by Joe Krovoza
As the Community Finance District (CFD) is considered for the Cannery development, I am pleased add some perspective on the process that led to the project’s approval. I’ll focus on the Development Agreement (DA) with The New Home Company (TNHC), a critical element to our council’s approval in late 2013. The DA mentions the possibility of a CFD, and I served with fellow council member Lucas Frerichs on the sub-committee that worked on the DA.
Others have written on the current status of the CFD and its pros and cons. I’ll add some of what I know from the work of the DA sub-committee and the project’s consideration between spring 2011 and the end of 2013.
As a quick review, in late October 2010, on the request of TNHC, council considered whether the Cannery site should move forward as a residential development. Council approved the request 3-2 with then mayor Don Saylor adding a friendly amendment that 20 percent of the 100 acres be reserved for business uses. I was in the minority with Sue Greenwald on that vote. I wasn’t necessarily convinced as Sue was that the entire site was ideal for business uses, but I did believe our current entitlements for residential housing should be advanced before we designated more lots for housing. Following this vote, staff began work with TNHC for community and council input. I committed to working in good faith to make the project outstanding, and hopefully one that fully embraced Davis’ values and would integrate the Cannery residents with our community.
The first community meetings were held in December 2010 and February 2011, and council provided their input for initial project design in April and June 2011. City commissions considered aspects of the project in their areas of expertise over the next few years. Many community meetings followed, and council considered major sub-elements of the project like its affordable housing requirements, the Universal Design rules recommended by our Senior Citizen Commission, park and ag buffer waivers, energy and sustainability, traffic impacts on Covell Blvd., and traffic circulation for cars, bikes and pedestrians in Cannery and between the Cannery and points beyond. I was interested in all of this, but took a particularly strong interest in the sustainability and traffic elements. The latter being very challenging because the new 500+ homes would essentially have one entry/exit point on Covell, and would otherwise be landlocked on three sides.
As the project neared final approval in the summer and fall of 2013, council appointed a sub-committee of Lucas and me to work with staff on the DA. One way to understand the DA is that it’s the “catch all” or even the “clean up” agreement between a city and developer to memorialize understandings, assumptions and the funding of project elements and amenities not governed by ordinances, environmental documents or other agreements.
An issue handled early on by the DA sub-committee was whether to prepare a pro forma on the development – essentially a basic best estimate of TNHC’s revenue and profit – so we would have some idea of the developer’s capacity to fund amenities the city might request. Initially I heard the staff assessment was that there were not three votes on our council for a pro forma. I was shocked. How could Lucas and I, and staff, be involved in crafting a DA with TNHC and not have some information on the developer’s ability to assist with the final set of project needs? How could our DA sub-committee recommend a DA to our colleagues without some knowledge of the value of the entitlements the city might grant? Then I heard from city manager Steve Pinkerton that a pro forma would be done. Now we could proceed.
Andy Plescia of A. Plescia & Co was hired for the pro forma. Then there were sub-committee meetings that included a check-in on the methodology and process for the pro forma. The pro forma became public as Attachment 2 to the November 12, 2013 Cannery staff report.
Another DA sub-committee issues was that staff, and especially city attorney Harriet Steiner, were insistent that Lucas and I not negotiate with TNHC for the city. Harriet had reasons why the sub-committee directly negotiating wouldn’t be appropriate. I didn’t like hearing this. I liked negotiating, I do it lots at work for UC Davis, and think I do it effectively, and I felt that having worked on the project for a few years I could balance the city-side issues well. Alas, staff handled all direct negotiations with TNHC after discussing key provisions with our sub-committee.
Another DA negotiation issue was keeping track of “gives” council had made to TNHC. The urban buffer requirement had been reduced via the urban farm. Auxiliary dwelling units (ADUs) would count for part of the affordable housing requirement, saving TNHC millions. We allowed less park space too, and greater density. Each of these items potentially meant a greater capacity for the developer to support elements in the DA.
