By The Observer, July 18, 2010
In February, the Vallejo City Council voted 6-1 to move forward with a redevelopment project for the fairgrounds, officially called Solano360. The project includes, among other things, up to 670,000 sq ft of retail space. The vote gives the Solano County Board of Supervisors nearly complete control of the project for the next two years. It will hire a master developer (or take on the job itself), conduct an economic and environmental impact study, go through an expedited permitting process with the city, and, if all goes well, sign on tenants that it believes should go to the fairgrounds and not somewhere else in Vallejo. The county will spend about $3 million to do these things, in addition to $1.5 million it has already spent.1 While this may seem like a big favor for a bankrupt city, no one should forget that it’s really taxpayer money that’s being put on the table. Besides, the Council has a well-earned reputation for negotiating bad deals. This fact alone should make Vallejoans extra cautious about supervisors bearing gifts.
Before we discuss the Council vote or the redevelopment project, we should provide a little background. (For more, please see this Observer article from February 2010.) By all accounts, the Solano County Fair needs public funds to rebuild its facilities, host more events, and draw a bigger year-round crowd. To achieve this, it’s almost certainly necessary for some part of the fairgrounds property, 152 acres in all, to be redeveloped for commercial or other purposes. With the elimination of horse racing after 2009, the need to generate revenue has become even more urgent. So two questions arise:
The first question is beyond the scope of this article. For now, we’ll just remind readers of one thing: the land belongs to the public. It’s not owned by the Fair Association or the County Board of Supervisors. It’s owned by us, local taxpayers and residents of Solano County. Therefore, we can think of ourselves as investors in the project. We are not just opening up our wallets—that is, issuing bonds and taking on debt—we are turning over a vast amount of land—our land—to a private developer.
The second question is worth pondering. How, the reader might ask, can such an attractive piece of property, sitting at the intersection of two major highways, not already have been turned into a mall, office park, or housing development? The answer is, well, it’s complicated. Traffic problems aside, there’s a major tax dilemma: the property is inside city limits, but the county decides how it should be used. Normally Vallejo gets 100% of local sales tax, but in this case, it would have to give up a large portion to the county—by some estimates, up to 75%. And there are other factors: the land is in a redevelopment zone, approximately one-sixth of the acreage was deeded for the County Fair (or another public use), the city is on the hook for $7 million if Six Flags doesn’t get overflow parking at the site, and the city—not the county—has to pay for police, fire and other municipal services, plus transportation infrastructure, which will be needed to support any large-scale development.
With that little bit of background, the astute reader will surmise that the Council’s vote followed much study and deliberation, that city staff looked at the pros and cons of a new shopping center at the fairgrounds, including the possible loss of tax revenue, and that Council Members checked the staff’s work before approving any development agreement with the County. But we are sorry to say, dear reader, you are much too astute. This is, after all, Vallejo. Instead of following a business-like approach to a development project, City Council moved forward in an all-too-familiar way: a “vision” instead of a plan, a “draft” feasibility study, and a legal agreement that has no performance measures and no exit clause.
So let us shift our attention from the reader who gets it to the Vallejo City Council which doesn’t. Here are 10 reasons why the deal is bad for the city and why the vote was a huge disappointment to the people who are trying to make Vallejo a better place to live.
Make no mistake, this is not an anti-development article. The Observer favors all kinds of businesses and industries coming to Vallejo. The only thing the Observer is against is poor planning and wasteful spending. The Solano360 “vision” suffers from both. It could be held up as Exhibit A in a study of government actions that have unintended consequences.
Vallejo’s City Council Members, like most elected officials, have confused a shopping center with economic development. This notion is debunked by economists, and it’s easy to understand why: the first involves the spending of money or, in this case, where it is spent; the second involves the creation of wealth, meaning new industries and high-paying jobs.2 Naturally the developer of a shopping center claims that it will pull in money, it will be a “regional draw”. This is how the developer comes up with lofty predictions for employment and tax revenue and how elected officials get beguiled into spending public funds.
Let’s assume for a moment that our elected officials are correct and retail is economic development. Vallejo still comes up short. The reason: if the fairgrounds is turned into a shopping center, Vallejo bears the cost of all municipal services and gets only a fraction of the tax revenue. At the February 9th Council meeting, one of the speakers pointed out that the proposed split of sales tax revenue is 75% to Solano County and 25% to Vallejo. The county gets three times as much as the city!
At the same meeting, Vallejo’s Assistant City Manager, Craig Whittom, claimed that the split is not final, that everything is on the table. We have to wonder, though, if there’s anyone at 300 Santa Clara Street who can stand up to County Supervisors and strike a good deal. The important question, apparently never asked or studied, is this: what is the right split from Vallejo’s perspective? Given its cash flow projections, the county probably cannot accept anything less than a 60/40 split (to the county’s advantage). For the sake of argument, let’s envision 50/50. In that case, Vallejo gets half of what it would get if new retail were located anywhere else in the city, such as Solano Boulevard, Tennessee Street, or even across the highway. Yet Vallejo still has to provide 100% of the services at the fairgrounds: police, fire, maintenance, etc.
The situation is made worse by this simple fact: the City of Vallejo, not the County, will be on the hook for transportation improvements which are necessary for redevelopment of the fairgrounds. By all accounts, there will have to be a new highway overpass and/or improvements to Fairgrounds Drive, Sereno Drive, Gateway Drive, Redwood Parkway, and Sage Street, plus a new transit center, bikeways, pedestrian paths, and parking structures. These expenses will total at least $60 million, according to transportation studies already done. This is one of the dirty little secrets of the Solano360 “vision”, known to our elected officials but never discussed publicly. In the “vision” and feasibility study which followed, there is no discussion at all of traffic problems, but there is a small, hidden-away acknowledgement that state and federal monies are no longer available. In the County’s cash flow projections, there isn’t a single line devoted to street improvements. As is so often the case, poor Vallejo gets handed the tab, an enormous unfunded liability—and for what, as little as 25% of the sales tax revenue? Pretty scary for a city struggling to come out of bankruptcy.3
Traffic may not even be the thorniest issue. The consultants for the fairgrounds project say that the economy will turn around—eventually—and Solano County and the City need to get a lead on development. Exactly the same argument applies to the empty commercial space around Vallejo. There’s a chance of it coming back as the economy improves. Question: What if retailers and small businesses that would have filled the empty space are lured to the fairgrounds? Answer #1: Vallejo ends up with more blighted neighborhoods, crime, and an exodus of people who have disposable income and desire a more livable community. Answer #2: Vallejo gets only a fraction of the sales tax revenue it would have gotten otherwise. In short, the law of unintended consequences kicks in.
Vallejo needs additional tax revenue to support city services. That is undeniable. Our city council, however, seems to be looking for help in a rear-view mirror. It hopes Vallejo can retail its way to prosperity, as if this were the mid-1990s. Unfortunately, those days are over, and not just because of the economy, the internet or changing spending habits. The I-80 corridor is badly over-retailed now. There is excess capacity from Vallejo to Dixon and it may get worse, not better, with developments around Cordelia Junction and Green Valley, which are just 10 minutes away from the fairgrounds. While other parts of the county will eventually grow themselves out of the problem, Vallejo cannot. The sad truth for Vallejo is that its days of population growth are over. In fact, the number of residents has fallen a bit in recent years. And population growth, more than anything else, is what supports new retail. Again, every retail development claims it will get shoppers from a wide area, but there is no economic or historical data to support this. A retail development is never a regional draw for more than a few years, then a new one gets built. Demographics trump geography.
So the question for Vallejo is, how can it improve its capacity for retail with a stable or slightly-shrinking population? One solution is to bring in more highly-paid professional workers, either by attracting industry or by making the city a better place to live. Then retail will follow; the city has to do nothing special. Of course that would require a big shift in perceptions about Vallejo, a much-improved school system, etc. While the Observer would like to tackle those issues, they are well beyond the scope of this article.
The people who put together the Solano360 “vision” think they’ve got another solution. On the surface it looks like a free market solution, requiring only a little nudge by government. But don’t be fooled. First of all, it involves public not private land. Second, it involves an awful lot of taxpayer money, and not just for infrastructure. The Observer is going to let you in on a second dirty little secret: the County wants to build an entirely new retail center around one anchor tenant, and to get that tenant, it is planning to offer a whopping $20 million tax subsidy.4 All of this is part of the County’s cash flow projections; it is not speculation. And who is this anchor tenant? The cat is out of the bag, presumably to go after the fish: Bass Pro.
