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Page 2 – Background -  “ARC/DiSC 2020 plan incorporating residential development was brought forward to address the City‘s need for housing and to provide additional support for on-site activity.”

The expression “to provide additional support for on-site activity” appears to mean the housing will be workforce housing intended to serve the employees of the various tenant companies in the DiSC project.  That needs to be more clearly stated if that is true.  

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Page 2 – “UC Davis has continued to improve its standing as a major research university, creating rising expectations for a burgeoning high-tech and innovation concentration that contribute to the region’s efforts to diversify the economic base. The recent effort to develop Aggie Square in Sacramento through a public-private partnership is a testament to this.

Aren’t Aggie Square and DiSC apples and oranges … as evidenced by UCD’s very different statements about them?

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Page 2 - As such, the Project continues to signal the next phase in the development of university town predicated on a major research presence: the advent of private investment leveraging a nationally significant public investment in the form of UC Davis. This is an opportunity to generate regional economic benefit, having local fiscal benefits through a strategy of university-related economic growth and diversification.

If this statement is true, why is UCD so tepid in its statements about the project?

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Page 3 - Specific opportunities afforded by the Project, as identified through current and past analyses, include:

·       Relocation of space-limited users.

·       Start-up opportunities for nascent firms.

·       Contribute to demographic diversification of Davis, including retaining labor base trained at UC Davis as local or nearby residents.

·       Support the downtown through increased economic activity.

·       Increased fiscal revenue from business-to-business (B2B) and point-of-sale transactions.

·       Improve university access to industries aligned with research strengths and offering partnership potential.

·       Provide opportunities for support businesses, including those in product or process chains.

·       Attract prominent companies aligned with university and regional strengths.

·       Enhance the regional innovation ecosystem and expand economic development opportunities.

If the City agrees with the above list, and believes that these are all real opportunities, then why doesn’t the City have an Economic Development Plan that illuminates these opportunities for its residents, businesses and stakeholders … a plan that outlines steps and tasks for translating them into reality. 

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Page 3 - The residential program reflects a combination of medium- and high-density residential units to be constructed over two phases. The number of residential units developable at any given time is anticipated to be dependent on meeting thresholds of completed commercial space. This analysis is based on an assumed requirement of 2,000 square feet of commercial space per residential unit.

Is 2,000 square feet inclusive or exclusive of retail and hotel space?

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Page 4 -Table 1 Development Program

The data in Table 1 should also show what the numbers in each category were in the DiSC 2020 proposal.

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Page 7 - The fiscal impact analysis estimates the net impact to the City’s General Fund (and other key funds) at Project buildout, based on the projected tax generation by the Project compared to the costs of providing municipal services to the Project.

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Page 7 - While the ultimate tax- sharing terms between the City and Yolo County (County) have yet to be agreed, this analysis is based on an assumed 50/50 property tax split between the City and the County, after transferring specific funds to reflect City absorption of post-annexation responsibilities.

This is a huge uncertainty red flag

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Page 8 - Table 4 One-Time Revenues (millions, 2021$)

Where/What are the One-Time Expenses? Under the provisions of California State Law, Impact Fees can not exceed the incremental amount of Impact Costs/Expenses.  Therefore the net revenue from Impact Fees is zero dollars.  Impact Fees do affect cash flow because the one-time revenues are paid prior to the point where their respective one-time costs become due.  Ideally Impact Fee revenue should be segregated in a specific fund, and only spent when the impact costs are incurred. 

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Page 11 – Construction Costs

Page 12 – Residential Parking Costs

This is definitely germane to the developer, but how is it germane to either the City or the community?

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Page 12 - EPS identified four applicable residential developments in Davis, using Gregory Group data.

Neither The Villas nor Tilton have either the Average Size or the Average Price to be “comparable project examples” for the kind of workforce housing that would “provide support for on-site activity.”  The Average Size of Gala and Mission Villas Condominiums is an appropriate size.  The proposed 1,800 and $699,000 are both too high for the target workforce housing segment.

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Page 16 - Community Facilities District

As was the case in the Nishi 2018 project, if the developer is going to retain ownership of the bulk of the parcels, why is a CFD a wise financial decision?  Wouldn’t a mortgage have lower closing costs and a lower interest rate for the developer?  Why get the government involved as administrator of the CFD?

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Page 18 - Fiscal Impact Analysis Methodology and Findings - The fiscal impact analysis compares the estimated tax revenue to be generated by the Project to the estimated cost of providing public services to the Project. Specifically, the analysis focuses on General Fund revenues and costs because the bulk of municipal revenues generated and services required are accounted for in the General Fund.