How recognition of a CFD was handled in the DA is now in question. From my perspective, as staff and the sub-committee assessed dollars for use in the DA, funds from a possible CFD simply weren’t discussed. There might have been several reasons for this. I was clear to staff that I wasn’t interested in a CFD because it looked like we could fund the amenities without one. Perhaps staff never really considered a CFD, or perhaps they were considering such but never raised the issue with me. All I know is that I was never involved in any discussion with staff, Lucas (the only councilmember I could speak with due to the Brown Act) or publicly. It just didn’t come up. There wasn’t even the theoretical: “hey Joe, if you’d consider a CFD, then we might generate this much money and do these additional things.” Maybe the CFD was an issue between staff and TNHC, but if so, I wasn’t part of that. Similarly, the fine grain issue of the DA saying “shall” versus “may” regarding a CFD wasn’t discussed, at least not with me.
My view is that any mention of a CFD in the DA was just boilerplate language, not any signal a CFD was anticipated at the time of project approval.
As we worked on the DA, I was very concerned with a rumor that TNHC had promised $2 million to Capitol Corridor Ventures (CCV), led by local resident Dave Morris, to support local business start-ups. CCV hadn’t been designated by the city for funds from Cannery, CCV wasn’t working in any formal way with UC Davis, and the city’s main project to aid local start-ups in partnership with UC Davis is Davis Roots. Yet somehow CCV was on the cusp of receiving millions from TNHC if council approved Cannery. I certainly didn’t want TNHC to tell council they couldn’t fund more in the DA because they had already promised CCV $2 million outside the DA.
What did the pro forma conclude might come from the developer for the DA? The staff concluded in the November 12 staff report that “the Development Agreement could accommodate $4 – $4.5 million in benefits to the City under current assumptions.” It was very hard for me to accept this. Admittedly, the DA wasn’t the only way dollars would flow from TNHC for city projects. Traffic and other impact fees would be paid. For example, transportation funding from the DA plus other traffic impact fees was estimated to total $11 million. That said, everything in the pro forma seemed very conservative to me. Most notable was the assumption of $270/sq.ft. for the houses. If that went to $300/sq.ft., which was the price at the time, there would be another $21 million in revenue. And the pro forma assumed a 10 percent contingency, which on $250 million (conservative) in revenue would be $25 million. So very superficially, it seemed to me there was a $25-46 million dollar question about TNHC revenue. Given this, I was very skeptical of the staff’s assessment of $4 – $4.5 million from TNHC for the DA, and there just wasn’t any reason for a CFD.
Now to the DA itself. Lots of items were at issue. First and foremost were things already worked out with TNHC. Staff led here in telling Lucas and me what was fair and could be properly assumed for the DA. The November 12, 2013 staff report on page 2 summarizes what made it in – easements for the new water project, urban farm operating expenses, dollars for community arts and sustainability, and a requirement for zero net electricity for 25 percent of the first 100 homes. Then there were what I considered the truly big items: recognition of the modified affordable housing provisions that would TNHC millions, transportation funding of $3.725 million above traffic mitigation fees required by ordinance, and $2 million for Community Park improvements, in part because we had relaxed the park requirements on the Cannery side.
In all of this, my biggest issue was no secret. I wanted firm, firm guarantees of high-quality, grade separated bike and pedestrian crossings at the SE and SW corners of the project. The SE should safely connect Cannery residents to the Oak Shade shopping center and all points southeast. A SW crossing would connect to Community Park, the library and schools, and all points southwest. I raised this issue at every Council meeting that addressed Cannery. For fun, I went back and looked at old minutes and, sure enough, excellent bike and pedestrian connectivity is always mentioned.
When the DA came out in the November 19, 2013 staff report, the guarantees for two good, grade separated bike and pedestrian crossings seemed very weak. The November 12, 2013 staff report made clear reference twice to transportation dollars funding a SE crossing, but the November 19, 2013 staff report and DA didn’t guarantee good crossings. I saw this as backpedaling. Even with at least $11 million in transportation dollars from the DA and traffic impact funds, fingers were still being crossed that we’d have quality grade separated crossings for bikes and peds across Covell. Thus, at the November 19 meeting, I sought more dollars in the DA to guarantee both crossings, and a commitment that the poor alternative at the SW would be removed as an option. The council majority for the project didn’t adopt my request, and the Cannery development was approved 3-2. Brett Lee and I were the dissenting votes.