The Observer has visited more than one Bass Pro Shop and is amazed by the 150,000 square feet of aquariums, fly-fishing exhibits, hunting supplies, sporting goods, and camouflage gear—more camo, it seems, than could be purchased by the entire U.S. patriot movement. Pretty impressive store. Makes you love the American free enterprise system, well, except for the $20 million tax subsidy part, which by all indications is built into Bass Pro’s business model.5 In any case, it seems like a great store to have in Vallejo. Conclusion: If Bass Pro wants to come, let ’em come. Although it would be a whole lot better if they came on their own, without a $20 million subsidy, or did we mention that already?
Now here’s the crux of the argument against the fairgrounds development. Let’s say it’s worth “incentivizing” Bass Pro. (It’s not, as you’ll learn in moment, but let’s go with that assumption.) Please understand that Vallejo, not the County, is offering the tax subsidy. City officials have agreed to give up a lot of revenue which normally they are entitled to. The Board of Supervisors will use a portion to rebuild the County Fair, pass on a portion to Bass Pro, and keep the rest for itself. The County, acting as a property owner, real estate broker and project manager, is getting a truly exorbitant fee: 50, 60 or even 75%. This is in addition to property tax and ground leases which, mind you, the county is not offering to split with the city. Why? Are Vallejo Council Members being duped, or is city staff not capable of handling a development project itself? (The Observer fears it’s a little of both.)
OK, Vallejo City Council, there’s a question just begging for an answer: you want to give up tax revenue for a new shopping center, then why at the fairgrounds? Some residents might laud your philanthropic spirit. After all, by supporting the Solano360 “vision”, you are also supporting the County Fair and helping eliminate the County’s budget deficit. But of course that’s not what you were elected to do. You are supposed to represent Vallejo’s interests. With that obvious principal in mind, here’s a not-so-outlandish proposal: incentivize Bass Pro to settle a mere 1500 yards to the east. There’s a 32-acre parcel next to Columbus Parkway and a bigger parcel next to the Target shopping center. You could finish widening Admiral Callahan Way, issue the necessary permits, cut out the middleman, and get something closer to 100% of the tax revenue. Or if you insist on handing out—er, investing—$20 million, how about doing something creative downtown, on the waterfront, or on Mare Island?
Some people might think the Observer is missing the point. The 152 acres at the fairgrounds has the potential to be a big project, really big, huge. Anything across the highway would be sort of small and ordinary, and because it’s private land, a developer would actually have to pay for it. (The fairgrounds can be had for a song, or perhaps a few c-notes strategically placed.) Besides, the reason for bringing in Bass Pro is to create something unique, a regional mall. Let’s test that hypothesis. Please read on.
People are always decrying government for not being more business-like. The fairgrounds project could have been a great example of politicians thinking like businesspeople, or like investors. The problem may be that they are spending taxpayer money, not their own. The Observer says, if they insist on spending something, it ought to be time looking at a few case studies. Let’s do what our city and county governments should have done before allocating $4.5 million to the project. And to keep this short, let’s assume that they will land a Bass Pro Shop or another large “entertainment/retailer”, such as Cabela’s.
There are 54 Bass Pro Shops in the U.S.6 They fall into four main groups:
The last group, representing about a half-dozen Bass Pro Shops, is most relevant. Two are close to the fairgrounds project in terms of population, transportation and configuration.7 The results don’t bode well. Consider:
Case study #1. Pearland, TX. This mixed-use development was proposed in 2004 and hyped in a remarkably-similar way as the fairgrounds project. Even the location next to two major highways is eerily the same (see pictures below). The development, now considered dead except for Bass Pro, is worth studying because it’s in a metropolis of 6 million people and only about 20 minutes from downtown Houston. What happened? It wasn’t the economy that ruined the project. Instead, prospective tenants voted with their feet and went to a “town center” development only a few miles away. Some people speculate that Bass Pro had no drawing power because it was built too close to an existing store. (There was already a Bass Pro in an outlet mall in Katy, TX, about 40 miles away.) Others say that Bass Pro is not a good anchor for a pedestrian mall, because it does exactly what it is supposed to do: keep people in its store all day. Whatever the cause, Pearland doesn’t seem to have gotten much for its $30 million tax subsidy. Except embarrassment. The city and developer are trying to come up with a new idea for the property.
Case study #2. Manteca, CA. This is another development whose original design looks and sounds like the Solano360 “vision”. The lifestyle center was supposed to feature “a pedestrian friendly environment with a main-street design, unique architecture, bike paths, park-like gathering areas, and dynamic water amenities including a lake.” With its “impressive anchor lineup”, including Bass Pro, the development was supposed to attract upscale national retailers, small shops and restaurants. Its “unique and exciting outdoor setting” would surely be “the premier retail, dining, and entertainment destination of the Central Valley.” The development ended up with only a Best Buy, JCPenney, and movie theater, which everyone agrees Manteca would have gotten anyway. The development didn’t get a promised sporting goods store (Dick’s), upscale grocery store (Whole Foods?), book store (Barnes & Noble?), or 40,000 sq ft entertainment restaurant (Dave & Busters?). But it did get a Red Robin, its one-and-only place to dine. The developer and city have switched to plan B, “upscale outlets”. All this for a $60 million in public funds, not including what the state of California threw in for highway improvements.
There are many more examples of Bass Pro not having the drawing power that developers promised or politicians banked on with their $20 million tax subsidies.8 We’ll let the above examples speak for themselves, and the reader can decide whether they are applicable to Vallejo. Some readers might object, saying that Vallejo would be a more attractive destination, or the city can otherwise do better. The Observer agrees, we can do better. And we should compete. Fiercely. But what are we to compete with, a shopping center? And who are we to compete with, Manteca? It’s 70 miles away, and it’s got a Bass Pro Shop.
There’s a broader principal here which needs to be stated. Maybe Vallejo can do better, but the burden is not something the government should lay on citizens and taxpayers, especially at a cost of up to $80 million. Businesses should evaluate the risk and decide if it’s worth taking. The Solano Board of Supervisors, with the complicity of the Vallejo City Council, is messing with our local economics. They are almost certainly creating excess capacity, building a shopping center where none is needed, and in their attempt to attract business, they are misappropriating public land, wasting taxpayer money and hurting the shopping centers which already exist along I-80. In a nutshell, this is why a government-sponsored retail project is not economic development; it is interference with a free market system. The tax subsidies just add insult to injury.9
The Manteca case is interesting for another reason, besides the failure of Bass Pro to pull in other stores. It shows how the extreme short-term thinking of politicians can worsen a city’s (or county’s) finances. Certainly Manteca benefitted from temporary construction jobs. It added retail jobs as well, though mostly at minimum wage, and the new shopping center does generate taxable sales, though the net gain is hard to determine. This much is known: sales at the shopping center are about 1/3 of what was expected.10
Some people in Manteca argue that the shopping center provides the city with revenue it would not have gotten otherwise. This is a dubious argument for the reason given above: 4 out of the 5 tenants would likely have settled in the city anyway, because of population growth. So would the hotel that’s currently being built. Its guests will be coming not to shop but to play ball at Big League Field of Dreams, which has a completely-booked tournament schedule through 2014. One tenant, Bass Pro, is arguably producing a net gain, but remember it’s there only because of government aid. What Manteca gave up is shocking:
When the Manteca City Council approved the project, it was so sure of the success that it put a ceiling on the tax subsidy of $1.1 million per year. Sadly for taxpayers, that’s turned out to be more of a floor than a ceiling, as the city and developer walk all over them.
Manteca may have provided other incentives that are less-obviously tied to the shopping center, and city officials encouraged their brethren in Sacramento to do the same. In one press release, the developer boasted, “$45 million of the total investment came through public financing by the state of California and the city of Manteca, one of the highest amounts for any retail project in the state.”12 We’ll never know if the developer was bragging about infrastructure improvements or the aforementioned, infamous parking lot lease. Regardless, the total amount of public funds going into that shopping center is similar to what will go into the fairgrounds.13
Did Manteca get its money’s worth? Not even close. The chart shows why: a loss with the new shopping center of about $347,000 per year.14
Amazingly, the city would have a net gain of about $270,000 per year if the shopping center was never built and Best Buy created a standalone store (or better, took over an empty building, as it did in Vallejo). The only people who insist that Manteca has a net gain from the shopping center are ignoring line 4 or the second column of the chart. Their mistake is comparing the present situation to ‘zero’, as if nothing would happen if the shopping center didn’t get built.
