal or Eiffel tower that we are talking about here.

  5. I agree with your observations. I believe in your remarks at the city council meeting you referenced the historic theater project. The state historic renovation requirements for that project were so stringent that the cineplex addition could not be structurally tied in to the historic theater. What gives the appearance of a unified structure is merely a breezeway between the buildings. The most the state historic board would allow is to punch a hole in the wall of the historic theater.

    There is an ongoing public discussion about whether to demolish the historic Alameda High School and build something new, or to retrofit the building at great expense and preserve it. There has been no public discussion framing the Del Monte warehouse project in the same way. Had there been, the public could have weighed the aesthetic congruity of this historic facade with the surrounding neighborhood, as well as potential public benefits that could have been received for taking a different course.

    When you say “it is time to make the hard choice of raising the building,” I think that time has passed.

    • Paul Foreman says:

      You are probably right about it being too late to change this project now. I blame myself for not taking greater interest in this when the discussion started. However I still harbor some hope that, if we can have the new counsel take the final step in this matter, they could postpone approval of the project and ask Tim Lewis if the alternative of tearing down the existing structure and constructing a 2 to 3 story modern 200-250 unit condo development is feasible.
      I believe that Council started their search for a developer by asking if a project that would retain the historic structure was economically feasable. Tim Lewis did what was asked of him and came up with this design. We need to ask a different question if we want the right answer.

  6. Paul, The only correction I would make to your comment above is that the city did not do a search for a developer, as far as I know of. Tim Lewis got wind of the availability of this site via bankruptcy court filings. They bought it when Mr. Wang filed for bankruptcy.

    • Paul Foreman says:

      Thank you for the correction. That is an advantage of the Forum Mr. Sullwold has provided. We can educate each other.

    • Dan says:

      To the best of my knowledge TLC does NOT own the building. Only now, after the approval they probably will, because they made an offer contigent on getting the approval. Maybe you meant that they OFFERED to buy it when Wang filed for bankruptcy?

  7. notmayberry says:

    You must mean RAZE the building- not “raise” the building, don’t you? [RS why aren’t you correcting misleading grammar here?]. Neither is acceptable to me. I am part of the cadre who misses the Original Bethlehem Red Brick Building. What we got in place of it: seismically sound modern red brick buildings which look monotonous and mostly sit empty-was not worth it.
    I didn’t realize until this last City Council meeting how ugly that stamen-like structure proposed to rise from the center of the Del Monte will be. The fellow who got up to say that the current proposed design shouldn’t have gotten past the Historical Advisory Board is right. Unfortunately, the current composition of both the Planning & Historical Advisory Boards somewhat reflects the Gilmore-Tam era; which was not serious about historic preservation. There has been so much arguing about the TDM plans [which are never going to work in practice] that the way this building will be ruined by too much interior development is going almost un-noticed.

    I live on Grand & I barely notice the truck traffic around the Del Monte. But I am affected immediately whenever Buena Vista is backed up bumper-to bumper from the Tube. No doubt in my mind what a nightmare this development will create for the rest of the island outside the immediate neighborhood around the Del Monte.
    It’s too bad Nick Cabral gets all the attention, and not Lester Cabral. Nick Cabral’s “blight” is Lester Cabral’s quaint clinker brick building. Both are old-timer Alamedans. I’m with Lester.

    • Dan says:

      Historical advisory board… a very poorly attended meeting. Considering how central their approval was to this thing the poor attendance was somewhat surprising. But then, how many people really know that much about historical preservation? Ignorance of what’s going on will surely reduce attendance. If only we had a few knowledgable activists aware of what was brewing back in June, we might have shouted down a couple of board members and stopped the whole thing right there!

  8. Tom says:

    Bob:
    I really appreciate your work and analysis of the machinations of our city politics and the evolution of land use permissions on this island.

    It will be quite interesting to observe the play of forces at the council, city managers office and planning board over the next few years.

    Thanks for your investigative journalism.
    Keep up the great work.

    Tom

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