Today, it’s very disappointing to me that the SE grade separated crossing has been abandoned by TNHC and the city. I believe that’s bad faith. At the SW, the decent option of using the H Street tunnel is moving slowly, and might still happen, but if not, the truly mediocre option of using the south side of Covell may become the only bikeway into town that doesn’t have to coexist with cars on Covell Blvd.
And what of that $2 million for Capitol Corridor Ventures? First, TNHC confirmed that they had promised CCV $2 million outside of the DA. Then Dave Morris came to council on November 19 and presented a press release stating $600,000 of CCV’s $2 million would go to community business start-up groups – with $250,000 to Davis Roots, $100,000 to Hacker Lab, and $250,000 to the Davis Wet Lab Incubator Challenge Fund. At this writing, Davis Roots has a partial payment, but nothing has gone to Hacker Lab or the Wet Lab Challenge. TNHC and the Council must ensure that the CCV funds are allocated as publicly promised.
Regarding the CFD, I will close with these observations.
It could be that a CFD was discussed with others, but it wasn’t with me.
If staff and TNHC had wanted to guarantee the bike and pedestrian crossings, or any other project amenity, they could have pitched a CF to our sub-committee or the council majority for the project. They didn’t.
Clearly, I have a view on the need for a CFD. I am pleased our council approved a deal for the Cannery that didn’t burden future residents with a CFD. There wasn’t a need then, and I don’t see any new circumstances now.
One can make a theoretical case that CFD or no CFD everything comes from the bottom line of the developer – the idea being if there is a CFD, people won’t pay as much for the homes, and if there isn’t a CFD then the prospective buyers will pay more, but then the developer has to use the added profit for the DA. Personally, I don’t believe any market is so pure, with all buyers having and using perfect information for rational decision-making. We have the entire field of Behavioral Economics (the Freakonomics books, and the book Predictably Irrational) to explain why many markets aren’t really, well… markets. But even assuming the Davis housing market exists in a world of perfect information, and the buyers are all rational consumers, then why do the CFD? Just don’t do anything and let the price cover the costs.
If there is an argument for a CFD, it might be that the CFD funds will accelerate the construction of amenities. If “amenity acceleration” really is important to the initial Cannery residents, then have them come to the city and request a CFD. It’s their money, and their neighborhood. But if the timing of DA elements was fine for TNHC, our council and city staff in November 2013, what’s the problem now? If the houses do sell like hotcakes, who says we need a CFD to speed things up?
If the city does add CFD costs for all Cannery residents, will every homeowner receive a kind of “CFD rebate” when the final homes are built whose profit would have been used to fund the last batch of community benefits?
One’s word is one’s word. The DA agreement was made in late 2013 and at that time there was no public or private (that I knew of) signaling by city staff, or council, or TNHC, that a CFD would be need. If there was a foreseeable need for a CFD, then that was the time for all to forthrightly raise the question and resolve it.
Was the pro forma not conservative enough? Is TNHC so strapped now that a CFD is needed to keep the project moving? I believe the pro forma was too conservative and funds were there then, and are there now, for other amenities and two good, grade separated crossings of Covell. I hope others with more expertise will take a hard look at the pro forma, and I hope TNHC will come to understand what a great benefit the good crossings will be for safety, traffic reduction for cars on Covell, and home values.
Will CCV and TNHC keep their end of the deal to provide $600,000 for local business start-up projects? And who’s watching over the other $1.4 million to CCV that came from the council’s Cannery approval?
This is my perspective. Others were certainly more involved than I was in other parts of the Cannery process. Yet as mayor and a member of the DA sub-committee, and having been on the council during the entire development of the project, I did gain quite a thorough understanding of what took place. I hope this informs further thinking as the project moves forward.