It’s no stretch to assume Best Buy would have opened a store somewhere in Manteca if it was not lured to the new shopping center. (For all we know, the developer passed along part of its subsidy and Best Buy changed its plans.15) The gain would have been even greater if JCPenney also built its store somewhere else in the city. Fortunately, we don’t have to assume very much because the outcome is clear: a taxpayer-subsidized project turned economic development on its head; it added to the city’s deficit. Plan B, an outlet mall, won’t help much. Even if it’s very successful and increases sales by half, which is optimistic, because the powerhouse stores are already in place, it will only reduce the city’s losses. If you figure in municipal services and the cost of financing, Manteca is even worse off. And it will be for 34 more years.16
When you read about Manteca’s dalliance with a retail project, quaintly named The Promenade Shops at Orchard Valley, you begin to understand how cities get themselves into trouble. It’s one thing for a government to use taxpayer dollars for roads and bridges, schools, prisons, firehouses, or even the planting of trees, which can be reasonably expected to last 35 years. But investment in retail? It’s hard to imagine government taking on a more risky or foolish endeavor. Private investors have been fleeing retail for a decade, or at least the brick-and-mortar kind. Hence “the need for tax subsidies”. Without enough capital, developers of shopping centers have come up with a new strategy. They have figured out how to transfer risk from the private to the public sector—i.e., the taxpayer—and governments are recklessly playing along.
Now consider this: Manteca gave up 55% of its tax revenue for 35 years. With the fairgrounds project, Vallejo may give up as much as 75%. Forever.
So far we’ve looked at the Solano360 “vision” from the standpoint of public financing or macro economics. Now it’s time to go micro. Today’s topic is: competition.
There are several kinds of competition that are relevant to a project like the fairgrounds. Elected officials seem to think the competition is between cities. But the real action is between retailers, or among the stores belonging to a single retailer.
It’s interesting to note, after Manteca’s rapid growth in the last 20 years (pre-housing meltdown), that some neighboring cities got nervous about losing sales tax dollars. Officials in Modesto, Tracy and Stockton fretted, “Isn’t a new JCPenney going to pull shoppers from our existing stores?” Of course it would. That’s why the JCPenney company expanded into Manteca; it was appropriate and necessary for the growing population. If the company did not build there, residents would go to another local department store, a recently-constructed Kohls.17 The truth is, despite all the hype about “destination” shopping, most people don’t like to drive very far for most of the things they buy. Another truth: Manteca would be in a slightly-better financial position if its residents did shop at Kohls, because the city would get a higher percentage of tax revenue. When Manteca officials voted to subsidize the construction of a new shopping center, they thought it was needed to grab shoppers, like those going to JCPenney in neighboring cities. But all they really did was give a competitive advantage to one business over another. And Kohls, the business that opened first (in 2006) and was paying Manteca 100% of its local sales tax, was put in a weaker competitive position. Go figure.
Just to clarify, the Observer is not equating JCPenney and Bass Pro. The main point is that Bass Pro has competition, just like JCPenney. It competes with other “entertainment/retailers”, such as Cabela’s. It competes with department stores and big box retailers like Sports Authority and Big 5. Significantly, in Solano County, it also competes with many small- and medium-sized businesses that sell boats or fishing gear. And like JCPenney, it even competes with itself. Bass Pro has to decide how close together its stores should be located so as to capture a market but not cannibalize its own sales. This gives us another reason to look toward Manteca—and avoid the same trap. Apparently officials in that city never thought to ask Bass Pro about its future plans. Or, if they did, they forgot to get the details in writing. Instead, they relied on the company’s PR, which suggests that Bass Pro pulls in customers from a radius of 150 miles. If a store opens in Vallejo, that means company officials consider the actual selling radius to be about 35 miles, the distance from the fairgrounds to Dixon.18
It seems that Manteca is about to get the squeeze. Maybe it will be from another Bass Pro Shop in Vallejo, or perhaps in Bakersfield, where the company has announced a new store, or somewhere around Sacramento, where there are whisper reports of a deal. And there’s no reason to focus on that one company or the Central Valley. Manteca will soon lose whatever competitive advantage it had with its “unique and exciting outdoor setting” as other lifestyle centers get built and as Cabela’s or Gander Mountain or some entirely new retail concept takes hold in Northern California. In the end, Bass Pro is not so different from JCPenney, except for its mixing of retail and nature exhibits, which hardly justifies a decades-long tax subsidy. Even it did, that’s not what Vallejo is doing. The city is not subsidizing one Bass Pro Shop but an entire shopping center!
To continue our story about Manteca’s neighbors, one of them, Tracy, decided to take action in 2008. It would start its own “Retail Incentive Program”, to make sure it did not lose more shoppers to Manteca, Lathrop, and (gasp!) Mountain House, which it perceived as its greatest competitive threats. But the city council showed some reasonable restraint. Perhaps in shock and awe over Manteca’s 35-year parking lot deal, Tracy specifically limited its incentive program to five years and set down strict conditions to make sure it wouldn’t hurt existing, local businesses, or end up subsidizing businesses that would come anyway. Put differently, in this competition between cities—which supplants the normal and desirable competition between stores—Tracy officials realized they could stay in the race as long as they didn’t trip all over themselves.19
Now Vallejo has jumped in and turned this competition into an unabashed race to the bottom. Instead of a 55% subsidy, Vallejo is offering as much as 75%, and the city is apparently setting no conditions whatsoever. There’s no performance measure, no agreement with the county as to what businesses should go to the fairgrounds, and no provision for a changing retail landscape in the future. The reader can easily imagine the new shopping center being partially occupied and the county (or master developer) pulling in tenants with below-market rents or with part of its tax subsidy—a lot of damage can be done with the 50, 60 or 75% of taxes that Vallejo is giving up. In this scenario, it’s not only possible but probable that some businesses which would have gone elsewhere in Vallejo will settle in at the fairgrounds. And here’s the worst-case scenario: a major tenant in the Target or Gateway Center makes a jump across the highway. Where Vallejo was getting 100% of the local sales tax, that amount gets cut by half or more if the store relocates one mile away. Such a move is not unprecedented. Our City Council should look at the Target store which just opened at the MacDonald-80 shopping center in Richmond. With tax subsidies in hand, the store jumped across the highway, a mere one mile from its previous location in El Cerrito.20 That was between cities. With a new development at the fairgrounds, Vallejo is competing with itself. It’s only a matter of time, maybe just a few years, before leases expire, then all bets are off.
Could Vallejo officials have avoided this trap? Sure, they could have done their own research, and they could have asked the parties involved. They wouldn’t have to look far. Here may be the most odd-fitting piece of the fairgrounds puzzle: Vallejo’s interim City Manager and part-time Planning Director, Bob Adams, was the City Manager in Manteca. He helped negotiate the deal for the Promenade Shops. All he had to do was speak up at a Vallejo council meeting or say privately to city staff, “Uh, folks, we tried this in Manteca and it didn’t work out so well.” But then, he may not want a lot of attention when his name is at the bottom of a $38 million contract for a parking lot with emergency helicopter landing capabilities.
Another party that would be nice to hear from, in the sense of explaining themselves and justifying their take from the public trough, is Economic Research Associates. ERA is a consultant for the Solano360 committee. It is the company behind the “draft” feasibility study that you’ll read about below, and it has been hired by the Board of Supervisors to do an economic impact report. Unfortunately for the city and county, it has a not-so-good track record, and its record is particularly bad in—you guessed it—Manteca.
A few years ago ERA was hired by Manteca to determine how much more retail the city could handle. As it turns out, ERA is like a bond-rating firm before the financial crisis. The rap on the company is that it’s never met a retail project it didn’t like, and it tells city planners whatever developers want them to hear.21 ERA delivered its report to Manteca in August 2008. Remember that fateful month? Bear Stearns already collapsed; AIG, Lehman Brothers et al are going under; the Federal Government is about to pass TARP; auto sales are off by 80%; and the housing market is in a freefall, especially in California’s Central Valley. Here are some choice nuggets from ERA’s report, based on its “more than 35 years of experience with retail market analysis and community economic development”: the housing “retrenchment” is a “short-term constraint”; growth, housing and employment numbers from the San Joaquin County government are too conservative (in fact, they were too optimistic); Manteca can support in addition to the Promenade Shops another 1.2 million square feet of retail by 2018; the city can get six to eight more car dealerships (ERA recommended a new 45- to 50-acre auto mall); and “the chief threat for Manteca is aggressive retail development by its neighbors—Tracy, Modesto, Stockton and the smaller communities of Lathrop and Ripon.”22
Those guys were hired for advice on the fairgrounds project? They should be chased out of town!
Just as Vallejo residents were starting to get engaged in this issue, City Council silenced them. The public comment stages are over—they happened fast, didn’t they?—and the Observer worries about the next two years of backroom dealing. There will be no transparency, no oversight, and no fact-checking. That last point is critical. At the Council meeting on February 9th, it was clear to all observers that our elected officials are not being given complete or timely information and no one is questioning the assumptions behind the Solano360 “vision”. A few council members admitted publicly they had not read the “draft” feasibility study or peer review.23 Most others tried to cover their ignorance with platitudes.
