Almanac

News - August 31, 2011

Downtown plan: City corrects errors in financial analysis

by Sandy Brundage

A scant week before the Menlo Park Planning Commission finished reviewing the proposed downtown/El Camino Real specific plan, the commissioners finally received the project's fiscal impact analysis (FIA).

The Planning Commission voted unanimously to recommend that the council ask the finance and audit committee to review the FIA produced by consultants Strategic Economics. Coming under fire for potential errors, the report evaluates the impact of implementing the specific plan on the city's general fund. Educator Chuck Bernstein, who holds an MBA from Stanford University, told the commission on Aug. 22 that he'd documented multiple calculation mistakes.

City staff scrambled to double-check the analysis before the initial council review on Tuesday, Aug. 30, and determined that some of Mr. Bernstein's own calculations were in error, since he didn't use the same underlying assumptions to crunch the numbers as the consultants did.

But other observations were right on — for example, pointing out that the FIA failed to take into account the expected vacancy rate for the 91,900 square feet of retail space allowed under the plan by 2030. The staff report agreed, stating: "The sales tax projections did not account for a 10 percent vacancy rate, and Mr. Bernstein is correct that they should. It appears that this will reduce the sales tax revenues by approximately $15,000, which would lead to an approximately 0.37 percent decrease in revenue in year 30," but none of the overall conclusions in the report were affected as a result.

What were those overall conclusions? For starters, the analysis determined that if the geographical areas covered by the specific plan are fully developed under the proposed guidelines, the city's general fund would get $2.1 million in annual net revenue.

However, that changes depending on if or when the two hotels, as well as the two parking garages, are built. Two hotels with a total of 380 rooms are expected to generate 60 percent of the plan revenue through transient occupancy taxes, and at least one hotel with 80 rooms is needed to keep the plan in the black, offsetting the cost of the parking garages. Without those transient occupancy taxes, the plan loses $250,000 a year if the city still adds the parking garages.

Add only one garage, though, and the balance tips back toward profitability, according to Associate Planner Thomas Rogers.

Strategic Economics calculated that running and maintaining the garages costs twice as much as the city's parking plazas, but also noted that the analysis doesn't include potential sources of revenue, such as higher permit fees or meters, that could cover the expense.

Special districts

The FIA, initially intended to be released before the Planning Commission started its review, was delayed because staff decided to add analyses of the plan's impact on school, fire, healthcare, community college, and water districts, which weren't included when the city determined the scope of the FIA three years ago.

Overall, the study carried out by Bay Area Economics (BAE) determined the school and healthcare districts would see annual revenue increases of less than 1 percent of their total budget. The Menlo Park City Elementary School District would get a projected $275,000 annual increase, while Sequoia Union High School District would see an added $586,600 a year. On the flip side, the County Office of Education could expect to lose $13,800 a year.

The Menlo Park Fire Protection District (MPFPD) faces the most significant impacts. The development allowed under the proposed specific plan — like 60-foot-tall buildings on El Camino Real — means the district needs a $600,000 aerial ladder truck, if firefighters want to be able to reach the upper stories. Station 6 downtown would need renovating, as would the water system due to enhanced demand created by a larger population of residents and workers. The district expects to need to hire personnel as well.

According to the BAE report, a new fire services impact fee for all new development in the specific plan area would help cover those expenses, as would a portion of the estimated $1.1 million in property taxes generated by increased property values.

While stating that it's not possible to assess the net impact on the MPFPD since factors like the impact fee have yet to be established, the analysis projects an added $1.1 million in revenues for the district.

Council consideration

The City Council is expected to start reviewing the draft specific plan on Tuesday, Aug. 30, at 7 p.m. in the council chambers at the Civic Center at 701 Laurel St. Staff will present an overview of the plan at 6 p.m.

Corrections to the FIA may not be finalized by the time the council convenes, Mr. Rogers said, but an updated report should be released this week. A tentative schedule shows the FIA coming before the council in late September for evaluation.

Go to tinyurl.com/plan-163 to view all documents related to the specific plan, including the fiscal impact analysis.

Comments

Posted by Hank Lawrence, a resident of Menlo Park: Sharon Heights
on Sep 3, 2011 at 9:41 am

So the city staff determined that some of Mr. Bernstein's calculations were in error because he did not use the same underlying assumptions as the consultants.

Wait a minute. Shouldn't we first determine whose underlying assumptions were more realistic rather than trying to discredit Mr. Bernstein.

To me this is an indication of either bias or lack of competency on the part of the city staff. To automatically assume that the consultants assumptions are more realistic than Mr. Berstein's without further analysis is simply unacceptable.

They should have first analyzed the underlying assumptions of both parties and then made a determination as to whose assumptions were more realistic and proceed from there. Not Mr. Berstein's assumptions were different from the consultants' therefore he is wrong.


Posted by Menlo Voter, a resident of Menlo Park: Central Menlo Park
on Sep 4, 2011 at 11:20 am

"Shouldn't we first determine whose underlying assumptions were more realistic rather than trying to discredit Mr. Bernstein"

The article states that city staff found some of Mr. Bernstein's observations were right on. Sandy wrote a very thoughtful article, you should read it more carefully.


Posted by Menlo Voter, a resident of Menlo Park: other
on Sep 4, 2011 at 11:53 am

please stop using my handle. I had it first. Thanks!


Posted by Hank Lawrence, a resident of Menlo Park: Sharon Heights
on Sep 4, 2011 at 9:37 pm

Ms. Brundage stated

"City staff scrambled to double-check the analysis before the initial council review on Tuesday, Aug. 30, that some of Mr. Bernstein's own calculations were in error, since he didn't use the same underlying assumptions to crunch the numbers as the consultants did."

City staff claimed Mr. Bernsteins calculations were wrong since he did not use the same assumptions as the consultants.

I stand on whay I said. Perhaps Menlo Voter the 2nd should read the article more carefully.


Posted by incredulous, a resident of Menlo Park: Central Menlo Park
on Sep 6, 2011 at 8:11 am

The article fails to mention the most intriguing of Bernstein's assertions:

Strategic Economics and its president, Dena Belzer, were the consultants who led the Smart Growth approach 10 years or so ago in Menlo Park. The firm is not an objective source of analytical skills: it is a city planning firm that specializes in densification. The process blew up when they presented what appeared to be fraudulent findings to the council. The firm was fired. The city tried to get its advance payments back, but the firm refused and the city did not pursue the matter. That we hired the same firm again is unbelievable."

Sounds as though someone on staff has a friend in this firm. Didn't anyone do a bsckground check at all before giving them this important job?


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