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Item G2-General Plan FIA

From: domainremoved <Chuck>
Date: Mon, 12 Sep 2016 18:21:58 -0700

Planning Commissioners:

Please see my comments on the Fiscal Impact Analysis that is on your agenda
tonight. This is, in my opinion, intentionally deceitful work designed to
advocate for development rather than an objective analysis of the impact of
the development.

In the event you have trouble downloading my attachment, I have appended it
below, unformatted.

    --Chuck Bernstein

========================================================
Charles D. Bernstein
444 Oak Court
Menlo Park, CA 94025
650-325-3365
 
September 12, 2016
 
 
Planning Commission
City of Menlo Park
701 Laurel Street
Menlo Park, CA 94025-2483
 
Re.: Item G2, General Plan/M-2 FIA
 
Dear Members:
 
As both a 48-year resident of Menlo Park and a member of the Board of
Directors of the Menlo Park Fire Protection District, I vigorously object to
both the form and substance of the BAE Urban Economics report, ConnectMenlo
Fiscal Impact Analysis (³FIA²), dated September 7, 2016. I want to add that
I have some experience in these types of analyses: in my former life as a
business consultant, I qualified as an expert witness in legal proceedings
involving business valuations.
 
I have not had much time to review the report, but what I have reviewed
suggests that the report must be completely redone. Its methodology for
addressing property taxes is at odds with normal property assessment
procedures.
 
Because the first public hearing on this matter is tonight, I am only
summarizing my main concerns below. In sum, if this report were done
accurately and responsibly, its conclusions would be very different.
 
 
Advocacy, Not Analysis
 
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 ³urban economists.² (If street-corner pot dealers used
the same PR agent, they would be calling themselves, ³urban physicians.²)
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 FIAıs 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 Parkıs Downtown Plan.
 
It would be helpful to the cityıs 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.
 
 
Faulty Property Tax Methodology
 
A county assessor typically uses documented transaction values and
construction costs to assess the value of existing properties and new
construction. This assumes that the transaction value or the construction
cost used represents an arms-length transaction and not a sale among related
parties.
 
When these values are not readily available, which is rare, alternative
methods are used. Often they are similar to those used by an appraiser.
Those include book value (historical value of assets), modified book value
(market value of assets), replacement value (cost to replace assets),
operating value or earning value (capitalized value of the earnings
potential of an asset as an investment), and perhaps one or two others. An
appraiser will typically use many or all of the methodologies and then
comment upon the appropriateness of each for the specific situation before
determining a value or range of values. This is a subjective matter and
there is, consequently, a wide range of possible values. An appraiser will
often ask (discreetly) the purpose of the appraisal, which serves to reveal
whether the client desires a low appraisal value or a high appraisal value.
 
In the present case, BAE has used the last methodology‹operating value or
earnings value (see p. 23)‹to value the increase in value of the ³project²
(really, series of projects in the M-2) to be built under the proposed
General Plan. This was inappropriate and unnecessary (except, perhaps, to
make the project look more attractive.) Not only is that methodology
different than the one the San Mateo County Assessor will use, it is
different than the methodology used when BEA prepared the FIA for Menlo
Parkıs Downtown Plan.
 


BEAıs methodology here values the current rents to be charged and the
current earnings on hotel rooms at current capitalization values
(5.00%-6.75%). The latter are the reciprocals of earnings multiples
(14.8-20.0 X). This has the effect of reassessing at current values all of
the underlying land involved, something that everyone knows, and the report
itself states, will not occur.
 
What BAE should have done is what they did in the previous FIA they
undertook for Menlo Park: value the construction costs, which would be the
basis the County Assessor would use. I have taken a partially informed stab
at this in the next section.
 
 
Change in Assessed Value Using a Normal Methodology
 
Using a normal methodology creates a huge change in the calculations. If
one uses $250 per sq. ft. for the commercial development, the construction
value would be $1.025 billion. If one uses $240,000 as the average cost per
residential unit (1,200 sq. ft. X $200 per sq. ft.), the total construction
value would be $1.320 billion, for a total of $2.345 billion. At 9% of 1%,
Menlo Parkıs total property tax would be $2,110,500, only 34.1% BAEıs
estimate of $6,195,600.
 
It appears that the ILVLF component bears a linear relationship to the
property taxes. Assuming that is so, the ILVLF would be $558,000 versus the
$1,637,400 estimated by BEA.
 
In total, the estimate above of the two property-tax related items,
$2,668,000, is over $5 million lower, than BEAıs figure of $7,833,000. That
drops the ³net fiscal impact² of the project by over half.
 
The drop in BEA's calculation of ³net fiscal impact² has an even more
dramatic impact on the Fire District and local schools. It drops the net
impact to the Fire District to a negative number and it further reduces the
negative impacts on the schools.
 
 
Fire District
 
The Fire Districtıs ³New Property Tax Revenue² is shown as $8,288,561,
resulting in a ³Net Fiscal Impact² of $2,790,661 (see p. 58). Using the
property tax estimate from above (34.1% of BEA figure) produces revenue of
$2,823,457. The reduction in revenue would not change BEAıs estimate of
expenditures, $5,667,100. Bottom line, the Fire District ³loses² $2,843,643
under the ³project² scenario.
 
The last paragraph of the ³Revenues² section on page 57 is entirely
disingenuous. As of the report date, the city has already indicated it
would not move forward on impact fees and that should be noted in the
report. Moreover, the statement, ³If the City Council does not adopt the
fee, the MPFPD may be able to rely on other [unnamed] revenue sources,² is
without foundation.
 
 
Other Objections
 
I have not had time to digest the full report, but I have some preliminary
observations that would suggest that the other revenue estimates are
overstated:
 
1. The sales taxes use average consumption figures for the area. However,
most of the residential housing is multifamily. Typically, those residents
would have lower discretionary income and, therefore, the averages are
probably not appropriate to use.
 
2. The sales taxes calculated exclude the impact of the free meals, and so
forth, available to Facebook employees, even though Facebook housing appears
to be included.
 
3. The transient occupancy taxes assume that all of the hotel rooms will be
built. Given the hotel building that is going on elsewhere in Menlo Park
and in neighboring cities, this is not assured at all.
 
4. The UUT estimates assume traditional usage patterns. However, the
development is supposed to be energy and water efficient, meaning that the
average may not be appropriate.
 
5. The ³other revenue² is both vague and suspect. These items appear to be
fees for service provided by Menlo Park, but as such they are supposed to
represent the actual cost of providing the service. If the services were
provided, the cityıs expenditures should increase by roughly the same
amount, and that does not appear to be the case. Looking at these as
³additional revenue² does not seem to be warranted. Nevertheless, this item
represents about a quarter of all the additional revenue expected.
 
* * * * *
 


I ask that you take a very hard look at what has been given to you. I
believe that a careful review of the figures and objective analyses will
show that not only does the proposed project have serious impacts on our
quality of life, it will prove to be a financial albatross as well.
 
Yours truly,
 
 
 
Charles D. Bernstein
650-424-1155 (w)
charlesb_at_(domainremoved)
 
CDB/ms
c.c.: City Council


Received on Mon Sep 12 2016 - 18:28:05 PDT

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