In fairness, it’s hard to blame City Council for not reading the peer review, ’cause city staff never gave it to ’em! When Councilmember Hannigan asked about this, Vallejo’s Assistant City Manager dissembled for a minute then made the surprising claim that the peer review was never in final form. That’s kinda’ weird since city staff commissioned and paid for it, simultaneously claimed it was supportive of the project, and voiced no similar concern about providing Council with an incomplete, unfinished and poorly-done feasibility study, literally stamped “preliminary draft for public discussion”. For the record, the peer review was final, exceptionally well done, and not in support of the feasibility study.
And if that’s not weird enough, Councilmember Gomes, who’s on the Solano360 Oversight Committee and usually on top of the issues, said she didn’t even consider the feasibility study to be relevant, not because it was a “draft”, but because it was written from a developer’s standpoint. We’ll have more to say about that below. For now, we have to wonder: If our elected officials cannot commit the time to study the project, why would they take out of the process the concerned citizens who will? A simple vote to continue the resolution to the next meeting would have given Council and the public sufficient time to review the documents, including the peer review and a handful of others provided at 7:00 pm the night before.
Note to the astute reader: the previous sentence does not contain a typo. Almost 300 pages of documents were provided to Council Members at 7:00 pm the night before their vote on the fairgrounds. These documents were never officially released to the public but you can get them here. One document with the catchy title “timeline” was never provided at all, although it was said to be attached to the staff report as Exhibit A-1. It’s an inescapable conclusion that the City Council entered into a five- to fifteen-year deal without ever knowing or asking when the next steps will occur. Is it any wonder that development projects in Vallejo go awry?
Before voting on the fairgrounds project, several City Council Members tried to excuse their lack of preparation and oversight by describing their vote as “just an incremental step”. It’s an imperfect analogy, but didn’t the U.S. end up in Iraq the same way, after a series of votes that were at the same time bold, decisive, ambiguous and non-committal? The executive and legislative branches of government, at all levels, try to do things in small, hard-to-argue-with steps when the facts do not support the policy. To prevent “policy creep”, each branch of government is supposed to keep a watchful eye on the other—and the public is supposed to keep a watchful eye on both. Well, that didn’t happen with the fairgrounds. Without a study done by and for the city, the Council has no idea if there will be a net gain in taxes or jobs or if such rewards outweigh the risks. Council acted solely on assurances and wishful thinking. At this point, all we really know is that the project may be break-even for County Government, may support the County Fair, and will definitely be good for the developer. If only those were the groups that the Vallejo City Council is supposed to represent...
Sadly, City Council missed the signs of policy creep and the irony. February’s vote was supposed to be a big step forward (read: non-incremental). Council Members were supposed to sign off on a financial feasibility study. That’s what city staff promised them one year ago, when they voted on the Solano360 “vision”. Here’s an excerpt from the June 2009 staff report:
“Next Steps: A financial feasibility analysis will be completed by the project team. ERA, an economic and market research firm, will prepare models based on the mix of uses called out in the Vision. These models will reflect estimated public and private costs and revenues to the City and County.”24
Here’s almost the same statement in the February 2010 staff report:
“Background: Upon approval of the Solano 360 Visioning Report, the County would direct ERA, an economic and market research firm to prepare a financial feasibility analysis. ERA would prepare models based on the mix of uses called out in the Vision. These models would reflect estimated public and private costs and revenues to the City and County.”
Notice how “would” slipped in? This is enough to make a grammarian cry. Does the word mean “did”, “will”, or “intended to, but never got around to it”?
Apparently the Council’s June 2009 vote was a small step, and so was its vote in March 2009 on the original Memo of Understanding with the County. If you include its February 2010 vote, that’s three small- to medium-sized steps in a year—or four if you include a $100,000 study of the Redwood Parkway interchange, another Council action with respect to the fairgrounds. Without ever taking a really big step, City Council has gone down a path that is strewn with bits and pieces of misinformation and no obligation to study anything in detail. When the day comes for the final, this-is-for-all-the-marbles vote, Council Members will be stuck. They will be trapped by cognitive dissonance: “How could I/we have voted 3, 4, or 5 times for something that is so fundamentally flawed?” (Answer: incremental steps.)
Please help us figure this out, Vallejo City Council, because the situation is as muddy as Rindler Creek. The staff report for the February 9th meeting says that a feasibility study “would” be prepared by ERA, the city had it peer reviewed, and the peer review concluded that the project is feasible. On the other hand...
The city and county have embarked on a project that depends entirely on good faith negotiations. These concern the splitting of tax revenue, hiring of a master developer, and deciding on an acceptable mix of uses. Normally when two parties’ interests align, “good faith” is no problem. But in the case of the fairgrounds, there is substantial evidence, some coming out the night before and the day of the City Council meeting, that the County’s plans don’t jibe with the Solano360 “vision”.
If you are not familiar with the Solano360 “vision”, it calls for an arena (separate from new county fair buildings), transit center, pedestrian and bicycle paths, extensive landscaping, parking garages and a bridge over Fairgrounds Drive, to form a connection with Six Flags. These things are what supposedly make the mixed-use development a regional draw (something like San Antonio’s River Walk, says Supervisor Linda Seifert, who’s apparently never been there). Although these things are called for in the “vision”, not one—let’s repeat that—not one is included in the County’s cash flow projections.25 Moreover, the water features that are so often touted—tree-lined shores, fountains, trails, terraced seating—the County does not budget for any of these things until year 14, the tail end of the 15-year project. This raises serious doubts about the “draft” feasibility study, since the sales figures depend hugely on tourist dollars. But more importantly, it raises fire-engine-red flags about Vallejo’s negotiating partner. How could the city even consider signing a Memorandum of Understanding (MOU) when the county’s internal documents don’t match the “vision” being sold to the public?
But wait, it gets worse. On the same day that the Vallejo City Council voted to go forward with the project, and accepted the MOU, County Supervisors acknowledged a new-and-improved “vision” for the fairgrounds. At the Supervisors’ meeting on the morning of February 9th, Ms. Seifert asked representatives from Brooks Street, the developer/consultant group, about item 4 in the MOU which includes the term “residential”. This was a surprise, she said, because “nothing in anything I’ve seen suggests that residential is at all part of the proposed vision.” A consultant answered that housing has always been part of the term “mixed-use” and the “vision” is flexible enough to accommodate it. It’s worth watching the video of this exchange.26 The head of Brooks Street added that the fairgrounds development would generate over a million dollars in affordable housing subsidies. He had this information so readily available that one has to wonder if the developers/consultants were salivating at the thought of housing being back on the menu. (Later, he admitted that housing was not part of the “vision” that was financially analyzed, and he never did say where the affordable housing would go.)
Other Supervisors may have been on top of the housing issue and known all along that it was part of the “vision”. But they, along with the consultants, did a great job of keeping this information out of the public eye. Housing was never mentioned even as a possibility in the project “vision”, in the peer review by Municipal Resource Group, in testimony before City Council, or in press releases to local newspapers.27 Moreover, housing was specifically ruled out at the second public forum which took place in spring 2009. (There was an outcry during the first forum when housing was brought up.) The elimination of housing may have been the only change in the “vision” which followed public opinion,28 yet it appears to have been reintroduced after the city and county signed a new MOU.29
Housing, of course, changes everything, especially the project costs. If the County adds housing to the mix and gets part of the local sales tax, then Vallejo will have gotten itself into an awful mess. The city already has trouble balancing its budget and providing services to residents. For new residents, those moving into condos or apartments at the fairgrounds, the city would have to support police, fire, etc., with less than its usual share of revenue. So if Vallejo wants to get out of this deal... There is a way out, right? Sadly, no. City Council accepted the deal with no benchmarks and no means of terminating it. At best, council members can hold their ground, bide their time, and simply let the MOU expire in five years.30
“Holding their ground” will be difficult, not for personal reasons, but because of an unlevel playing field. The city made two big mistakes with its MOU. The first was allowing county government to burrow deeply into city hall. The person who reviews the economic and environmental impact reports for Vallejo will be paid for by the county, and the county has the privilege of an “expedited city planning/zoning process”. Presumably that means no architectural review board, no hearings before the planning commission, no public comment. The county and its consultants will not face the usual hassles of having their work checked and will go straight to city council for project approval.