This high level description is clear enough as far as it goes; however, General Fund costs as reported in the Fiscal Year Budget are statutorily limited.  They can not exceed the amount of General Fund revenues.  As a result in its Annual Budget the City of Davis reports the shortfall amount that needed expenses/costs exceed actual revenues.  To illuminate the existence of this shortfall, on January 3, 2017 Mayor Robb Davis included the following statement in his State of the City presentation to the Chamber of Commerce, and then to multiple different subsequent audiences:

“We are not paying for the things that we’ve already purchased, and we are not paying for those things in adequate amounts to make sure they remain for the future.”

Since first being officially reported by the City in June 2017, the unfunded shortfall has grown:

·       From $156 million ($7.8 million per year for 20 years) in the FY 2017-2018 Adopted Budget

·       To $172 million ($8.6 million per year for 20 years) in the FY 2018-19 Adopted Budget

·       To $201 million ($10.05 million per year for 20 years) in the FY 2019-20 Adopted Budget

·       To $258 million ($12.9 million per year for 20 years) in the January 13, 2020 presentation to the Finance and Budget Commission by Bob Leland.

·       To $291 million ($14.5 million per year for 20 years) in the May 5, 2020 presentation to City Council by Bob Leland.

The $72.9 million amount included in the Expenditure-Estimating Procedures Table B-16 on Page 86 does not include any shortfall dollars, and should be increased … at a minimum … $87.4 million ($72.9 plus $14.5).

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Page 18 - Fiscal Impact Analysis Methodology and Findings - The fiscal impact analysis compares the estimated tax revenue to be generated by the Project to the estimated cost of providing public services to the Project. Specifically, the analysis focuses on General Fund revenues and costs because the bulk of municipal revenues generated and services required are accounted for in the General Fund.

A second glaring omission from the EPS approach is the absence of the expense of annual amortization of the end of useful life repair/replacement costs for the capital infrastructure built by the developer and turned over to the City.  EPS has devoted substantial portions of its analysis to the costs the developer will incur to build out the project.  Using that information to calculate and include an annual amortization of future repair/replacement expense should be included in the Table B-16 costs.

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Page 20 – Sales and Use Tax - Worker daytime spending is based on worker spending survey data. Half of the taxable spending from these on-site populations is assumed captured within the city, mostly off-site in other areas of Davis.

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Page 21 – One-Time Revenues - Over the course of the Project’s development, permitting fees of $16.4 million, construction tax of $7.6 million, and impact fees of $21.5 million are estimated to be generated for the City. It should be noted that impact fees will off-set the Project’s impacts to existing and planned public facilities, while permitting fees are generally considered to be revenue-neutral in that they offset staff resources.

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Page 21 - Expenditures

Appendix Tables B-16 to B-19 provide the calculations for the Project’s estimated General Fund expenditures. The majority of expenditure budget line items anticipated to be impacted by the Project are calculated using a standard persons-served method.

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Pages 21 & 22 - Under this approach, current General Fund adopted expenditures are divided by the population being served by those expenditures, to derive an average cost per person served multiplier that is applied to projected Project population.

As noted in the Page 18 comments above current General Fund adopted expenditures significantly understate the City’s true costs of operation.  The well-documented annual Budget Shortfall, which reached $14.5 million in the most recent City report, needs to be added to the current adopted expenditures, and the expense of annual amortization of the end of useful life repair/replacement costs for the capital infrastructure built by the developer and turned over to the City, also needs to be added.

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Page 22 - For each of the departmental line items affected by the Project, some portion of costs are fixed and will not vary with marginal changes to the population served; therefore, a variable percentage factor has been applied to each affected line item. A 75 percent variability assumption has been applied across departments/line items. The non-variable 25 percent represents salaries for senior departmental positions and other fixed expenses that would be expected to remain unchanged with the addition of the on-site population.

As noted in my submitted e-mail comment of December 1^st , in June 2021 the FBC forwarded a unanimous recommendation to Council “that the Finance & Budget Commission recommend(s) to the City Council, based on the analysis completed by the Finance & Budget Commission sub-committee, which provides sufficient evidence that the current 75% marginal cost assumption is unlikely to be correct, that [the Council] commission an independent, expert consultant to develop a default marginal cost valuation methodology to use except in cases where a project-specific analysis has been completed by the developer. The Finance & Budget Commission makes this motion in the interest of ensuring that major project economic analysis is as accurate as reasonably possible.” 

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Page 22 - For each of the departmental line items affected by the Project, some portion of costs are fixed and will not vary with marginal changes to the population served; therefore, a variable percentage factor has been applied to each affected line item. A 75 percent variability assumption has been applied across departments/line items. The non-variable 25 percent represents salaries for senior departmental positions and other fixed expenses that would be expected to remain unchanged with the addition of the on-site population.

The final paragraph of the May/June 2021 report on Marginal Costs reads as follows (bold for emphasis added).

