Menlo Park: How rezoning could impact city's finances

Analysis shows negative fiscal effects on some school districts due to growth under existing general plan

A new fiscal impact analysis shows how plans to rezone Menlo Park's M-2 area east of U.S. 101 to allow substantial new development could be profitable for city government.

However, the same analysis, which also looks at potential development from the city's existing general plan, shows potential negative fiscal impacts on school districts outside the M-2 area, including the Menlo Park City and Las Lomitas school districts.

The Menlo Park Planning Commission will review the analysis at its meeting on Monday, Sept. 12, which starts at 7 p.m., in the council chambers at 701 Laurel St. in the Civic Center. Read the agenda here or watch the meeting online. The meeting starts at 7 p.m.

City finances

According to the fiscal impact analysis by the consulting firm BAE Urban Economics, released Sept. 8, the city of Menlo Park could receive a net increase in annual revenue after expenses of $9 million from the eventual buildout from proposed zoning changes in the city's M-2 area. The proposed changes are part of the city's process to update its general plan, which governs future development in the city.

The analysis compares revenues the development could bring to the city with expected city expenses to accommodate increased demands for services and infrastructure created by added residents and workers.

Three scenarios were examined. One looked at the current proposal, which would allow the building of 4,500 residential units, 2.3 million square feet of nonresidential space, and 400 hotel rooms in the M-2 area. The second scenario considered the impacts if the city were to halve the amount of nonresidential and hotel space allowed, and the third looked at reducing all of the potential development allowed by 25 percent.

The city could be expected to get a net positive annual revenue increase of about $9 million for option one, $5.6 million for option two, and $7.3 million for option three.

The $9 million is based on an estimate that at maximum buildout, the city would have additional annual revenue of $20.4 million and additional annual expenditures of $11.4 million.


Meanwhile, according to the analysis, growth in other areas of the city (outside of the M-2 area and already zoned for development) could have negative fiscal impact amounting to $4.5 million for the Menlo Park City School District and $795,000 for the Las Lomitas School District.

In the Sequoia Union High School District, the negative annual fiscal impact could be $5.5 million from new development that could increase the student population by an estimated 1,100 by 2040.

In the Ravenswood City and Redwood City school districts, student population would be expected to increase due to growth in the M-2 area, but school finances would not be affected as much because those districts receive funding from the state based on the number of students enrolled. In the Ravenswood City School District, elementary student population could increase by 2,078 students, the analysis says.

Other points

The fiscal impact analysis of the general plan update made these other points:

● New development could increase revenue to the Menlo Park Fire Protection District by about $2.8 million a year.

● The city could get the maximum amount of annual sales tax revenue from the first option: $1.6 million from residents and $320,000 from workers. Business-to-business sales tax revenue estimates vary, but the midrange estimate is $5.4 million.

● The city's updated general plan at full buildout citywide could yield an increase in assessed property value of $6.82 billion. That would generate an additional $6.2 million annually in property tax revenues for the city. These numbers assume that 15 percent of the housing units to be built in the M-2 area would be designated as "below market rate" and not subject to property taxes, the report said.

● Hotel taxes could generate an additional $2.6 million a year in revenue for the city if 425 hotel rooms are built.

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3 people like this
Posted by Chuck Bernstein
a resident of Menlo Park: The Willows
on Sep 13, 2016 at 11:10 am

The "Fiscal Impact Analysis" prepared by the consultant is fiscal impact ADVOCACY, pure and simple. The section on property tax revenue borders on fraud, in my opinion, because it uses an appraiser's methodology for determining the value of the new construction (earnings value--rent, revenue, etc.) rather than the method that will be used by the County Assessor, the value of construction costs. And the consultant knows the right way to calculate property taxes, because it is the same firm the city used for the fiscal analysis of the Downtown Plan.

The result is inflated tax revenues. I have recalculated the amount of the prospective property tax using the SAME method that the SAME consultant used when they did the Fiscal Impact Analysis for Menlo Park's Downtown Plan. Those calculations show revenue at only 34% of what the consultant shows in the present analysis.

I do not have any way to attach the objection, with calculations, I wrote for last night's Planning Commission hearing. However, I am happy to send a copy to anyone who asks (CBERNSTEIN@HEADSUP.ORG). Following is a brief excerpt:

"As the Menlo Park City Council reviews the potential impacts of massive future development, its members must have clear and realistic information to support their discussions. Unfortunately, the city continues to hire hacks who call themselves 'urban economists.' (If street-corner pot dealers used the same PR agent, they would be calling themselves, 'urban physicians.') Rather than hold a Ph.D. in economics, these individuals have taken a real estate course or two and see their roles as providing advocacy for more development rather than objective analyses.

With respect to the FIA’s section on property taxes, the most charitable things that can be said is that the unnamed preparers were incompetent. More likely, though, they were intentionally deceptive, because BAE did know the proper way to approach property taxes when they prepared the FIA for Menlo Park’s Downtown Plan.

It would be helpful to the city’s decision makers if city planning staff had at least one person capable of reviewing an FIA. Alternatively, a draft should be permitted for peer review to an objective reviewer."

These are complex matters and it takes a lot of time to digest them. However, the future of our city depends on careful perusal of this information. I believe that it will show that not only is additional office development a serious threat to our quality of life (with devastating impacts on public safety, schools, traffic, etc.), they hurt all of us financially and the hurt will increase in the future (as expenditures rise 4%, according to the report, but revenues rise only 2%).

--Chuck Bernstein

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