The second mistake was giving up what little leverage the city has. Keep in mind that the Board of Supervisors has already spent heavily on consultants. By the time a private developer takes over, the county anticipates spending $4.5 million.31 While the city can refuse to sign another MOU or a revenue-sharing agreement, it is unlikely that the county will just walk away. If anyone doubts the capacity of one governmental body to go after another, a relevant example is San Jose vs. Santa Clara County. A few years ago, when that county tried to redevelop its fairgrounds, city officials objected, saying a proposed amphitheater would hurt its plans for downtown. San Jose sued, and Santa Clara counter-sued, saying it had the right to do anything it wanted with its land and the city was unlawfully interfering. In the end, nothing happened to the fairgrounds, but there was a happy ending for Santa Clara: its lawyers triumphed over San Jose’s lawyers and the county got a $30 million settlement.32
Here a city-county face-off could be uglier. Vallejo officials not only threw their support behind the Solano360 “vision”, they allowed some revenue-sharing to be written into the MOU. In March of 2009, the city agreed only “to explore the concept of reimbursement”. In February of 2010, in the revised MOU, the city agreed to actual reimbursement of direct and indirect costs. This will be done “prior to any distribution of proceeds” (meaning tax revenue), and it will be done “on an equitable basis in proportion to each party’s contribution” (clause 7b). In plain English, the county expects to get its money back before Vallejo gets anything.33
No wonder the Board of Supervisors is asking for—and behind closed doors may be demanding—a 75/25 split in tax revenue. At least one supervisor, John Vasquez, believes the county should get whatever it wants, because “we’re the ones writing all the checks” (Times-Herald, 1/23/2010). Mr. Vasquez was chastened for that remark, and he later apologized, but he wasn’t done. At the Board of Supervisors meeting on February 9th, he tried to reassure some skeptics: “Because we’re the property owner and we’re the government, we can add the businesses that add nothing but value to everyone that passes down I-80 and Hwy 37.” The arrogance of Mr. Vasquez, not to mention his complete misunderstanding of the role of government, should give pause to Vallejoans and all residents of Solano County.
Cities that are attractive places to live are also attractive to retailers. Cities that get this relationship backward fall into a vicious circle of government subsidies, over-development, blight, municipal debt and declining services. If the county and city desire to spend $35 million dollars on a mini-stimulus package (actually closer to $80 million if you count highway improvements and the tax subsidy for Bass Pro), may we humbly suggest that it be forward- not backward-looking? Let’s be real: what is proposed for the fairgrounds is a shopping center with more than one-half million square feet of retail space. The last time a shopping center was built in the North Bay even close to that size was 1996. Those glory days are over.
Some longtime Vallejoans (like the Observer) may wish we’d landed a regional mall, but we lost that battle. We should not be re-fighting it now.34 Instead, we should be preparing for the next battle, and that will be to build an economy for the 21st century, which means improving our ties with higher education (Solano College, Touro, Cal Maritime) and doing everything we can to bring in research and development, manufacturing, new technology and everything else that provides high-paying jobs. Interestingly, there’s a Dallas suburb called Frisco mentioned in the appendix of the “draft” feasibility study. It’s frequently cited as one of the best places to live in America, because it’s doing all the right things. Its most recent economic development report focuses on five areas of growth: Corporate Headquarters; Technology; Health, Medical & Life Science; Financial Services; and Youth, Amateur & Professional Sports. Retail is not mentioned. It doesn’t have to be. You get any of the others, you’re home free.
Now here’s a “vision” we’d like the entire City Council to ponder. Some day when the fairgrounds resembles every other shopping center along I-80, or worse, has a bunch of half-empty concrete pads, when people drive by Vallejo and wonder what we were thinking, some disillusioned but still-concerned citizens are going to put up a plaque. It will be on the cornerstone of Pet Food City or some similarly-named store, and it will read: “Here lies formerly public space. Once a fair. Once dreamed about as a place for families to walk and play. Development courtesy of the Vallejo City Council and County Board of Supervisors. No one action. No one person. This distressed suburban mall resulted from a long series of incremental steps, so please don’t look for blame.” If our former City Council Members happen to pass by, coming from whatever elected positions they hold in Sacramento, perhaps they will park their cars in a structured garage, walk over to the plaque and lay down a wreath.
1^ On 9/30/2008, the Board of Supervisors voted to spend $2 million on a new vision for the fairgrounds. It authorized the County Administrator to enter into a no-bid contract with Lucas Austin and Alexander LLC (dba Brooks Street). By February, 2010, the County paid this company and its various subcontractors close to $1.5 million.
If you want to see what $1.5 million buys nowadays, check out the Solano360 project “vision” and financial feasibility study. The latter, you’ll notice, is a draft. Either the County did not realize this when it sent Brooks Street a check or there was a belief that the project should go forward regardless. One can only imagine how much a final version of the study would have cost.
On 2/9/2010, the Board approved $3.1 million more for the project. This amount included what was left from the original appropriation plus another $2.4 million. (See FINANCING section in the county staff report.) As before, this money would be spent on no-bid contracts with Brooks Street and its various subcontractors. It would also include payments to the City of Vallejo to help cover the cost of the entitlement process.
2^ Greg LeRoy neatly summarizes the issue in his book The Great American Jobs Scam: “Retail is not economic development; it’s what happens when people have disposable income... You and I do not have more money in our pockets because we have more places to shop. Building new retail space just moves sales and jobs around. It doesn’t grow the economy.” An economist writing in the Skyscraper forum puts the issue in more stark terms: “Large scale retail is NOT economic development. It is a drain on local economies. Money from local shoppers gets distributed locally only as minimum wage jobs—the rest goes to the parent company which is usually in another [state or country].”
According to Fred Carstensen, Director of the Center for Economic Analysis at the University of Connecticut, retail development cannot be considered economic development because it does not create more net jobs and usually takes business away from existing stores. One reason people tend to equate it with economic development, he says, is simply because retail developments are so visible and easier to obtain. The result is “a fixation on retail”. Instead of a shopping center, “an office building on a relatively isolated piece of land would provide higher tax revenue and better jobs with less traffic impact.” He adds: “Retail is the tail of the economic dog... It’s just not the driver.” (cantoncare.org)
Jeffrey Cohen of the University of Hartford School of Business echoes the sentiment: “A large commercial development would initially generate tax revenue in permit fees alone; in the long run, tax gain drops and an accurate prediction [of benefits] is problematic because these stores have many economic costs.” Among them: low-wage, mostly part-time jobs; depressed property values in nearby residential areas and older shopping centers, which can neutralize any tax gain; and a high demand on city services, especially police. Office buildings, service industries, and manufacturing do not have these associated costs. (norwichbulletin.com) In short, for a city trying to expand its tax base, almost anything produces more bang for the buck than retail. (Greg LeRoy)
3^ For an example of how traffic issues get neglected, Vallejoans need only look about six miles north to the Napa Junction shopping center. This center, with 220,000 square feet of retail, is about one-fifth the size of what’s proposed for the fairgrounds. The developer of Napa Junction contributed just $1 million toward a regional transportation fund, mostly to pay for stoplights and turn lanes on Hwy 29. Traffic analyses by the city of American Canyon and the developer suggested these improvements would be enough. Now the city has to solve a multi-million dollar problem without help from the state and with sales tax revenue well below expectations.
At least the Napa Junction shopping center is immediately adjacent to a four-lane highway, although the term “highway” is a bit of a stretch. The fairgrounds is next to I-80 and Hwy 37, but access is limited to two city streets. These streets serve a residential population that extends, coincidentally, all the way to American Canyon. As a result, Fairgrounds Drive has become for many people a way to bypass Hwy 29. And we shouldn’t forget about Six Flags, which sits directly opposite the fairgrounds and creates its own traffic problems on weekends, holidays and evenings, exactly when a shopping center would be busiest. No one working on the fairgrounds project expects the state of California to jump in and help with this “local” traffic problem, even if the state had the money to do so.
Here is a picture adapted from the Solano360 “vision” that nicely shows the traffic bottlenecks. If you want to know how traffic analyses go bad, or how they get a developer off the hook, read these excerpts from the “vision” and “draft” feasibility study.
Related note: In the “draft” feasibility study, the $60 million figure for transportation improvements is passed off as a developer expense. Perhaps this was done to make the disappearance of state and federal monies a non-issue. (Earlier plans for the fairgrounds included a Turner Parkway overpass.) Whatever the reason, this unusual accounting hides the need for public funds, and it distorts the ratio between public and private investment. In reality, when you include transportation improvements, the cost of redeveloping the fairgrounds largely falls on the public, even though the land is mostly being converted to private uses. If you look at page 8 of the “draft” feasibility study, you will see how the authors misrepresent the amounts that each party will pay and when they pay it so that the county is “guaranteed” a 12% return on its investment. (Guaranteed by whom, the authors of the study?)