“Based on the above analysis, the Marginal Cost Task Force (the Task Force) has concluded that the data does not support an assumption that additional residents will contribute only 75% the cost of current residents. Data appears to show that costs per capita rise on average with additional population for California cities between 50,000 and 150,000 residents13. The data is mixed for cities in the Yolo County and nearby regions over the 14 year period from 2003 to 2017, with Davis’s own trend rising, implying an increasing cost to serve additional residents over time. 

The task force reached out to the consultant14 that had completed the economic analysis for the MIRC to understand the basis for the 75% assumption used. They informed us that the approach was an industry rule of thumb, and that they could not point to any analysis supporting this assumption.”

The bolded passage above indicates that a variability assumption of over 100% should be included in any scenario analysis.  The FBC subcommittee members are in the best position to make any recommendations regarding any specific percentage over 100%.  I defer to their superior knowledge on that subject.  Regardless, the cost per person served does not appear to directly correlate to a variable versus fixed assessment of departmental line items.  Other factors appear to be contributing to the escalating per person served costs in Davis.  Discretionary incremental expenditure decisions like the recent addition of the Fire Department ladder truck and the doubled-up expenditures on Mace Blvd are more than likely important contributors to the pattern the Marginal Cost Task Force illuminated in its May/June report.

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Page 22 - Separate analysis currently underway by the City of Davis preliminarily supports the 75 percent assumption.

This comment by EPS needs further explanation.  To the best of my knowledge the only “separate analysis” by the City of Davis is the Marginal Cost Task Force report, and its findings certainly do not support the 75 percent assumption.

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Page 23 - Table 14 DiSC 2020 & DiSC 2022 Net Fiscal Impact Comparison

As simple as this Table is, it is nonetheless confusing.  The Revenues for DiSC 2022 are 34.3% lower than DiSC 2020, but the Expenditures are 48.4% lower.  That disconnect in percentages needs to be explained.  Ideally, the Fiscal Impact for each of the two projects should be evaluated using the same criteria. 

That difference is all the more confusing when the comparisons of Ongoing Economic Impact in Table 17 on page 28 is considered.

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Page 23 - Key Analytical Considerations - The assumptions related to the sharing of property tax revenue, or any other revenues, between the City and the County have a significant impact on the overall fiscal effect of the Project. Major differences in the eventual agreement between the jurisdictions could significantly impact the fiscal results.

The analysis should illuminate the magnitude of the “significant impact” by providing at least three scenarios of different property tax sharing percentages.

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Page 25 - Table 15 - Top 10 Employment Sectors in Eastern Davis

To make the Sales Tax figures in Tables B-13 through B-16 more understandable it would be both helpful and useful to have a variation on Table 15 that shows the total Sales Tax revenues that come from the Sectors listed in Table 15.

That information is necessary because the annual actual Sales Tax Revenue for the City has averaged $16.5 million over recent years.  The calculated annual sales tax revenue per person served is approximately $210.  Multiplying $210 by the DiSC project persons served by Phase produces a much lower amount of sales tax revenue than the amount reported in Table B-11.  The difference is $37,000 in Phase 1A and rises to $766,000 in Phase 2B.

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Page 32 – Table A-2 - Development Phasing Assumptions

This entire table needs additional context.  For example, it defies logic that Phase 1A will only last 2 years. 5 years from the date of passage of a Measure J/R/D vote is much more realistic.  It will more than likely take at least that long for the completion of all the entitlements and permits paperwork and the site preparation that is needed prior to commencing any construction of actual buildings.  Phase 1A will also include the assembling of a marketing program to identify and sign up potential tenants.  The information provided by the developer to date indicates that no marketing efforts will commence until after a successful Measure J/R/D vote.  The start date and end date of each Phase are a necessary addition to Table A-2.

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Page 32 – Table A-2 - Development Phasing Assumptions

There is a disconnect between the data included in Table A-2 and the statement on page 3 that “This analysis is based on an assumed requirement of 2,000 square feet of commercial space per residential unit. Phase 1A shows 107 units of residential, which calculates out to 214,000 square feet.  Phase 1A only shows 165,000 square feet of Commercial space.  Further the language on page 3 says “dependent on meeting thresholds of completed commercial space.” Give the short 2 year duration of Phase 1A and the absence of any marketing program to identify and sign up actual tenants, it seems unlikely that the 165,000 square feet will be completed until the very end of Phase 1A, so the 82 units (165,000 divided by 2,000) should be moved to Phase 1B.  Similarly, the 163 units of residential in Phase 1B should probably be moved to Phase 2A

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Page 69 – Table B-1 - Estimated Annual General Fund Revenue and Expenditure Summary (2021$)

Ideally, Table B-1 should show a “before and after” picture of each revenue and expenditures category for DiSC 2020 (the before picture) and DiSC 2022 (the after picture)