The DSP cannot be repaired because it is, financially, a loser, and it was from the very beginning. Stanford (of which I am a double alumnus) misled city officials into thinking the university was open to developing a large hotel on its property. That hotel generated over two-thirds of the anticipated net revenue that was attributed to the project when it was under review. Once Stanford’s true intentions became known, the downtown project was doomed. Though I spent time analyzing the DSP from a financial standpoint when it was first proposed, the source of that bleak conclusion was the city’s own financial analyst (see the city’s website, Web Link, p. 3):
The plan therefore could result in a negative impact to the General Fund without inclusion of approximately 80 hotel rooms (varying based on quality level and nightly rates). Upon build-out, proposed development under the Draft Specific Plan without any hotels could result in General Fund losses of approximately $250,000 annually (in 2009 dollars).
The large hotel (300 rooms) that was assumed in the analysis produced $1.5 million of the $2.2 million general fund net revenue, before the cost of building a parking garage. That amounted to $13.44 per sq. ft. The small hotel (80 rooms) produced $0.4 million, or an average of $9.37 per sq. ft., for a total of $1.9 million derived from the two hotels (of the $2.2 million total net revenue). Now, unless Measure M passes, no large hotel can be built because the only feasible sites for a large hotel are being utilized for the currently proposed Stanford and Greenheart office projects. There are no plans for a small hotel. That means that we residents will have to subsidize downtown development through our general fund, requiring higher taxes, as will many of our special districts.
In the original DSP plan, retail uses contributed a net of $3.63 per sq. ft. to the city’s general fund, while office space contributed less than a third of that ($1.12 per sq. ft.). The gap was even larger when the cost of the necessary parking garage was factored in ($3.02 for retail vs. $0.42 for office). Market-rate housing, incidentally, generated only $.38 per sq. ft. and subsidized housing resulted in a loss of $.18 per sq. ft. In general, office space produces substantially more income for a developer, but it generates little or nothing in the way of NET revenue for a city. Allowing developers to displace hotels and retail uses for offices costs taxpayers. (All assumptions and data are available from email@example.com.)
People who advocate for property development tout the economic benefits it will produce. Why else tolerate the external costs (traffic, pollution, more government) that accompany it? The planners who wrote the DSP promised economic benefits to the city of Menlo Park, but they were misled. Worse, they failed to provide mechanisms to ensure that the plan would be implemented as envisioned. So, not only is the DSP a financial disaster for the city as it was planned, its negative impacts are being exacerbated by a lack of controls on the factors that cause the losses. In short, making the DSP “less negative” is a thankless task. Still, that is what Measure M proposes to do and that is sufficient to make it worthwhile voting YES.
I am disappointed by the failure of my fellow Menlo Park pension reformers to address one of the root causes of government expansion: development that does not enhance the quality of life, but serves only to enrich the developer and government managers. Too many of them are as blinded by their advocacy of laissez-faire land use as are progressives who advocate for taxpayer-subsidized housing and social services. I expect more from the pension reformers because many have business backgrounds and are able to read fiscal impact reports and perform arithmetic calculations that show the fallacy of their blind faith in property development to make life better. How often in the debate surrounding Measure M have opponents cited the loss of downtown “revenue” resulting from the measure in lieu of looking at “NET revenue” (after subtracting the costs of serving the development)? Had they done so, it would have been obvious that Measure M may reduce gross revenues, but it will reduce taxpayers’ costs even more. The dilemma is reminiscent of the old joke about the merchant who discovered he was losing money on every sale, so he decided to make it up on volume.
Development today is so encumbered by financial obligations to “social justice” that it impoverishes communities, rather than improves them, as it did a generation ago. Jobs used to be an asset for a community; now, they are a liability because they raise the requirement for “affordable” (subsidized) housing. Current property taxes on affordable housing are lower than current taxes on existing housing, so some new residents are being subsidized by other residents. Government agencies clamor for more funding to meet the needs of growth and, because of lower average per-capita revenues, they must raise taxes, just as Menlo Park instituted a utilities tax several years ago. The only type of development that makes economic sense today must generate a second revenue stream (such as hotel tax or sales tax) in addition to property tax. Much of the growth that we hope will improve our local economies actually makes the middle class worse off.
In sum, Measure M opponents miss the point that the DSP will have to be subsidized by taxpayers. Save Menlo misses the point that Measure M will not save the DSP. It is still worth voting YES, but that is not sufficient to fix the problem. What we need are planners who are committed to improving the lives of the people they serve and council members who will pick up a pencil and read a report, rather than act like lemmings and blindly follow self-interested city officials and developers.