4^ Some people who profess to be on the side of small government like the idea of a tax “rebate”, which is their preferred term over “subsidy”. They think it’s better if the government does not keep the money. But they misunderstand the issue. A corporation like Bass Pro is not getting a rebate, because the money is not coming from its earnings. The money is coming from its customers in the form of sales tax. “Subsidy”, therefore, may be an overly-generous term. It would not be inappropriate to call what Bass Pro gets a corporate handout, or a redistribution of wealth from the little guy to the big guy.
5^ See, for example, this article from the International Council of Shopping Centers and this article from Arkansas Business. More articles about Bass Pro tax subsidies are cited below.
6^ Here are satellite pictures of all Bass Pro locations in the U.S., courtesy of GoogleMaps.
7^ The other Bass Pro Shops in group 4 are: Denver, CO; Rancho Cucamonga, CA; Bolingbrook, IL; and Bossier City, LA. Notably, all of these development projects, except Bossier City, were done by a company called Forest City. They appear to be successful, though they were built under vastly different circumstances. The two singled out for this article, Pearland and Manteca, were development projects by a company called Poag & McEwen. One conclusion is that a city should be very careful when choosing a developer; it obviously makes a difference. Another conclusion, recently stated by Poag & McEwen as a “lesson learned”, is that a developer should be very careful choosing a location; it’s best not to create a lifestyle center anywhere near an existing indoor mall, because the lifestyle center will have difficulty signing anchor tenants. It’s worth noting that the fairgrounds is right in the middle of three regional malls: Westfield, Sun Valley and Hilltop. See this flyer from a local taxpayer group for a nice visual.
Here’s one more fact to consider: lifestyle centers that do best have many businesses that serve the local community, such as supermarkets and drug stores. Especially during the economic downturn, developers have realized that the local community is where a lifestyle center gets its foot traffic. This greatly contradicts the idea of the center also serving as a “super-regional entertainment destination”, a phrase used in the Solano360 “vision”. It also undermines the outrageous assumptions in the “draft” feasibility study that 90% of the revenue generated at the fairgrounds will be new to the city and 80% new to the county. In short, you can’t have it both ways, lots of pedestrians doing their regular shopping and lots of visitors from 20 or more miles away. (This dilemma is no doubt worsened when residents of two nearby counties have to pay a $5 bridge toll to reach the shopping center.)
8^ See this American Planning Association journal article appropriately titled, “TIF, Greenfields, and Sprawl: How an Incentive Created to Alleviate Slums Has Come to Subsidize Upscale Malls and New Urbanist Developments”. Another good article is titled “Giving Away the Store to Get a Store”.
Here is a journal article for the Oklahoma Council of Public Affairs whose first paragraph is worth quoting in its entirety: “Oklahoma City’s proposal to build a Sportsman’s Center for Bass Pro Shops is unwise public policy. As a matter of principle, government should not be in the development business. Taxing some citizens to give someone a service at less than the market price is not a legitimate function of government in a free society. What’s more, the Bass Pro proposal is unlikely to pay for itself, will benefit a handful of property owners at the expense of small and start-up businesses, and will foster a politicized, anti-business climate.”
Here are good editorials on the subject: Boston Globe, Columbia Business Times, Houston Chronicle, and Milwaukee Journal-Sentinel. See also this commentary and this brief discussion of subsidies, economics and risk.
For more articles about the abuse of retail subsidies and tax increment financing, visit www.heartland.org, which is dedicated to free market solutions. For advocacy, visit www.goodjobsfirst.org and sayno2outdoorsretailsubsidies.com.
9^ Politics does make strange bedfellows. The Board of Directors of the Vallejo Chamber of Commerce, which normally lobbies against government waste and misuse of taxpayer dollars, has enthusiastically endorsed the Solano360 “vision”. CoC members might want to tell their elected officials at City Hall and Chamber Headquarters that, as businesspeople, they work hard, play by the rules and compete every day without a tax subsidy. Where’s the fairness?
10^ John Nowak, Manteca’s deputy city manager, estimated that the Promenade Shops would generate $170 million in taxable sales in its first full year (Modesto Bee, 4/16/2008). The developer hinted at more than double that amount: it “hopes retailers will produce $500 in sales a year per square foot there, 25% more than what is considered good performance” (Memphis Business Journal, 10/26/2007).
11^ What is not clear is how Manteca paid for the roads and infrastructure. Most likely, given the massive increase in debt of its redevelopment agency—an additional $75 million in 2004 and 2005—it did tax-increment financing and issued 30- to 50-year bonds.
If the city of Manteca used redevelopment funds for the shopping center, how did it justify this, for the removal of blighted trees? According to the Manteca Bulletin (3/15/2007), “The almond orchard along Atherton Drive just east of Union Road is being torn out to clear the way for what could easily become the region’s premier shopping destination. The cutting down of the aging trees wasn’t the only positive development [at the Planning Commission meeting].”
Manteca residents apparently never picked up on the nuttiness of this project or various others, as the city went wild with redevelopment in the first half of the decade. From the Manteca Bulletin (2/1/2010): “The success of Spreckels Park generated the tax increment needed to put infrastructure in place for the Stadium Retail Center as well as build the Big League Dreams complex and is paving the way for the lifestyle center. Conservative estimates put the ultimate value of the lifestyle center project will be in excess of $250 million. That means $2.5 million more in property taxes will be generated with a large chunk going to the RDA.”
The Manteca Bulletin should have studied the RDA’s balance sheet before raving too much—and here’s a lesson for Vallejo’s Redevelopment Agency, whose Flosden zone includes the fairgrounds. In Manteca, the RDA is struggling to keep its head above water. In 2009, it contributed $7.5 million to local projects, roughly the same as it paid in interest on its massive debt. After investing heavily in all the projects mentioned above, the total outstanding debt of the Manteca Redevelopment Agency is now $130 million! The Agency will get hammered this year when Sacramento takes back some redevelopment funds.
Vallejo taxpayer alert: a new redevelopment zone has been proposed, or may already be in place, for the I-80/Redwood Parkway interchange. To learn about the consquences, please see this report from Municipal Officials for Redevelopment Reform. The Observer considers the report a must-read for anyone concerned about corporate subsidies, taxes, and government debt.
12^ See this article about the developer Poag & McEwen and the above note about “lessons learned”.
13^ Some media reports about the Manteca shopping center have said that the city’s support was entirely in form of a tax subsidy (Oakland Tribune, 9/19/2007). Others have described a similar split as stated here, including $24 million for roads and infrastructure (Stockton Record, 4/3/2007). The consensus—the Observer is amazed at how difficult it is for taxpayers to find out exactly how their money is being spent—is that Manteca is putting $60–62 million toward the shopping center. The amount could be less if sales remain below expectations, but that’s not necessarily good news.
14^ The figures are based on average annual sales as reported in the financial press. Bass Pro is a privately-held company and its average store sales are estimated at $27 million per year. Best Buy and JCPenney are public companies and their sales are well-known. In fact, Best Buy is considered one of the top retailers in the U.S. with sales of more than $900 per square foot. JCPenney, in contrast, has sales of about $190 per square foot. Their Manteca stores are 30,000 and 90,000 sq ft, respectively. In the chart, “est. annual sales” also includes $3 million for movie theater concessions and the Red Robin restaurant, a rough estimate and probably too high. The infrastructure amount is also a rough estimate and does not include the cost of financing or bonds issued by the State of California for highway improvements. Though based on estimates, the table closely matches the revenue actually reported for the shopping center’s first six months.
Some officials in Manteca might say that line 4 is incorrect, that infrasture was paid for by the Redevelopment Agency, not the city. That may be narrowly true, but only with respect to the sale of bonds. The tax-increment financing which pays for those bonds takes away revenue which otherwise would have gone to the city. Now the revenue goes back to the RDA, and instead of being used for municipal services—police, fire, etc.—it goes toward debt service. For more details, see the report from Municipal Officials for Redevelopment Reform referenced above.
15^ Best Buy may wish it did locate somewhere else. In a ironic twist, the company filed suit against the developer of the Manteca mall this year in Federal Court. Apparently the developer promised Best Buy it would get half off its rent until the mall was 60% occupied. Now the developer is saying sorry, we meant 60% of the square footage that actually got built.
16^ Manteca is entering its 8th straight year of deficit spending, even though residents approved a half-cent sales tax increase in 2006.
17^ The competition between JCPenney and Kohls is intense. See, for example, this article from Robin Lewis Reports.
18^ Bass Pro does not seem to be the tourist destination that it once was, except perhaps in a few midwest states and the deep south. In more populous states, it could well be overexpanding, turning itself into an attractive but not so exceptional chain store. There are six Bass Pro Shops in Florida and five in Texas, with another opening soon. Many of these are less than an hour apart by car. According to a market report by Colliers International (2010): “Bass Pro Shops plans to open as many as eight new stores annually over the next two years. Most will be the chain’s Bass Pro Outdoor World concept, which takes between 140,000 and 150,000 square feet. Planned openings include: Augusta, Bakersfield, Buffalo, Decatur (AL), Memphis and Montreal.” A just-released report by the Public Accountability Initiative shows how this trend has hurt cities and wasted taxpayer dollars.
19^ See staff report for the Tracy City Council and the attached Gruen Report available here.
20^ A good example of a shopping center cannibalizing sales is Mesa Riverview, which landed a Bass Pro Shop and found itself in hot water with voters and the press. The Arizona Republic newspaper recently reversed itself in an editorial—it was originally in support of the project—after the shopping center failed to live up to its promises and got existing local businesses to move in. Here is the editorial and two related articles, here and here, which were written before the shopping center was built. Also see the report by the Public Accountability Initiative referenced above.
Another example is right up the highway in Vacaville: the Nut Tree. The developer is in an on-again-off-again fight with city hall to loosen restrictions on the shopping center, so that smaller, local businesses can fill the unoccupied space. Originally it was supposed to have the same kind of regional draw that’s been talked about for the fairgrounds. For more about the Nut Tree, please see this flyer from a local taxpayer group.
21^ This journal article explains how economic research companies play with the numbers. The article, by Professor John L. Cromption at Texas A&M University, singles out ERA as one of the main culprits.
George Ebertin, Professor at the University of North Texas, writes: “When municipalities need a favorable report...they find companies such as ERA to give them what they want—a glowing report rife with errors and conclusions that lack any basis in peer-reviewed research or fundamental economic analysis. The city of Arlington, Texas, commissioned ERA to produce an impact report for a new Dallas Cowboys stadium. The mayor, Robert Cluck, said he was going to hold off on an endorsement of the stadium until the report was produced (a real in-depth report—took three weeks to “produce”). Anyone familiar with ERA...knew Mr. Cluck was being disingenuous in his comments, for these reports always come out with overwhelming positive economic projections. The report for Arlington contained such gems as a $7B impact over 30 years, including $25M a year brought in by the cheerleaders. Thus, I would...closely inspect any economic impact report, particularly if such documents are produced by firms such as ERA.” (November 2005, www.fieldofschemes.com/news/archives/001412)
22^ Apparently ERA’s right hand doesn’t know what its left hand is doing, and the company has trouble with the simplest of facts. In its report on the fairgrounds, the company cited its “more than 50 years of market research expertise” and its history with “comparable projects in other California cities”. It mentions Seaport Village in San Diego, but of course it neglects to mention Manteca, which has the most-similar project in the entire state and which the company just studied in 2008. If you’ve read this entire article, you can understand why ERA wouldn’t mention Manteca’s experience with Bass Pro and the heavily-subsidized Promenade Shops at Orchard Valley. Nevertheless, it’s a serious omission. An interesting question is whether ERA, and Brooks Street by extension, violated any fiduciary responsibilities to their clients, the taxpayers of Solano County.
23^ The document is officially called “Financial Feasibility Analysis – Preliminary Draft for Public Discussion”. It has remained preliminary and in draft form since September, 2009. For a nice chart that shows what’s actually in the study, see this flyer from a local taxpayer group.
24^ Here are pages from the city staff reports for 6-9-2009 and 2-9-2010. If you want to see where city staff got the language for its report, look at this page from the Solano360 “vision”. Is this plagiarism, or are developers/consultants now doing staff reports?
25^ In fact, the arena has been taken out of the “vision”, despite reports to the contrary. (The Times-Herald and other local newspapers included an arena in their descriptions of the project as recently as February. See note below about media reports.) There is no funding for an arena in the County’s cash flow projections, and the “draft” feasibility study assumes that the “arena identified as an alternative in the Vision is not built” (page 7). The Observer wonders if the Vallejo City Council, County Fair Board, and other groups which desire the arena are aware of this change.
26^ Go here for a video for the Board of Supervisors meeting on February 9th. The exchange about housing is around the 6-minute mark for the fairgrounds agenda item. Ms. Seifert, a lawyer, observed the comma in “mixed-use, residential” and asked, if residential is included in the definition of mixed-use, why does it need to be listed separately? She probably did not realize that the phrase was a carryover from the original March 2009 MOU between the city of Vallejo and the county; it was not anything new. Ms. Seifert would have served her constituents better if she took less of a legal approach and just focussed on the inconsistency between the MOU and and the “vision”. She could have insisted that the word “residential” be removed and the definition of mixed-use be made more explicit, or she could have pushed the point that for nearly nine months there was no mention at all of a residential component.
27^ One can go so far as to say the “vision” explicitly rules out housing. From pages 21–23: “Several key uses are described below, with a summary of all uses anticipated for the build-out condition shown in the Preliminary Mix of Uses table” (emphasis added). The uses are listed as: Public Entertainment Zone, Fair of the Future, Exhibition Hall, Arena, Multi-Purpose Sport Fields, Entertainment/Retail, and Other. Here is the description for “Other”: “Mixed-use, hospitality, and office development, the multi-modal transit center, open space and drainage areas, roadways, and parking make up the balance of the Vision’s project description, as shown here.”
A visit to the Solano360 website yields the same result: no housing. If you look at the executive summary, you’ll find the following statement: “These distinct zones are anchored by existing and envisioned public attractors. A 100,000 square foot Exhibition Hall that will be the site of consumer shows, conventions and indoor sporting events. The entertainment retail site to the north will act as a regional public attractor and revenue generator. A potential multipurpose/special events Arena to the south is for special events and concerts. Sports fields, a transit center and a mix of hospitality, office and retail uses make up the balance of the Project Vision.”
If mixed-use is defined by what’s shown in the visioning report, one is hard-pressed to find a single picture of a house, apartment, or condominium. Moreover, in the Mix of Uses table, there is no entry for residential. Below the table, “mixed-use commercial” is explicitly defined as 85–90% retail/hospitality and 10–15% office. Conclusion: If the Vallejo City Council agreed in its MOU with the County that the vision will “serve as the basis” to move forward, then it did not agree, at least not in public view, to any residential component.
Related note: When you look at the Mix of Uses table, you’ll see that the arena artificially increases the public part of the development by 100,000 sq ft. The arena has been dropped (see note above). This means the actual build-out for public purposes, i.e. fair facilities, is 188,000 sq ft. The build-out for private purposes is 1.3 million sq ft, almost 7 times as much. This ratio is shocking, given that the fairgrounds is public land and taxpayers have incurred all of the risk in the initial stages of development.
28^ There was another viewpoint expressed at the first and second public forums. A Vallejo resident suggested turning part of the fairgrounds into a youth and amateur sports complex, to bring in tournament revenue and create a synergy with Six Flags. Apparently cities that have a sports complex with a dozen or more fields have realized millions of dollars of economic benefit (and some of these have been built with no public funds). The developers/consultants seem to have mixed up that idea with a city park or a fair attraction. By the third public forum, four soccer fields were added to the “vision”, and one of the consultants said the fields could also be used for livestock exhibitions. (The Observer can already hear soccer players yelling “bull----”.) The “draft” feasibility study also appears to have gotten things backwards. It says, in effect, that soccer fields are a drain on a city’s budget, not realizing that they are part of the “vision”.
You can get a Solano360 report on the April 8th community forum here. See, in particular, the summary of public comments and concerns on pages 5–6 and guiding principles for the project on pages 7–8. The public’s support of retail was for a coffee shop, bookstore and restaurants, not a 670,000 sq ft shopping center and not housing. Also note: there are many pictures and drawings of what could be done, but these are misleading. As the document says, they are for discussion purposes only and should not be relied upon.
You might want to compare public comments to the conclusion of the Solano360 visioning report: “Over the nine-month process...a clear common vision emerged. The Project Vision presented here reflects the community’s ideas, dreams and priorities. This Vision has the potential to re-establish the Fairgrounds as a landmark destination rooted in the rich heritage of Solano County and connected to the hearts and minds of its people.” This attempt at poignancy is matched only by its absurdity. Turning 100+ acres of public land into a massive retail/housing development says only one thing: our heritage is lost.
29^ Local media did not include “housing” in their descriptions of the fairgrounds project until May, 2010.
After the Vallejo City Council vote in June, 2009, the Times-Herald reported: “The fairgrounds vision includes a major lake-sized water feature, embellishment of the existing fair, a multi-purpose arena, an exhibition hall, sports fields, office and guest accommodations, restaurants and retail stores.” (6/20/2009) After the city/county MOU was approved in February, 2010, a similar report came out in the Times-Herald: according to a county spokesman, the fairgrounds will be “developed with embellishments to the existing fair, a multipurpose arena, offices and guest accommodations, a sports field, restaurants and retail stores.” (2/12/2010) The Daily Republic had a similar report: the development will have “new buildings for the fair, an exposition hall, shops along a Main Street-style walkway, an arena and a creek with walkways and parks along its shores.” (2/12/2010)
Fast forward to May... Now the Times-Herald says that plans are moving forward “to develop the fairgrounds to include retail, housing and commercial areas...” (5/6/2010) Even Public Radio picked up the story: “The county is collaborating with developers and the City of Vallejo for a project called Solano360. It would include housing, shops and restaurants.” (5/7/2010) Apparently the county or its consultants have started putting a different spin on the project. Through press releases or interviews, they seem to be getting the public and Vallejo City Council ready for a new “vision”, one which has a residential component.
For a fascinating look at how stories get spun, see this this editorial from the Vacaville Reporter (6/16/2009). We’re told, in all seriousness, that the fairgrounds project reminds Supervisor Reagan of “Disneyland—specifically Downtown Disney”. The Reporter itself gushes: “The vision also appears to borrow inspiration from the architecturally hailed Sundial Bridge in Redding, Vacaville’s own popular CreekWalk and the Colorado Convention Center in Denver. It even suggests including a permanent Ferris wheel, a reminder that this is, after all, a fairgrounds.” These statements, more than anything, illustrate why the “vision” is not a plan. It is propaganda, paid for with taxpayer dollars.
30^ When City Council voted on the revised MOU in February, 2010, “Councilwoman Stephanie Gomes said she was comfortable moving forward with the non-binding deal, despite some of her own and others’ concerns, because ‘it’s just an agreement to get things started.’” (Times-Herald, 2/10/2010) One wonders what part of the legal agreement Ms. Gomes considers to be non-binding. Nevertheless, if the county intended to give the city a way out, the steps would have been included in the MOU.
The county itself has no easy exit. At the February 9th Board meeting, Supervisor Seifert asked, “What triggers exist or what recourses are there to sort of pull the trigger and stop the process midstream? Are there certain benchmarks that need to met in order for us to continue to move forward, or what’s the process for pulling out?” After a back and forth exchange, a consultant or county staffer said, “there’s nothing in the MOU that says we should check our answers,” and Ms. Seifert concluded, “it requires an affirmative action of the Board to stop the process.” Ms. Seifert then voted aye and hopped on the runaway train.
Note for readers who like to keep score: At the same February 9th board meeting, the Solano360 oversight committee was directed to have quarterly meetings and report back to its respective governmental bodies. Five months later it still hasn’t met. So where’s the oversight?
31^ In fact, Supervisors are not “spending” the money. They are “investing”. Here is the wording from the County’s resolution of 9/30/2008, when it hired Brooks Street as a consultant for up to $2 million: “The financing for the visioning process and the future entitlement phase of the Fairgrounds Property will be backed by a loan from the General Fund to be repaid from future revenue stream from the ultimate development of the Property... This money lent by the General Fund should be viewed as an investment for future benefit of not only the community of Vallejo but also, the entire Solano County.” Instead of following the old adage, neither a lender or borrower be, county government is hiding expenses by doing both things at once!
While this article is about the Vallejo City Council, the County Board of Supervisors could just as easily be the subject. Without so much as a letter of intent from Bass Pro, the Board has taken on an enormous amount of risk. Supervisors may want to look further south than Manteca for a good example. The Bakersfield city government invested $5 million in a remarkably-similar project, including a Bass Pro Shop, before finding out that the developer had issues with a $30 million highway interchange and quietly exited the scene. The project is dead and the city’s “investment” is lost. (See Bakersfield Californian articles on 1/22/08, 8/7/08 and 1/12/10.)
Solano County residents may want to ask Supervisors about their creative bookkeeping. Fairgrounds expenses seem to escape all normal budgetary review. The 9/30/2008 resolution has a clause “authorizing the Auditor Controller to establish a loan of $2 million from the General Fund for the Project and appropriating $2 million to start the Visioning Project.” Evidently, last summer, the Board of Supervisors went back to the future and borrowed more money. Its 2/9/2010 resolution authorizes “an Appropriation Transfer Request for $2.4 million to coincide with the action taken by the Board of Supervisors on July 1, 2009.” It’s not clear what action the resolution is referring to. Residents and taxpayers can only marvel at the obfuscation of an Appropriation Transfer Request. Are accounting rules relaxed for borrowed money? What is the County’s risk as a borrower, or lender to itself? If the deal with Vallejo falls through, does the “investment” then get turned into an expenditure and discussed at a budgetary hearing, when it’s too late to do anything about it?
32^ You can get more information from this press release from Santa Clara County. The actual settlement document is here. This San Jose Mercury News article describes the county’s trouble finding a new developer.
Related note for Vallejo residents: ERA, the economics research firm discussed in this article, was a consultant for the Santa Clara fairgrounds project and was certainly aware of the ensuing legal battle. One hopes this piece of information, along with the $30M settlement figure, will get city council to sit up and take notice. ERA is not doing work on behalf of the city. The company was hired by the County Board of Supervisors and is revealing only as much information as is necessary to further the county’s (or some future developer’s) interests. Simply put: council members are in desperate need of independent advice.
Related note for Solano County residents: the fairgrounds project has conflict of interest written all over it. Consider this statement from the executive summary of the feasibility study (which everyone now agrees was done from a developer’s perspective): “The Visioning Process was guided by a team of industry experts. ERA was a key member of that team... ERA’s research and experience informed the land planning and mix of uses ultimately approved by the County, City and Fair Board. At the conclusion of the Visioning Process in June 2009, Solano County commissioned a Financial Feasibility Analysis by ERA.” Is the Observer missing something, or did the Board of Supervisors hire the same company that helped produce the “vision” to analyze it? And if that weren‘t enough, ERA’s conclusion, that the project is feasible, assured the company and Brooks Street of another $1.5 million in no-bid contracts!
Perhaps at some point the Board of Supervisors will hire a consultant who represents taxpayers’ interests.
33^ Let’s assume the county spends $4.5 million to get the fairgrounds project off the ground. At a 1% local tax rate, that is equivalent to $450 million in sales. Now let’s put that number in perspective. If the fairgrounds ends up looking like Manteca’s shopping center, it will take 5 to 7 years to reimburse the county’s “direct costs”. If the shopping center attracts only a Bass Pro Shop (like Pearland, Texas) then it will take at least 15 years. If you throw in a $20 million tax subsidy, you get an even gloomier forecast: tax dollars may never fall on Vallejo, but there will be a flurry of associated costs.
Here are the documents that concern reimbursement: 3/10/2009 MOU, revised 2/9/2010 MOU, and City Council 2/9/2010 resolution. You'll notice the resolution is mainly about adding the Redevelopment Agency to the MOU and clarifying roles and responsibilities. It doesn't mention the important changes to reimbursement in clause 7.
Related note: It’s hard to fathom why Councilmembers Gomes and Shivley voted for the revised MOU when they voted against the original on 3/10/2009. Vallejo’s legal counsel voiced serious concerns about the original MOU (see video transcript), and Ms. Gomes and Ms. Shivley went so far as to ask for another week to review it. The revised MOU is far riskier to Vallejo than the original. But the strangeness doesn’t end there. The Council resolution on 2/9/2010 was not to approve the MOU but to give the city manager the authority to complete it. According to the staff report, “The parties have achieved consensus on the majority of issues in the MOU. Two issues remain outstanding as of the date of distribution of the staff report.” Perhaps this is why no Councilmember acknowledged reading the MOU—various sentences were stricken out—and neither Ms. Gomes nor Ms. Shivley nor anyone else asked any legal questions. A short while later, Councilmembers were told by city staff that the outstanding issues had just been resolved and the agenda item changed to approval of the MOU.
34^ Jim Spering is one of the Supervisors intent on going back in time. He told the Daily Republic: “Fairfield used public dollars in the 1970s to spur the development of what’s now the Westfield Solano mall, which generates sales tax dollars for the city.” (2/12/2010) While that’s true, we respectfully submit to Mr. Spering: Fairfield does not give up part of its local sales tax to the county, and what was a good idea in the 1970s is not necessarily a good idea in the year 2010.